Air Transport World

Airlines learn to cope with tax reform.

Airlines learn to cope with tax reform The cliche that nothing is certain except death and taxes is only partially true where taxes are concerned. Congressional tinkering with the U.S. tax code, sometimes in major ways and more frequently in minor ways, is anything but dependable. No matter how much tinkering Congress does, however, sometimes to the alleged disadvantage of business, companies always find a way to cope. Last year's Tax Reform Act proves the point.

For years the tax code has favored capital intensive industries. Then along came tax reform, aimed principally at making the tax code more "fair." In practical terms that meant lowering corporate and individual rates.

To make up for the revenue lost from lower rates, Congress eliminated a significant number of what have come to be known generically as tax shelters. For the third time since it was created in 1962, Congress eliminated the investment tax credit (ITC) for equipment acquisition. In 1966, ITCs were suspended until 1967; in 1969, they were cancelled only to be re-enacted in 1971. The first two times, ITCs were blamed for helping to overheat the economy through excessive capital investment. They were reinstituted to stimulate the economy. This time they were lumped in the category of devices that allowed profitable corporations to slide out from their tax obligations.

While the airlines are not the only sector affected, the long aircraft design and manufacturing cycle and the normal airline operating cycle mean that airline planning is particularly susceptible to the on-again/off-again changes in equipment tax treatment. For many carriers, including consistently profitable ones, the juggling of equipment purchases and sales historically often has meant the difference between profit and loss, or between high tax bills and low ones.

Delta Air Lines Vice Chairman Robert Oppenlander has been his company's principal financial officer for many years. He has guided the company through many of its aircraft acquisition deals. Typically, Delta as well as Northwest Airlines added to their financial strength through the careful buying and selling of aircraft. Now, both companies have altered their asset management strategy. Oppenlander says the major impact of the Tax Reform Act on his company will be more aircraft leasing. …

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