Private jet businesses in the UK are braced for the introduction of a tax on
flights, expected to come into effect in April 2012.
Many private jets have until now escaped air passenger duty charges, which apply
only to aircraft with a takeoff weight greater than 10 tonnes or those carrying
20 or more passengers.
As an illustration, the nine-seat, 1,858 nautical mile range Cessna Citation
XLS+ has a maximum takeoff weight of 9.18 tonnes. The same US aircraft maker’s
nine-seat, 2,847nm-range Citation Sovereign has a maximum takeoff weight of 13.77
But under rules being considered by the coalition government, the threshold may
be lowered to 5.7 tonnes, which would include most business jets.
From the current jet range of Cessna, the world’s leading business jet maker
by volume, only its five-seat, 1,150nm-range Citation Mustang (3.9 tonnes) and
8-9-seat, 1,613nm-range CJ2+ (5.68 tonnes) squeak under this limit. Cessna’s 7-8
seat, 1,875nm-range CJ3 (6.3 tonnes) and 8-9-seat, 2002nm-range CJ4 (7.7 tonnes)
are heavier than the cutoff.
However, emergency services would be excluded under the proposals, which are
out for consultation until June 17.
The so-called Learjet levy will affect more than 67,000 private aircraft flights
in the UK each year. Until now, these flights have not been subject to air passenger
duty despite travellers on commercial airline services having to pay duty of about
£12 ($19) for short-haul journeys and up to £110 for long-haul flights. The new
rules would extend this to almost all air passengers.
The proposals in the UK are in contrast to moves in the US, where Congress introduced
in 2009 a tax break to help businesses buy their own aircraft. Although there
are some calls for the benefit to be withdrawn, Dan Hubbard, spokesman for the
National Business Aviation Association, says the market in the US, the largest
single market for business aircraft, is still far from recovered. “Manufacturers
tell us we still need it,” he says..
But the move in the UK has divided operators, with some saying it is fair to
bring private jet travel into line with commercial airlines and others believing
it is an undue burden on business aircraft operators, which typically each only
have a few aircraft.
The European Business Aviation Association is one of the more vociferous opponents
to the introduction of the tax, warning that the levy could force aviation companies
“In Europe, 40 per cent of business aircraft operators have only one aircraft
and 80 per cent have fewer than five, so applying the air passenger tax to this
diverse sector would have a significant negative impact on the very small and
medium-sized enterprises the UK government and the European Union are pledged
to support,” the Brussels-based association says.
George Galanopoulos, managing director of London Executive Aviation, points to
the hefty administrative burden involved, with the industry already coming under
pressure from new emissions guidelines and higher fuel and VAT bills.
“It’s going to cost us more to collect the data and pay the tax than the government
will get from it,” he says. “The government has to realise it is not just pop
stars or City people flying around. The majority of our flights are business and
they bring investment. These are business people who need flights to remote parts
of the world for two hours, then they need to come back and do more business.”
But others are more resigned to the tax. Alex Berry, group executive sales and
marketing director at Chapman Freeborn, the world’s biggest charter company by
revenue, says the levy is equitable. “There’s no reason why a person going on
a private jet to Malaga shouldn’t pay tax, while a family of four going on holiday
“Our customers are not going to stop flying because of the cost – £30, £40 or
£50 a trip. It’s a nominal cost compared with running an aeroplane.”
He adds that private jet operators are likely to pass on the cost to passengers
rather than bearing the price themselves, which should should ease any increase
in pressure on the operators themselves.
Some analysts agree. “Given that chartering even a small private jet can cost
approximately £10,000 per hour, the level of air passenger duty charges imposed
by the chancellor would have to be quite high for demand to be negatively affected,
in our view,” says Adrian Murray of Oriel Securities.
The UK Treasury says that submissions during the consultation period that ends
next month “will be considered before any final decisions are made”.
This raises the prospect that the tax change could still be derailed. In the
UK, Gordon Brown, while prime minister, was forced to back down after initially
trying to raise aviation taxes. And there is a parallel move in the US, where
the Democrats are facing hefty opposition from Republicans to their attempt to
end the tax exemption on private jets.