APD and emissions trading threaten private aviation

Cayman could benefit from the United Kingdom’s intent to impose Value Added Tax on aircraft coming into that country, according to at least one airline expert.

Air passenger duty and emissions trading schemes are casting a dark shadow over business aviation.

The industry is railing against the United Kingdom’s plans to introduce air passenger duty on business aircraft, confirmed President and CEO of the European Business Aviation Association, Brian Humphries.

“The UK government would like to impose the APD on every aircraft departing from the UK. At the moment they have proposed that it should be charged as a single flat rate at the maximum amount which is either 170 or 186 per passenger per flight.

“Clearly we think that is iniquitous, which is why we are engaged in a dialogue with the government,” he said.

A consultation process is c under way regarding the duty. This process will end on 17 June. Humphries told the Journal that meetings had already taken place to show the government how operations work and a select group of operators will also give a briefing.

“[The UK government] has clearly misunderstood what business aviation is about. I have very good figures from [European Organisation for the Safety of Air Navigation] Eurocontrol to emphasise this but they think we are in competition with commercial airlines.

“We are not at all; we are flying the routes that they do not fly. These figures show that 80 per cent or more of our flights are between city pairs in Europe that do not have airline service. We will be giving our members advice; anyone who is a member of the association [based in Cayman] should look at that advice and add their own comments.”

A fair tax?

The European Business Aviation Association wants to make sure that appropriate sections such as air ambulance are excluded from the tax, said the CEO.

“There are two things about APD: standard rate, reduced rate and milage. We showed them a Lear 45 and said, ‘look this really is not luxury travel – there are some luxurious business jets, but there are also some pretty basic working tools.’

“We have said to them that this tax is meant to be fair and that it’s meant to have an impact on the environment. But as far as the environment is concerned, non-commercial operations are included in the emissions trading scheme as soon as they emit one ton, whereas commercial is exempt unless you emit more than 10,000 tons. Secondly, because our average passenger load is only about three people we will get very, very small, pre-allocation, if any. So unlike the airlines we will be paying for virtually all our carbon whereas airlines like Ryanair or Easyjet are going to get most of their carbon allocated free.”
He added that whilst business travel comprised 7.3 per cent of traffic in Europe they were responsible for less than 1 per cent of the emissions. As far as emissions trading was concerned, the free allowance was minimal in comparison to other traffic.

“So don’t even think about linking APD to the environment, because it’s irrelevant. We can understand politically that we have to accept the application of the duty but can we please make it relevant and affordable?”

Humphries added that a typical day’s taxable exit travellers comprised 75,000 passengers in business travel, whilst commercial airline figures were in the millions.

“Like ETS, it’s going to cost more to run than the tax is going to generate and secondly a single rate would not be fair – we clearly have to have a milage linked rate like anyone else. ETS is a threat to operators and members. We are working as hard as we can to get the support facility working properly and accurately and we are pushing to… get a simplified procedure that works.”

Cayman registration

Cayman can, however, benefit from the United Kingdom’s intent to impose Value Added Tax on aircraft coming into that country, said the airline expert.

“The UK seems to be trying to make it as difficult as possible to put an aircraft on the UK register. Whereas in the old days you could import any aircraft over 8 tons, now they are saying that if it is a managed aircraft, i.e. not leased or used exclusively commercially, you will have to pay VAT of 20 per cent.

“So for the offshore registers, people who do not want to operate the aircraft commercially will find registers like Cayman and Bermuda very attractive. I looked out on the ramp at Farnborough today and saw a predominance of Cayman-registered aircraft,” said Humphries.

As well as Isle of Man, Malta now is indicate it will try to attract more craft to its registry and Ireland has also said it will be more sympathetic on VAT.

“I think it’s good that owners will be able to select their register of choice – but will by and large not be the UK. They do not seem to understand that business aviation is a global, not a national business. And large aircraft are owned by corporations who are intelligent.”

EBACE 2011

The European Business Aviation Convention, 2011 was held in Geneva from 15 to 18 May. The conference is the major get-together for all aspects of the industry and this year attracted an enormous delegate registration – 12,750.

“Last year it was everybody getting together to cheer themselves up. This year we had the largest number of exhibitors ever and the largest floor area ever. When we opened the show this year we had more registrations at the start of the show than we did at the end of 2010.”

Mr. Humphries said that all signs were pointing in the right direction, which was a sign for cautious optimism.

“Everybody said they had a good show with serious enquries and it was a lot more positive than last year which matches the figures which we got from Eurocontrol. Last year we suffered a 15 per cent downturn after the 2008 peak but traffic in business aviation was back up by 5.5 per cent growth which makes us the second largest segment of growth after the low-cost carriers.

“That trend is all good and the top end of the market is seeing the most activity in flying hours, transactions or firming up of prices. They suffered least during the downturn and are continuing to do best. Small to mid size is definitely suffering and several people have said from the manufacturers’ point of view that they have not seen any upturn.”
That may be due to a large amount – 15 per cent – of inventory still being on sale, making it a buyers’ market. Margins for commercial operators are still very tight and trading conditions are still difficult for those in the charter business. The recent downturn followed an unusually rapid rise in prices, said the airline expert.

“We had people buying aircraft that they never had intention of taking delivery of. We had Gulfstream-sized aircraft trading at 10 million more than list price. We were in a bubble and that bubble burst, as these things do. We will see a proper growth round about 5 per cent; there will be a few ups and downs but the optimism is there, the demand is there and we are in a more sustained position.”