Management companies and aircraft owners alike are justifiably concerned about the IRS’s misguided interpretations of the tax law and its lack of understanding of the relationship between a management company and its customer. In this uncertain environment, owners may be asking the question of whether it continues to make sense to outsource the management of their aircraft to a management company, rather than to create an in-house flight department. I believe that despite the FET concerns, management companies offer significant benefits to aircraft owners. Those benefits include, most importantly, implementation by the management company of a safety management system for the aircraft and the crew, complying with a wide variety of laws and regulations, providing turnkey vendor relationships to facilitate ease in use and operation of the aircraft, whether domestically or worldwide, and passing through advantageous pricing arrangements with their vendors. For those owners who have a heightened concern regarding the FET exposure, pilots should be employed by the owner, not the management company; however, the benefits mentioned above are essentially unmitigated.
In addition, most management companies have an air carrier operating certificate that allows them to hold out an owner’s aircraft for on-demand air charter to the public. There are both pros and cons associated with charter operations, and a careful analysis of both the tax ramifications of charter and the potential additional aircraft budgetary costs associated with charter, needs to be thoroughly reviewed, so that there are no surprises.
Keith Swirsky has spoken at webinars and seminars and written articles on the current industry hot topic concerning the IRS’s recent pronouncement regarding Federal Excise Taxes on management fees and other aircraft fixed and direct operating expenses. He will be moderating a panel addressing selecting the right management company for your needs and managing the management company – customer relationship, at the upcoming National Business Aircraft Association’s Annual Meeting and Convention held this coming October in Orlando.