Business Jet Buyers' Six Biggest Mistakes

Opportunities for mistakes abound when you’re buying a business jet. Here are six common ones that can have expensive consequences.

1. Simply Buying a Jet

One mistake that some people make is simply buying a business jet.

Aircraft ownership is obviously not for everyone. First, business jets are expensive, not only to acquire but to operate. If you fly a lot, you may be tempted to buy your own aircraft, but if you don’t figure out in advance how much that will cost, you may discover that it is more than you can afford. A heavy jet can cost $20 million or more to acquire, but that’s just the start. Other expenses include flight crew, scheduled and unscheduled maintenance, insurance, hangar, and fuel, all of which can easily come to $3 million a year even if you fly only 400 hours per annum. 

A professionally prepared annual budget that estimates all expenses (including depreciation and opportunity cost) can help you avoid unwelcome surprises. Have it in hand well before you purchase the aircraft.

Of course, many jet buyers are wealthy enough to be untroubled by seven- or eight-figure expenses. Nevertheless, there is a big difference between what you can afford and what makes economic sense. Owning and operating a $30 million jet to fly 50 hours a year is like buying a 30-room mansion to live in by yourself. It’s difficult to justify buying a jet if you have less than 200 hours of annual usage, and the more hours you fly beyond that, the better. If your usage is less, you’d be better off purchasing a fractional share in a program like NetJets’, chartering an aircraft when needed, or even sharing one with someone else.

2. Thinking Charter Can Pay for a Jet

A persistent myth is that a business jet can pay for itself if you charter it out. Here again, obtaining an independent budget that includes charter expenses and revenue prior to buying the aircraft is critical. For charter revenue to cover all your costs, the jet itself must be relatively inexpensive to purchase and maintain and must be flown a great deal, which of course will rapidly reduce its value as it accumulates hours and cycles. In fact, it may have to be flown so much for charter that there will be no time for you to use it. Even then, it is difficult to make the math work.

The best way to think about charter profits is that they can help defray some fixed expenses of owning the jet, like crew salaries and hangar rent. 

3. Buying a Jet for Tax Write-offs

Bonus depreciation for federal tax purposes has proved to be a major incentive for purchasing business jets. The ability to write off 100 percent of the purchase price, which is still possible in 2023, has caused many people for whom aircraft ownership makes little sense to consider it. This includes people who are anticipating a major income event and want to purchase the jet so they can write off the price to reduce or eliminate the associated income tax.

For buyers who can use a jet for transportation in an established business, that may be fine. On the other hand, if they need to create a business, it may not be. A typical proposal is to use the aircraft in a charter business, which as we have just noted, will almost certainly not come close to covering its costs. Further, the losses (including depreciation) generated by the charter business will likely be passive and usable only to offset passive income. 

Finally, the recapture of tax benefits is often totally ignored in the planning. Say you buy a $10 million aircraft in 2023 and write off 100 percent of the purchase price. If you sell the jet in 2028 for $7 million, you will have an income tax bill for that amount in that year. 

4. Buying the Wrong Jet 

Business jet options range from single-pilot aircraft with a few passenger seats like the HondaJet Elite to modified airliners like a Boeing Business Jet outfitted like a condo in the sky. Even if your missions vary in terms of range and number of passengers, there is likely a jet model that makes sense for you, assuming you can afford it. Nevertheless, many people buy more or less aircraft than they need. Do you really require a Bombardier Global 6500 if 90 percent of your missions carry only one or two passengers? Is a Gulfstream G280 right for you if most of your flights are from Denver to Europe? 

5. Failing to Complete Adequate Due Diligence 

One fallout from the pandemic and the desire to qualify for bonus depreciation at the right time has been the decline of adequate pre-purchase due diligence. Sellers have been able to talk shoppers into purchasing business jets that have been in service for years with little or no prebuy inspection. Longer waiting times for service centers to begin prepurchase inspections have only exacerbated the situation.

No one should commit to buying a preowned aircraft without an in-person review by technical experts of both the aircraft and its records. The buyer or a trusted representative should also view the aircraft inside and out and preferably take a demo flight. Such due diligence can uncover discrepancies that cost hundreds of thousands of dollars to repair and in some cases can cause a buyer not to want to acquire the aircraft. Even a factory-new jet should be carefully reviewed for damage history, production discrepancies, and other issues. 

6. Failing to Retain Knowledgeable Independent Advisors 

As the preceding mistakes should suggest, obtaining professional and independent advice when buying a business jet is crucial. Buyers who fail to do this run significant economic risks, but they also risk simply doing the wrong thing. This applies not only to the purchase of the aircraft but to structuring its ownership and operation, including with regard to tax planning. Many jet buyers make the mistake of using their regular business attorneys for the transaction instead of hiring aviation counsel who are familiar with FAA regulations and the special legal and tax issues that pertain to aircraft.