Learjet 35A

Aging airplanes pose problems

Since 1963, when William Lear's Model 23 Lear Jet had its first flight, manufacturers have turned out thousands of business jets. Most of them are still flying. They give the lie to many business, accounting and tax assumptions concerning the useful life of business jets.

One such assumption is that business jets depreciate roughly 4 percent per year if they log around 400 flight hours annually. On that calculus, an aircraft would basically be worthless after 25 years in service. But according to the current edition of Aircraft Bluebook-Price Digest, the average retail value of a Learjet 35A that sold new for $3.5 million 25 years ago isn't zero; it's $1.75 million. Without adjusting for inflation, that represents annual depreciation of 2 percent. At that rate (again, ignoring inflation), the aircraft would have a useful life of 50 years. This example shows why making appropriate depreciation assumptions for business aircraft can be a challenge.

Don't look to the tax laws for help. IRS rules for business jets permit full depreciation for tax purposes in as little as six years, with more than half the value gone after only two years. Clearly, tax depreciation rates reflect government economic policies more than judgments about how aircraft actually decrease in value.

Older airplanes are often noisier and less fuel efficient than late-model ones and can be substantially more expensive to operate. Much of the additional cost is the result of the maintenance older airplanes often require, especially after the expiration of manufacturers' warranties. But if an aircraft is properly maintained and is outfitted with the latest safety improvements, it can be as safe to fly in as a brand-new jet.

Ironically, laws regarding older airplanes may be making them harder to maintain. The culprit is the General Aviation Revitalization Act of 1994 (GARA). In the early 1990s, many people in the business blamed dramatic declines in the production of general aviation aircraft on the legal doctrine of strict liability. Under this doctrine, a manufacturer can be held "strictly liable" for damages caused by defects in its aircraft even though it exercised all possible care in the manufacturing process and even though the injured party did not actually purchase the airplane from the manufacturer. The theory is that if someone is to be responsible for the accident, it should be the manufacturer, which is in the business of producing aircraft and which can purchase insurance to cover the risk [and frankly, lawyers know that the manufacturer is often the entity with the deepest pockets-Ed.].

Armed with the theory of strict liability, plaintiffs sued aircraft manufacturers for accidents involving airplanes they had delivered many years before. As the Congressional Record demonstrates, Congress was especially concerned with piston airplanes. "The average piston-engine aircraft is over 27 years old and one third of the fleet is over 32 years old," said John Danforth, then a Republican senator from Missouri. The supposed upshot was a decline in new-aircraft deliveries.

To solve this problem, Congress decided to cut off the liability of general aviation manufacturers. GARA says that the manufacturer is essentially off the hook 18 years after the aircraft is first delivered, provided the company did not engage in certain kinds of heinous conduct such as fraudulent misrepresentations about the airplane's capabilities.

Plaintiffs' lawyers have probed the weaknesses in GARA over the years with mixed success. The statute, for example, has withstood challenges on constitutional grounds, but at least one court held that a flight manual revision can restart the 18-year clock, at least as to the revision. In any case, GARA remains a significant impediment to holding general aviation aircraft manufacturers liable in the case of accidents involving aircraft that are more than 18 years old.

If the manufacturer can't be liable, who is? An obvious target is the facility maintaining the aircraft. If an airplane involved in an accident is more than 18 years old, plaintiffs' lawyers will often try to blame faulty maintenance. Maintenance facilities, in turn, try to fend off this liability with exculpatory language in their contracts and work orders, but such language often affords only limited protection in the courts.

Consequently, some maintenance facilities have recently begun to refuse to work on general aviation aircraft that are more than 18 years old. These facilities are unwilling to substitute their own pockets for the manufacturer's "deep pockets," which GAMA has effectively buttoned up in the case of such aircraft.

Can maintenance facilities solve this problem with insurance? The operators of one service center told me that the cost of the insurance and the maximum limits of liability available made insurance an unreasonable alternative.

Does this spell disaster for the maintenance of older business jets? So far, I am not aware of any business jet service center turning away an over-18-year-old aircraft. Moreover, major maintenance on many business jets is performed by service centers run by aircraft manufacturers. The jet manufacturers I spoke with affirmed their intention to continue to provide service support for their aircraft.

It is unrealistic to extend GAMA to maintenance providers; cutting off their liability on maintenance after 18 years would do them little good. No one expects a maintenance facility to be sued regarding maintenance performed 18 years ago, and state statutes of limitation probably cut off the liability long before then anyway. But a dollar limit or other cap on the liability of a service center might be helpful. Whether such a cap could be legislated is anybody's guess.

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