sales spike

November 21

Cirrus has record month Cirrus Design Corp. of Duluth sold a record 62 aircraft last month, the company reported Thursday.

During the past four months, Cirrus has sold 222 personal aviation aircraft, a rate that executive vice president of sales and marketing

John Bingham said no other small aircraft company in the industry can match.

, on wait time,

However, the person who buys a plane today must wait until late January to receive it, Bingham said.

The company expects to produce more than 400 planes in 2003 and is producing 40 planes per month. The production rate is continuing to increase, he said.

“We’re looking at a very strong fourth quarter in terms of delivery,” Bingham said.

In October, Cirrus sold nine original SR20 models and 53 flagship SR22 models. The high-tech single-engine four-seat airplanes are made of composite material.


Actually, the sales have been increasing very solidly for some time. In a recent email, John Bingham wrote:
*At the start of this year Cirrus was selling between 15-20 aircraft a month (lowest month this year was February -12 sales) and about 30 demos a month.

Following all of our recruitment of regional managers, and new marketing and advertising campaigns designed to give much broader awareness of Cirrus, we have now seen sales and demos grow to the following levels of month on month growth over the past four months:* Demo flights Sales

July 454 51
August 334 54
September 441 55
October 425 62
                 ________________________

Totals 1654 222 *

From 30 demos a month to over 400, and from 15 -20 sales a month to over 60, is remarkable growth in such a short period of time… I hope you agree that this is an excellent start to achieving our goals .*
Not only is it not a spike - it’s four consecutive months, each breaking all previous sales records for the company!

  • Mike.

It’s amazing: It just goes to show you when you design a new product, state of the art for today, make it simple and safe, have the marketing in place and you can prove it’s the best product out there, no matter how bad the economy is there are those who will buy it all over the World. It will be a very long time, if at all, that the other aircraft mfgs. can ketch up, it’s probably to late if they don’t have very very deep pockets.

Norm SR 22 #0405

Assuming they report sales in the month delivered and that production rate is increasing, It would appear that there’s also a growing backlog. That’s also a positive.

I’d expect the holiday season to impact deliveries and therefore sales, negatively for November and December at least against the previous month.

Good news for all of us in my book.

timing and a 50-80% first year depreciation had something to do with it too.

That deduction doesn’t seem to be quite the panacea it appears to be, since at some point the plane will get sold (or wrecked). Since it probably will never really depreciate quite that much, (many planes don’t depreciate at all) you’d have to pay back most or all of what you saved as tax on the profit on the depreciated amount when you sell it.

I don’t see the big savings on a long term basis.

I for one am happy to have the current tax deduction, even if it means giving most of the deduction back in 3-5 years. Much more important than the time value of the funds, however, is the fact that on the way “out” the deduction lowers my income (and thus my marginal tax bill at 35%+) and on the way back “in” at some point in the future it generates a long term capital gain (which is taxed at 15%).

By my math that transaction is worth serious money, even assuming I can sell the SR-22 in the future for close to what I paid for it.

In reply to:


you’d have to pay back most or all of what you saved as tax on the profit on the depreciated amount when you sell it


That’s not necessarily correct Jerry. Just like real property which is subject to taxation on gain, an aircraft can use a 1031 exchange to defer profits.
If you pay 300k and depreciate 90%, your plane is valued at 30k. If you sell it for 230, you have a 200k gain which can be deferred by using Section 1031 of the Tax Code.

There are I believe 2 SR20s and 2 SR22s on the line at West Valley Flying Club at PAO/SQL. Without the new depreciation rules, I think it likely that there wouldn’t be any at all.

http://www.startribune.com/stories/1519/4251839.htmlClick here for an interesting sidebar about a related deduction (also intended to stimulate the economy).

Cheers,
Roger

That long term capital gain is predicated on the assumption that it takes more than a year before you sell it or it is for some reason totalled. Any sooner than that and you get hit hard.

I guess I’m not crazy about potentially setting myself up for a tax bill “somewhere” in the future without knowing what my financial position will be at the time.

I do see your point though. I’m just very conservative when it comes to fiscal matters.

“Much more important than the time value of the funds, however, is the fact that on the way “out” the deduction lowers my income (and thus my marginal tax bill at 35%+) and on the way back “in” at some point in the future it generates a long term capital gain (which is taxed at 15%).”

For you non-accountants, depreciation recapture on personal property (which is what an airplane is considered by the IRS) is subject to ordinary tax rates, NOT capital gain (ie 15%) tax rates.

So be careful about what happens when you dispose of the airplane.

Tim

I’m just very conservative when it comes to fiscal matters.
Hi Jerry,
I daresay you can’t be that conservative… after all, like the rest of us, you went out and dropped hundreds of thousands of dollars on an airplane rather than a nice piece of rental property or some highly-rated securities. Of course, we’re glad that you did — and I know you are, too!

Cheers,
Roger

Even if you wanted to be 100% conservative, you could take the $50K to $100K cash impact from the deduction (depending on your tax situation) and buy some 1 year T-Bills. Even if you totalled your plane or sold it within the first year, you’d still have, by definition, enough cash to pay the tax bill.

I figure you could buy about 500 gallons of 100LL on the interest that money would earn over the year as well!

In reply to:


That long term capital gain is predicated on the assumption that it takes more than a year before you sell it or it is for some reason totalled. Any sooner than that and you get hit hard.
!!!
I guess I’m not crazy about potentially setting myself up for a tax bill “somewhere” in the future without knowing what my financial position will be at the time.

I do see your point though. I’m just very conservative when it comes to fiscal matters.


Jerry: Are you really planning on selling the plane within a year? How would you rate the odds that you sell it, or total it, within 1 year? Even if you do, the worst you can say is that you get the money interest free for one year. On the other hand, you get accelerated deductions, and if there is a gain, you had a tax deduction around 40% and you pay it at something like a 15% incremental tax rate. Sounds like a great deal to me. Wish I could use it!!

If you are planning on selling it within one year, figure out the benefit by keeping it for an additional few months.

Post deleted by 21ze

I’ve noticed a few over-simplifications in this thread that all should be aware of. If you depreciate your plane, then sell it, any gain you realize based on the depreciated basis is going to be “recaptured” and taxed at ordinary rates. Forget about capital gains…they won’t happen on these planes.

It may be possible to defer recognition of this income, if you complete a proper 1031 exchange (ie, swap the plane for another plane of equal or greater value). These are tricky…consult with an expert BEFORE signing any sale agreement.

You can ONLY get tax depreciation if the plane is actually used in a trade or business. These rules are complex and there are special rules for determining the minimum level of business use for a plane. Furthermore, if you do depreciate the plane, then every passenger and pilot who ever uses the plane for a personal flight may be required to report an amount of income, roughly equal to a high priced airline ticket for the same trip), using the IRS’ s SIFL rates (Standard Industry Fare Levels). On low priced planes, with a lot of personal use, this SIFL income reporting could over time offset most, if not all, of the tax deductions you may have claimed. And you will still be stuck with a low tax cost basis when you sell the plane, and a huge ordinary income gain to report. (you got it…potential double tax over time)

In the absolute best case, airplane tax deductions permit a write-off of actual declines in value and only a deferral of tax with respect to remaining deductions taken. In the worst case, for a low-priced plane (under several million), the SIFL rules could nail you.

I own two planes and have never bothered to deduct a penny on either. And I’m a tax lawyer! If you plan to take deductions, do not rely on the corner accountant or H&R Block…consult with a good tax advisor who knows all the special rules for airplanes. It’s complicated. My former partner specialized in this area.

Jerry,
Sounds like ‘the accountant’ may be the ‘consevative’ one!
TC

I have ownership interest in 3 Gold’s Gyms in S FL. I asked my accountant about purchasing my new Cirrus as a business asset. After all, I might use it to fly to the annual convention in Las Vegas or to Orlando occasionallly for other gym-related business.

My accountant, who often leans more towards the “more aggressive” school of accounting than I do, said there was really no way to legitimately claim the plane as a business expense, with the vast majority of the hours being admittedly personal use. So I, too, just bit the bullet and bought the damn thing individually.

Well, I embarrassed myself with my accountant. She reprimanded me for not having more faith in her. She then recited to me almost in lock step everything that Dave said about NOT deducting the plane.

So, I guess I was wrong about being wrong (or right about being right)

I was surprised that she had never mentioned the capital gains part of it on the resale. When I asked her about it she said it simply wasn’t true, again, exactly how Dave explained.

Goes to show how important it is to consult with a pro.

Thanks Dave