In exchange for annual fees of up to $7,500, they offer benefits that even ultra-high-net-worth customers are likely to appreciate.

Before you began flying privately, you may have been that person who’d throw down your plastic at dinner and say, only half-jokingly, “Let me pay so I can get the miles.” Times have changed, and even if you still fly commercially sometimes, scoring frequent-flier miles probably ranks lower now on your list of priorities.

Nevertheless, some credit cards offer perks that even the highest-net-worth customers are likely to appreciate. First-class lounges remain essential if you use the airlines overseas (not much beats the Emirates lounge in Dubai with its spa services and sommelier), and the best credit cards will get you gratis access. Even better: a few cards offer concierge services that can rival the work of a personal assistant. 

One such card, the American Express Centurion, is made of titanium and available by invitation only and has no spending limit to speak of. Rumor has it that tech millionaire Victor Shvetsky purchased a business jet for $52 million on this card, which is also known as the Amex black card.

For a $7,500 initiation fee and $2,500 annually, card members enjoy perks that include preferred pricing on luxury exotic car purchases and dedicated concierge services to assist with everything from hotel arrangements to last-minute front-row concert tickets to personal shopping services all over the world. The card, which charges no foreign transaction fees, will also get you airline upgrades and access to the best airport lounges worldwide. (Contrary to popular belief, though, it won’t earn you membership in the “Gulfstream Aerospace Private Flyers Club”; in fact, no such club exists.)

Note to big spenders: we have heard of several cases where Centurion’s annual fee has been waived or reduced for cardholders with great credit who charge upwards of $150,000 a year.

Arguably even more exclusive than Amex black, J.P. Morgan Chase’s Palladium Card is made of palladium and 23-carat gold and features a smart chip for added security. Though the annual fee is a mere $595, there seems to be an unwritten rule that to qualify you must be a client of J.P. Morgan Chase’s private bank and have more than $25 million invested with the company. 

Once you pass that threshold, you can enjoy rarefied perks such as a 24/7 dedicated concierge service for travel, reservations and theater-ticket procurement and no spending limit. Also included in membership are complimentary airline companion tickets, first-class upgrades and access to most private airport lounges. According to Palladium’s 62-page brochure, card members will additionally benefit from insider access to Netjets flights through the Marquis Jet Card program.

The Citi Prestige card, which costs a relatively modest $450 annually, delivers many of the same benefits offered by Centurion and Palladium, including access to airport lounges and complimentary airline companion tickets (restrictions apply). Citi Prestige also offers price incentives at many luxury hotels and waived greens fees at more than 2,400 golf courses.n

Overall, jet buyers and sellers seem about evenly matched. But some models are in much greater demand than others.

Gazing through the rearview mirror at the first half of 2013, we see that, overall, the number of used jets for sale is neither rising nor contracting. Some models are a different matter, however.

In the light-jet category, for example, the Citation CJ3 seems to have become more popular over the past year. Last summer, you could choose from nearly 40, but the number on the market has since dropped to about half that figure, a level not visited since 2009. The downward trend may accelerate on the heels of Cessna’s announcement this past spring that it was reducing production of many of its light jets due to weak demand. Inventories typically grow in summer, but if CJ3 options remain limited, pricing could tighten in the fourth quarter. 

Meanwhile, the large-cabin segment seems a bit fickle. Inventory of the Gulfstream 450 had been flat in the second half of last year with only two sales. This year, activity finally kicked in toward the end of the first quarter and since then, six have sold, with others reportedly under contract. I’d be tempted to chalk up the lift in sales to the often-active spring buying season were it not for the Global Express market, which behaved in an opposite way and did the equivalent of an about-face. Only two have sold since the beginning of this year, yet in the previous six months five traded hands. 

While demand seems to be rising for the G450 and declining for the Global Express, neither has sold impressively over the past year. And because the large-cabin segment had long been one of the bright spots in an otherwise murky market, I’m left grasping for an explanation. Has much of the large-cabin buyers’ appetite been temporarily satiated? Are some models getting long in the tooth? 

Whatever the answer, there’s no question that buyers appear for any particular model once the price point meets their expectations; and while the pace of the slip in values may have slowed, it hasn’t stopped. Buyers continue to wield an upper hand. 

Bryan Comstock welcomes comments and suggestions at bcomstock@bjtonline.com.

It wasn’t until the end of the final quarter of last year that the used business jet market showed clear signs of direction. That’s when inventory moved noticeably lower after peaking at 2,600 in October. Just 60 days later, we were flirting with the 2,500 mark for the first time since the fall of 2008. 

The difference between that year and recent months is that in ’08 the inventory level was beginning its ascent to an all-time high whereas today supply is dwindling. In fact, if you focus on the sweet spot for buyers and bankers—the year-2000-and-newer collection—you see that worldwide inventory for sale is now below 9 percent.

In the recent past, activity has centered on the latest and greatest models, but demand for a wider assortment of aircraft is building. With airplanes like the Gulfstream G550, Challenger 300 and Falcon 2000EX already in short supply, attention is increasingly turning to some heretofore beaten-down, second-generation aircraft. The Challenger 604 is a prime example, with about half as many available now as there were a year ago. 

You may wonder why Gulfstream’s GIV-SP, with equally attractive pricing, hasn’t followed suit. I’ve been wrong for so long about this model’s recovery that I’m embarrassed to admit it. A year and a half ago, only 14 were for sale out of a fleet of just over 300, but then inventory began increasing. Today’s for-sale figure is 33—right about equal to the model’s 12-month moving average. There haven’t been this many GIV-SP choices since 2009. 

If you focus on 2000-and-newer aircraft that are based in North America, however, you see a different picture. Only eight GIV-SPs in this group (and just six 604s) are for sale at present and if the market continues on its current path, these could evaporate during the first quarter. 

Inventory has declined noticeably for some other models as well. Only nine Falcon 900EX EASy aircraft are on the market, for example, and Hawker 850XP choices have been halved since last summer, from 15 to seven. (And four of those are in Russia, Kuwait, Austria and Switzerland; only three are in the U.S.) If Citation CJ3 choices continue to dwindle, meanwhile, you may see the “Wichita Lineman” back on the line. Just over 400 are in operation, but supply has dropped from 33 last year to 23 today and appears poised to continue declining. 

While demand has risen for many models, there has not been any corresponding upward move in pricing. That may change this year for some models. No one seems ready to predict that, but the main complaint I’m hearing lately from my industry counterparts is that they need more inventory, and that’s a clear sign of a strengthening market. n

Bryan Comstock (bcomstock@bjtonline.com) is president of Jeteffect, a jet sales and acquisitions firm headquartered in Long Beach, California.

Business jet finance has settled into a predictable—and more sustainable—groove after the mad scramble of 2007 and the deafening silence of 2009. Here are eight realities of today’s market that you need to understand:

1. Banks still want to finance business jets. Though they aren’t giving away the store anymore, loans for business jet acquisitions remain available and financial institutions want to provide them. As an example, Goldman Sachs recently entered the market and, like Chase and Citibank, is seeking to finance jet acquisitions for its banking clients. In part, this demonstrates the durability of some core attractions of business jet finance: the ability to make a significant loan (Goldman is generally looking to loan $10 million and up) secured by good collateral with the credit backing of high- and ultra-high-net-worth borrowers.

2. The competition is cash.In this economy, an abundance of cash is waiting to be put to work. I recently asked an executive at a company buying a jet if it intended to finance the purchase, and the reply went something like this: “With $900 million of cash on our balance sheet, why would we borrow money?” Indeed, industry pundits estimate that cash accounted for approximately 65 percent of business jet buying power this past year. Of the remaining 35 percent, debt finance accounted for about two-thirds and leases for the balance.  

3. Interest rates remain low. Rates have inched up and down lately (depending partly on whether the federal government is shut down), but on the whole, business jet finance is cheap, and today’s low rates provide an incentive for aircraft buyers to lock in the cheap money while they can. Rates in the neighborhood of 2 to 3 percent for floating-rate deals (and a little more for fixed-rate deals) are pretty attractive, and no one expects them to trend downward. With the possibility of rates going up, aircraft owners are also reportedly showing more interest in refinancing existing loans. 

4. Down payments are the norm. Is 100 percent financing available? Yes, but much less so than in 2007. Depending on the financial institution, as an opening bid, jet buyers should expect to be asked to put down 10 to 20 percent. Years ago that would have seemed like a great burden, but many borrowers today have so much cash they aren’t fazed by down payments. There are signs that banks are loosening up. Greg Marks at First National Capital Corporation reports, for example, that his institution is showing greater flexibility in terms of down payments required and the length of the amortization period.  

5. Shorter terms may yield lower rates. Regulatory changes [see “The Changing Face of Aircraft Lending,” February/March 2013] will require banks to keep more capital on hand for longer-term loans (more than three years) rather than shorter-term ones. That provides an incentive for them to charge more for a seven-year note than for a three-year note, since the former ties up more capital.

6. Lenders are picky about collateral. As manufacturers deliver new aircraft, the old ones don’t just disappear. The sabre-tooth cat may be extinct, but the 1969 Sabreliner 60 remains available for purchase, as do such 1960s-vintage jets as the Gulfstream GII, Falcon 20-5 and Lear 23. Don’t expect your bank to help you acquire them, though. Banks typically want to finance relatively new aircraft, especially jets that are 10 years old or newer. 

Ironically, it’s not because the value of a GII could plummet tomorrow; on the contrary, relatively new aircraft like a G550 can shed $1 million or more in value each year, while values of GIIs from the late 1960s are holding steady. But the G550 is popular, whereas the average time to sell a GII during the last four years has been more than 400 days. No bank wants to have to foreclose on an aircraft like that, let alone lease it to a customer. 

In fact, many lenders (private banks, for example) won’t do leases at all, and those that do generally want the aircraft to be no older than 20 or 25 years at the expiration of the lease. That doesn’t mean you’re out of luck if you want to finance an older aircraft; it means you have to find the institutions that are willing to take on those projects.

7. Lenders are picky about customers.Changes in banking regulations will only further underscore the importance of the credit quality of borrowers. Banks will need to keep greater credit reserves to make aircraft loans to lesser credits, rendering those financings more expensive. The best aircraft deals will go to investment-grade credits with a longstanding relationship to the lender, assuming the lender doesn’t have too much credit exposure to the borrower already. That’s one reason it usually makes sense to start your search for aircraft finance by contacting your existing bank. Indeed, some banks are basically open for aircraft business only for their existing clients. Conversely, some financial institutions actively seek to syndicate their aircraft loans by selling pieces of them to other institutions.  

8. Financing will take time to close. That banks are pickier about collateral and customers goes hand-in-hand with another feature of contemporary aircraft finance: it can take a while to close the deal. Aircraft purchase contracts rarely have a buyer-financing contingency, so if the financing doesn’t come through in time, the buyer can find himself in an embarrassing situation. 

In a recent transaction, after months of document negotiations, the bank called the customer shortly before the aircraft was ready for delivery to explain that its outside counsel working on the deal had exceeded the cap on attorneys’ fees in the commitment letter by 300 percent. The bank refused to stand behind the cap, and (notwithstanding the bank’s contractual commitment) the customer had to pay most of the overage just to close the purchase. The outcome might have been different if the buyer had shopped for financing after acquiring the aircraft, when a lender can no longer say “you need my money to close.”

Jeff Wieand (jwieand@bjtonline.com) is a senior vice president at Boston JetSearch and a member of the National Business Aviation Association’s Tax Committee.

For some jet models, demand now exceeds supply.

Momentum from a strong finish in 2013 impacted the preowned business jet market in the first quarter of this year. Within just a few months, the number of aircraft for sale dropped about 10 percent, from 2,600 to 2,350. That’s a huge change.

It could be that buyers have finally responded to the declines of the past year, when prices of many models dropped to 50 to 70 percent of their peaks and millions of dollars in value evaporated. Some market segments may now be oversold.

The shining stars of the downturn have been Bombardier’s Challenger 300 and Gulfstream’s G550. Book values of the former have stabilized in recent quarters and the latter has seen significantly higher lows, with sale prices for early serial numbers moving closer to the $30 million mark. The Falcon 7X, meanwhile, is in short supply. The rate of sales among 7Xs seems lackluster, with one trading hands only about every two months, but that’s been enough to reduce inventory to about half of what it was a year ago.

There’s some heat in the formerly ­dormant super-midsize category. Only about 7 percent of the Citation Sovereign fleet—about a third less than a year ago—is on the market, for example; and availability is also down for the Falcon 2000 and Gulfstream G200.

Some hard-to-locate models are particularly difficult to find close to home. Consider the Citation CJ2. Not only has inventory shrunk—from 37 a year ago to 23 today—but just three of the currently available

aircraft are U.S.-based. (Nearly half are in Europe.) The decline in average prices—from around $3.5 million in 2011 to a little over $3 million last year and now $2.5 million to $3 million—appears to be ending, but any bump up will be only as much as the low end of the CJ3 market will permit.

Overall, the used jet business seems to finally be back on track and poised to continue on its current path as we approach one of the more active quarters.  

Bryan Comstock is president of Jeteffect, a jet sales and acquisitions firm headquartered in Long Beach, California.

Placing your aircraft in service for tax purposes isn’t as simple as it may seem. As one case demonstrates, you could pay a big penalty for mistakes.

To start writing off your newly acquired jet for tax purposes in the U.S. you have to do more than buy it; you have to “place it in service” in your business. In recent years, the availability of “bonus” depreciation has only upped the ante on satisfying this Internal Revenue Service requirement.

According to conventional wisdom, to place an aircraft in service, it’s enough to fly a few business trips. That’s obviously what insurance-agent-to-the-stars Michael D. Brown thought when he bought his factory-new Bombardier Challenger 604 in 2003. Unfortunately for him, the U.S. Tax Court disagreed.

Brown decided to buy the Challenger to take advantage of bonus depreciation, which would allow him to write off 50 percent of the $22 million purchase price against his 2003 taxable income. He signed a contract on December 16 and took delivery of the airplane in Portland, Oregon, on December 30, just in time to qualify for 2003 bonus depreciation. To cram in some business flights before year-end, he flew immediately to Seattle, ostensibly for a business lunch, and later that day took the aircraft to Chicago for another quick business meeting at a Midway Airport pizza restaurant.

The Tax Court’s description of these flights and of the factual inconsistencies in Brown’s accounts and records concerning them is dripping with skepticism. Moreover, Brown didn’t do himself any favors three years later when the IRS audited him and he asked the people he’d met with to sign backdated letters he wrote recounting the business value of the meetings.

But his biggest mistake was seemingly the most innocuous. Prior to closing on the airplane, Brown signed a work order with Midcoast Aviation, which had completed the aircraft, to install a conference grouping and larger display screens, both of which he steadfastly maintained were needed for his business use of the aircraft. Promptly after his hectic end-of-year flights, the Challenger returned to Midcoast for the additional work.

Brown no doubt emphasized that his business necessitated the post-closing installations because he wanted to make sure that the $500,000 cost of the improvements would be tax-deductible. In doing so, he shot himself in the foot, for the Tax Court concluded that, if the installations really were necessary, then the aircraft wasn’t ready to be placed in service for Brown’s business use in 2003, and he wasn’t entitled to commence depreciation for tax purposes that year.

According to Brown’s own testimony, the court observed, “his insurance business required that the airplane have a conference table and the larger screens so he could make his PowerPoint presentations to clients and other agents—and those presentations were not a peripheral part of his business.” Even though he had arguably used the aircraft in business in 2003, he failed to place it in service that year because, until the modifications were completed, the aircraft was not “ready and available for full operation on a regular basis for its specifically assigned function” and thus “wasn’t sufficient to meet his specific business needs.”

The Tax Court was clearly determined to hang Brown, who reportedly settled with the IRS for $20 million in back taxes and penalties. But the case also sheds light on what it takes to start the IRS depreciation clock ticking on an aircraft by “placing it in service.” In the 1966 Sears Oil case, a barge was delivered to the taxpayer before year-end, but the taxpayer couldn’t make business use of it until the following year because it was frozen fast in an icy canal. The court allowed tax depreciation to commence in the year of delivery, noting that deterioration of the barge had already begun and that the taxpayer was prevented from using the boat by circumstances beyond its control.

Citing Sears Oil, the Brown court concluded that “it’s possible for a taxpayer to place an asset in service for a certain tax year even without using it that year.” However, to be considered as “placed in service” in a given year, the court said, the aircraft must be “available for its intended use on a regular, ongoing basis” that year, though circumstances beyond your control may prevent you from using it.

Does this mean you can dispense with those business flights that aviation lawyers make their clients take every December after their aircraft are delivered? Hardly. Unless your aircraft is frozen in a canal or the like, it’s still important to fly it for business purposes in the year you take delivery. But don’t send an administrative assistant from the New York office to deliver a package to the Philadelphia office on December 31 in your brand-new Gulfstream G650 and call that your business trip. On the contrary, the business flights should be genuine, involve company personnel that would be typical passengers and be the kind of trips you would use the aircraft for. And the more flights the better. Brown also illustrates the importance of accurate and contemporaneous documents and records regarding the business flights.

The key message of the case, though, is that the IRS will be looking to see whether the aircraft is capable of fulfilling your specific business functions. Suppose, for example, that the main reason to purchase a business jet is to ensure that the CEO is in touch with the company at all times while traveling. You will be hard-pressed to show that that business function was met in the year of delivery if telephones and Wi-Fi weren’t installed until the following year.

Finally, be realistic about the value of taking depreciation on an aircraft, the benefit of which is simply the time value of money. The advantages of bonus depreciation, for example, are often overestimated, especially if an aircraft’s availability for super-accelerated tax write-offs drives up the price. Brown was so desperate to get bonus depreciation in 2003 that he bought a jet with the wrong interior in December only to put the aircraft down a few days later for a $500,000 retrofit in January. The opportunity cost on $22 million probably added at least another $100,000 expense. Tax benefits are important, but it’s worth considering all relevant factors before allowing them to determine your aircraft purchase.

If your aircraft requires repair after an accident, your insurance should cover the bill. What it won’t cover is the diminution of value that results from a history of damage. 

What’s the worst thing that can happen to your business jet? You might think the answer is an accident resulting in total loss, but it’s not. If a hangar roof collapses and destroys your aircraft, your insurance should enable you to replace it. On the other hand, if the airplane is only damaged in the incident, the insurer may opt to repair it, leaving you with a jet that operates just fine but has (gasp) damage history.

Everybody in business aviation has a favorite damage-history story. There’s the Hawker 800 that was carrying the president of Rwanda when a missile hit it, blowing one of the engines off the pylon. There’s the GV that was parked on a ramp on a hot day and sank a foot into the tarmac. My favorite is the Falcon 900 that, while landing near a golf course, was hit by a golf ball that lodged in the fuselage. 

All three of those airplanes—even the Hawker—returned to service, but to varying extents, the incidents affected their value, and it’s not hard to see why. If two identical airplanes are priced the same and one of them had the vertical stabilizer shaved off and repaired while the other has no damage history, which would you buy?

Aircraft owners sometimes assume that their insurance protects against diminution in value as a result of damage, but the truth is that hull insurance seldom covers this. You can buy diminution-of-value coverage, but according to Stuart Hope of Hope Aviation Insurance, aircraft owners rarely purchase it due to its high cost relative to the limited perceived risk. As noted earlier, hull insurance should cover the repair of damage, and that cost is readily identifiable by getting quotes from repair stations. Loss in value, on the other hand, is difficult to pin down and can be hidden or even extinguished by external circumstances. If an aircraft was damaged in late 2008, when business jet values plummeted across the board, it would be hard to say how much of the loss in value resulted from the damage incident rather than market forces.

 “The first question is whether the aircraft was ‘passive’ or ‘operating’ at the time of the incident,” says veteran business jet appraiser Bob Zuskin, when asked how he determines diminution of value caused by damage. All other things being equal, an incident that occurs in flight or on landing, for example, is more serious than something that occurs while the aircraft is parked in a hangar. Zuskin, the founder of Virginia-based Jet Perspectives, notes that market conditions make a big difference in valuing damage history. In today’s environment, “every incident has some ramification,” he says. 

Even if your insurance doesn’t cover diminution in value, it doesn’t mean you can’t recover from somebody. If the aircraft is damaged in the hangar, you may be able to hold multiple parties responsible in court, but if the damage results from natural causes, like a bird or lightning strike, you’re basically out of luck unless you have the insurance.

Because $25 million of hull coverage doesn’t cost that much more that $20 million, many jet owners are tempted to insure their aircraft for a good deal more than they’re worth. You should resist this temptation. It is better to over-insure a bit rather than purchase too little hull coverage, but if you get greedy, your insurer will have a strong incentive to repair a seriously damaged aircraft rather than write you a check for 100 percent of the hull coverage. 

Given the impact on value, checking for damage history is one of the most important parts of the due diligence you should perform when buying an aircraft. But even if it has no history of damage, the airplane can be damaged between the time you agree to buy it and when you close the deal. A purchase contract normally gives the buyer the right to terminate the transaction if the aircraft suffers damage or if previously undisclosed damage is uncovered. The problem is, how do you define “damage”? Does the buyer really get to walk away from the deal if someone accidentally scratches the wood veneer during the prebuy inspection? To answer this question, aviation lawyers frequently turn to the definition of “major repairs” in Appendix A to Part 43 of the Federal Aviation Regulations, the criterion for issuing the dreaded FAA Form 337, which details major repairs and alterations.

Damage history is particularly tragic when it occurs prior to delivery of a beautiful, brand-new business jet. Every manufacturer can share horror stories on that subject, like the one about the aircraft that was pelted by a hailstorm while flying to the closing location. Here again, the contract should allow the buyer to terminate, perhaps with the right to acquire the next available aircraft from the manufacturer on comparable terms. But many new-jet contracts also give the buyer the opportunity to acquire the damaged aircraft (after it has been repaired, of course) and be reimbursed for the diminution in value caused by the damage. Buyers should be careful, though, if the repairs require burdensome recurring inspections or if warranty protection may be inadequate to cover potential future issues.

Damage incidents are more common than you might think. On average, business jets get hit by lightning every seven to eight years, and “hangar rash” occurs all the time. Even when damage is significant, how it is repaired and by whom has a big impact on how it is perceived. 

One thing everyone agrees on: diminution in value as a result of damage diminishes over time. What seems like a major problem today will be less of an issue after the aircraft flies around for a few years. 

Important Criteria in Evaluating Aircraft Damage:

Did the damage occur in flight?

Did it occur while the aircraft was in motion (e.g. taxiing)

Who repaired the damage?

How was it repaired? Was a part simply replaced with a new part?

Was an FAA Form 337 issued?

What does the logbook entry say?

Are any non-standard recurring inspections required as a result?

How long ago did the damage occur?

With demand high for late-model jets, bargain hunters may start looking more at older aircraft. 

When you’re evaluating the state of the used-aircraft market, you need to look at more than the percentage of the worldwide fleet that’s currently for sale. You have to investigate availability in a variety of geographical areas and model-year ranges.

Consider that only 8.1 percent of the nearly 11,000 airplanes manufactured since the beginning of 2000 are now for sale. Meanwhile, the percentage of older aircraft on the market is about twice as high. A disparity also exists between the two areas of the world with the largest late-model business jet population. North America has a tight supply of airplanes manufactured since the beginning of 2000, with only 6.5 percent for sale, but Europe’s market still languishes with twice that figure available. 

The spread between North America and Europe has remained fairly consistent over the last couple of years, but may be in for a change as the European Central Bank contemplates something similar to the Federal Reserve’s quantitative easing. While one may question the wisdom of these types of programs, it’s a fact that fewer aircraft are for sale today than before the U.S. initiated its current monetary policy. 

The continued short supply of late-model jets should spur new-aircraft sales but may also cause preowned-jet buyers to look more at older airplanes. While popular 2000-and-newer aircraft like the Falcon 2000EXy and Challenger move at a rate of about one a month, pre-2000 models currently often sell at a one-per-quarter rate, despite seven-figure price drops in some cases.

We’re still witnessing the upbeat buyer activity that descended on the market in the fourth quarter of last year. In fact, inventory is now at its lowest point since the fall of 2008 and is noticeably below its 12-month moving average. This is likely one reason we are starting to see values stabilize across many model segments. 

Bryan Comstock is president of Jeteffect, a jet sales and acquisitions firm headquartered in Long Beach, California.