Published February 18, 2009
WASHINGTON -- Just a few months after lawmakers scolded auto executives for flying to Washington in private jets, Congress approved a tax break in the stimulus package to help businesses buy their own planes.
The incentive -- first used to help plane makers recover from the 2001 terror attacks -- sharply reduces the up front tax bill for companies who buy assets like business planes.
The aviation industry, which is cutting jobs as it suffers from declining shipments and canceled orders, hopes the tax break in the economic-stimulus bill just signed by President Barack Obama will persuade more companies to buy planes and snap a slump in general aviation that began last year.
"This is exactly the type of financial incentive that should be included in a stimulus bill," said Rep. Todd Tiahrt, R-Kan., in an interview. His state lost at least 6,900 jobs at Cessna and Hawker Beechcraft, both based in Wichita.
Roughly 11,000 jobs have been cut in the last three months by the 65 or so member companies of the General Aviation Manufacturers Association, an industry trade group.
The industry needs a stronger economy, not a tax break, to recover, according to aviation consultant Richard Aboulafia with the Teal Group in Fairfax, Va.
"People and companies buy jets when they need new planes and feel good about the economy," he said. "If they don't feel good about things, a tax break isn't going to help."
Officials from industry trade groups disagree, saying a tax break will spur purchases, and give sales teams another tool to keep customers from canceling orders.
Many economists believe the current recession will last until at least the end of this year and may extend into 2010.
"It's trying to give you a reason to act now, rather than sit on the sidelines for the next two years," said CEO Ed Bolen of the National Business Aviation Association, a trade group that represents general aviation interests of 8,000 companies.
The incentive -- known as accelerated depreciation -- lets companies take a larger deduction in the early years of the life of an asset such as a plane.
Companies will have to place orders by the end of 2009, and those planes will need to be delivered by the end of 2010 to take advantage of the tax benefit.
First used in the months following 9/11, an industry study found accelerated depreciation helped boost sales by 43 percent, and later contributed an additional $2 billion in sales when implemented again in 2003.
Even with its previous success, both industry officials and lawmakers concede the incentive is by no means a cure-all during one of the worst recessions seen in decades.
"It's not a silver bullet as a stand-alone effort," said Tiahrt. "(But) this will certainly be helpful. This will sell aircraft that we wouldn't have sold before."
The industry was able to convince lawmakers to remove a provision in an early draft of the stimulus bill that would have prohibited banks that receive bailout money from buying or leasing private aircraft.
The provision grew out of scorn for leaders of General Motors, Ford and Chrysler, who flew to Washington on private jets in November to ask Congress for $25 billion in taxpayer money.
Two of the largest makers of general-aviation aircraft -- Cessna, a unit of Providence, R.I.-based Textron and Hawker Beechcraft -- have also launched advertising campaigns to tell business executives to ignore criticism and keep buying planes.
It's too soon to know whether those appeals to corporate ego will work. For now, the main response of many general-aviation companies has been to cut jobs, hunker down and hope the recession doesn't drag on.
Teal Group's Aboulafia said companies must cut costs while continuing to push ahead with development of new planes and parts that will drive growth once the economy rebounds.
Cessna spokesman Doug Oliver, who said the company reduced its 2009 delivery forecast for jets to 375 from 535, thinks the tax break will help.
"It is a big deal," he said, adding that it helped pull the industry out of the post-9/11 slump that lasted into 2003. Oliver said cutting prices is not the answer for private-plane manufacturers.
"Planemakers don't like to discount pricing because it cheapens the value of planes they already sold," he said. "You are not going to see deep discounting on business jets, but we still negotiate with customers."
Piper Aircraft Inc. just cut 300 jobs but is pushing ahead with plans to unveil a $2.2 million jet model by the end of 2011.
Mark Miller, a spokesman for Piper, said orders for the jet have held at more than 200, while cancelations spiked in the last two weeks of January for its current lineup of prop planes.
Vero Beach, Fla.-based Piper, whose planes start around $200,000, recently cut its forecast for 2009 deliveries to 110 from 135. That was down further from a September projection of 236 deliveries.
Miller said the accelerated depreciation of aircraft "is promising," but sales would be helped more if banks lend more for aircraft purchases. Some experts say banks that previously demanded only 5 or 10 percent down on a plane now insist on 20 to 30 percent.
"Our customers are small business owners and professionals like lawyers," Miller said. "They're recession-resistant, but they're not recession-proof."