In today's economic climate, corporate ownership of a business aircraft is increasingly scrutinized by shareholders, the public and even governments as to its necessity and cost effectiveness. However, business aircraft are vital tools for many corporations and often used to efficiently manage the time of executives or to provide corporate access to locations not otherwise readily accessible by commercial airlines. As such, the business aircraft is and will remain a staple management tool for many corporations.
The decisions for business aircraft owners in Canada are whether to structure the ownership and operations of their aircraft on a private or commercial basis, because these decisions will affect cost and availability.
The ideal ownership structure for a business aircraft is largely determined by assessing the travel requirements and financial objectives of the corporation investing in an aircraft. For example, if the aircraft must be exclusively available to the company at all times and it is not required to generate revenue, then it should be structured as a private operation. Conversely, if exclusive use of the aircraft is not critical but the company would like to have some contribution to its fixed costs and financial flexibility, then commercial operations are the way to go. However, if both exclusive use and financial flexibility are important, then the owner must make a decision based on the advantages and disadvantages of each type of operation.
An increasingly popular third option is a shared ownership between two or more corporations/ owners in which the costs and operations are shared. This sort of partnership may also choose to run the aircraft on a private or commercial basis.
Commercial operations require that “legal custody and control” of the aircraft be with a commercial operator with the requisite licences and operating certificates issued by the Canadian Transportation Agency and Transport Canada. Legal custody and control of the aircraft is given to the operator using a lease, in which the operator takes the financial and operational risk of the aircraft. The owner then charters back the aircraft for its required flying time, with the remaining availability of the aircraft made publicly available for third party charters.
The advantages of commercial operations include:
- third party charter revenue;
- provincial sales tax exemption in some provinces on the purchase price and for related aircraft parts and services; and
- flexibility to keep the aircraft flying if the owner’s demands are reduced.
The disadvantages include:
- more complex legal and administrative structure (lease and charter back agreements);
- increased wear and tear on the aircraft; and
- potential scheduling conflicts with third party charters.
Private operations will permit the aircraft owner to retain legal custody and control of the aircraft and obtain a private operating certificate from the Canadian Business Aviation Association (often by entering into a management agreement with a licensed and certified operator).
The advantages of private operations include: (A) exclusive use of the aircraft and less stringent operational restrictions; and (B) less complex legal structure (management agreement). The disadvantages include: (A) higher costs of ownership because there is no third party revenue or sales tax exemption; and (B) restricted flexibility, as no use of the aircraft for “hire or reward” is permitted by the Canadian Transportation Agency.