July 9, 2011 By Jeremiah McWilliams
The Atlanta Journal-Constitution
The manufacturers of business aircraft aren’t happy in the spotlight President Barack Obama recently turned on them.
During a taut news conference June 29, Obama pointed to corporate jets as an example of a tax break that should be sacrificed in service of the national debt.
The hubbub resonates especially loudly in Georgia. Savannah is home to Gulfstream Aerospace, and the state has nearly 7,000 manufacturing jobs in general aviation. That term refers to basically all aircraft not designated for the military or airlines.
Georgia’s general aviation manufacturing jobs add up to an annual payroll of $445.4 million, according to the General Aviation Manufacturers Association. There are 5,970 active general aviation aircraft based in Georgia and 19,495 pilots in the state, the trade group told The Atlanta Journal-Constitution. General aviation manufacturers across the country spend $312.7 million with Georgia suppliers every year.
The industry argues that it does not necessarily conform to a “fat cat” generalization. Most business flights carry midlevel staffers rather than chief executives, and many fly into airports without commercial airline access. One of the more common purchases is the Cessna Citation Sovereign, priced at roughly $17.5 million.
“People would be very surprised if they knew how many small-turbine and piston powered aircraft are used by businesses every day all across America,” said Steve Champness, president of the Atlanta Aero Club. “Corporate aircraft give American businesses an advantage over the rest of the world.”
The recent controversy in Washington centers on the accounting concept called depreciation. When it comes to the rules for depreciating aircraft, critics – apparently including Obama – see a loophole. Corporate jets are depreciated on a shorter schedule than commercial aircraft, giving a tax benefit to the buyers of corporate jets.
Industry trade groups admit that they can’t establish an exact link between accelerated depreciation and aircraft purchases. It’s also unclear how much the “bonus” or “accelerated” depreciation outlined in a federal law last year saved Georgia companies, which are not obligated to report that number in documents filed with the Securities and Exchange Commission.
Here’s what we know: Aircraft shipments rose in the fourth quarter of 2010. Various other metrics, such as flight hours and the number of layoffs, started to improve. The general aviation manufacturing industry delivered $7.9 billion worth of airplanes in 2010, with 62 percent of that value tied to exports, according to trade and labor groups.
Gulfstream, which employs about 6,000 people in Georgia, referred questions to trade groups. In November, the company announced a $500 million, seven-year expansion project at its Savannah campus. That followed a $400 million project to prepare for the manufacturing of high-end G650 aircraft.
Expansions in Savannah “helped accommodate the significant recovery in customer demand in 2010,” the company said in a regulatory document.
Depreciation is an accounting concept designed to match the cost of an asset with its useful life. For tax purposes, accountants use depreciation schedules to determine how much they can deduct for depreciation in a given year.
Shorter depreciation schedules can be an incentive for businesses to make big purchases of equipment such as aircraft because the faster pace reduces short-term tax liability, giving companies more cash on hand. Last year, for example, Obama and other politicians lauded sped-up schedules for the purchase of business assets as job-creation measures.
Section 401 of last year’s Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act allowed owners of corporate aircraft to depreciate the entire investment in newly purchased aircraft in one year instead of five years, the previous standard.
Now, general aviation companies worry that not only will that tax provision expire on Dec. 31, but business aircraft will be required to be depreciated on a seven-year schedule, the same schedule used for commercial aircraft.
By the numbers
A number of big Georgia businesses keep company aircraft in the Atlanta area. Coca-Cola Co. and its various divisions have six aircraft registered in Fulton County. According to the Federal Aviation Administration, that includes two top-of-the-line Gulfstream G550s, which list for $53.5 million. Cox Enterprises, the parent company of The Atlanta Journal-Constitution, has five aircraft in Fulton County, according to the FAA. Other companies with planes in metro Atlanta include Banc of America Leasing & Capital LLC, Kimberly-Clark, SunTrust Equipment Finance & Leasing Corp. and Waffle House.
What comes next
Obama is negotiating with Republican leaders over the terms of a measure to raise the federal government’s debt ceiling. Elimination of tax breaks such as the corporate aircraft provision could be on the agenda, although details have not been hammered out.
For the record
The General Aviation Manufacturers Association and the National Business Aviation Association have been generous in their contributions to current lawmakers in both parties, according to an analysis by MapLight, a research organization based in Berkeley, Calif. From 2001 through 2010, the groups gave a combined $245,500 to Republicans and $225,060 to Democrats.
What they’re saying
“If you are a wealthy CEO or hedge fund manager in America right now, your taxes are lower than they have ever been. They are lower than they have been since the 1950s. And they can afford it. You can still ride on your corporate jet. You’re just going to have to pay a little more.”
– President Barack Obama
“I’m not sure I think corporate jets are so valuable that they’d need a tax break. We could consider that.”
– Sen. Jeff Sessions of Alabama, the top Republican on the Senate Budget Committee
“The president has inexplicably chosen to vilify and mischaracterize business aviation — an industry that is critical for citizens, companies and communities across the U.S. and one that can play a central role in the economic recovery he says he wants to promote.”
– Ed Bolen, president and chief executive of the National Business Aviation Association
“The administration has a laudable goal of doubling U.S. exports in five years. How then can President Obama attack a manufacturing sector that exported over 60 percent of the value of its products in 2010? General aviation manufacturers can help the president meet his export goals, but not if this damaging rhetoric continues.”
– Pete Bunce, president and chief executive of the General Aviation Manufacturers Association
“What this industry and its workforce requires is more time to recover, a chance to book more orders and the opportunity to recall more workers.”
– Tom Buffenbarger, president of the International Association of Machinists and Aerospace Workers
Source: ATLANTA JOURNAL-CONSTITUTION