When you exit after the five year lock-up the Manager values your capital account and pays your redemption entirely in cash. The Pod almost never sells a jet to raise that cash. Instead it liquidates a portion of its public-stock portfolio or draws on available credit lines and cash reserves.
Although no jet changes hands a special tax rule still applies. Business aircraft are “hot assets” under Section 751. For tax purposes the IRS treats your cash redemption as if the Pod sold your share of each aircraft at fair market value on the redemption date. Any gain that represents earlier bonus-depreciation deductions is recaptured as ordinary income and will appear on your Schedule K-1 for that year. The ordinary-income recapture reduces the long-term capital-gain benefit you enjoyed while invested but only to the extent of the prior depreciation
After the cash payout the remaining fleet stays in service for the other participants. The Pod can adjust flight-hour allocations or charter levels so the fleet remains right-sized for demand.
For more on timing and mechanics see Five year lock up and exit options. For an explanation of how bonus depreciation and recapture interact with outside basis read Bonus depreciation explained in our Tax FAQ section.