Is it Worth Chartering Out Your Jet? (Part 1)

Are you looking to generate some revenue to offset operating costs when your business jet is not in use? René Armas Maes highlights how you can assess whether it’s worth your while…

René Armas Maes  |  16th November 2021
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    René Armas Maes
    René Armas Maes

    René Armas Maes, Vice President, Commercial, Jet Link International LLC, is an international...

    Cessna Citation X+ nose view

    If you own a business aircraft and want to offset a portion of your operating costs by generating income, you may want to evaluate whether placing your aircraft on an FAA Part 135 certificate is the answer.

    Before making your jet available for charter, you will need to understand that Part 135 requirements are more rigorous than Part 91. For example, the requirements relating to weather minimums, pilot duty time, and landing distance requirements for wet runway operations are more tightly controlled. And other safety and equipment requirements must be in place that would not otherwise be necessary for Part 91 operations.

    There are also several other areas needing analysis before you can make an informed economical and operational decision. For example, it will be important to consider the cost of placing an aircraft on an FAA Part 135 operator’s certificate, and of maintaining the overall higher standards that Part 135 requires.

    Aircraft owners should also expect incremental maintenance costs associated with the extra wear-and-tear that comes from chartering the aircraft out for additional, revenue-making flights.

    So, what are the key areas that should be investigated to help owners understand whether it is economically and operationally viable to charter out their jet? Let’s consider some here…

    How Will you Charter Your Jet Out?

    Putting an airplane onto a Part 135 certificate is a lengthy, multi-step process, and it can take several months to achieve. Moreover, time, money and compliance with the regulations will be required for an operator to maintain an aircraft’s airworthiness under a Part 135 certificate.

    While it is possible to charter your aircraft individually, the likelihood is that a turnkey aircraft management solution with a management company that already holds a Part 135 certificate will be the best solution. (After all, most airplane owners have businesses to run that are separate from selling charter hours.)

    An aircraft management company can greatly alleviate the burden to an aircraft owner of managing the business aircraft when conducting charter operations. Moreover, it can expedite Part 135 market entry.

    An established, reputable aircraft management company offers expertise, knowledge, and savings (for fuel, spare parts, insurance, pilot training, and more) through buying power leveraged with operating a large fleet of aircraft. These will usually be shared with the airplane owner.

    In addition, aircraft management companies typically hire, and train their pilots to very high standards, and can lend expertise in other areas, such as maintenance, concierge services, flight planning and more.

    And should the need ever arise, an aircraft management company is likely to provide access to supplemental lift if an unexpected Aircraft on the Ground (AOG) situation occur, or if the need arises for multiple aircraft to meet special business requirements.

    Benchmarking Aircraft Management Companies

    Bear in mind that aircraft management companies vary in their operations and service, from dedicated on-demand charter operations, to jet cards, block hours arrangements, wet and dry lease, and more.

    • What do the services offered tell you about the expertise of the prospective management company, and how could this benefit you?
    • What is the fleet size operated by the management company, and does it already operate aircraft of your make and model within its fleet?
    • Is the management company based domestically, internationally, or does it have global reach through partnerships and joint ventures? (Different types of operations will offer different advantages or disadvantages, depending on your requirements.)

    While benchmarking potential aircraft management companies, you should execute due diligence in terms of the operation’s safety record and accreditation (i.e., is it IS-BAO certified?), its financial strength, ownership, and market capitalization (if applicable).

    Start your search locally working out from there. Be sure to understand the pros and cons of each option as they relate to the following areas:

    1. Charter income is generated by the hour, but what portion of charter income is the management company offering to give you? Ideally, you should look to receive between 75% and 85%.
    2. Be clear about what your Direct Operating Cost (DOC) is. Define a target contribution above that number that will cover both the DOC and a portion of your fixed costs.
    3. Regarding the fuel cost, understand, negotiate, and lock-in a preferred fuel rate, ideally for a six-month period. Fuel price savings can make a positive impact on your financial target contribution.
    4. Identify other potential savings areas, from spare parts, insurance (hull and liability), hangar space, maintenance, pilot sourcing, and training, among others.

    How to Assess Which Management Company is Best…

    Let’s assume a Bombardier Challenger 350 owner is considering placing their aircraft on the Part 135 certificate of an aircraft management company.

    The owner has approached three potential aircraft management companies and requires the charter hourly rate to cover its variable costs and make a 20% contribution to its fixed costs per hour. The owner is not expecting any contribution to other ownership costs (such as financing charges).

    Per AMSTAT data at the time of writing, we’ll assume a variable cost of US$4,075 per flight hour, and an average fuel price of $5 per gallon.

    Now assume the three companies under evaluation are offering the same fuel price per gallon for their Part 135 operations. While Management Company A and B stipulate in their contracts that the aircraft owner will receive 85% of the charter income, Management Company C is offering 80%. (These amounts exclude any applicable Federal Exercise Taxes.)

    Each offers to pay a different charter rate per hour to the owner, with Management Company A offering $ 7,000, Management Company B paying $7,900, and Management Company C paying $8,200.

    As illustrated in Table B, Management Companies A and C fail to meet the owner's financial target contribution, despite Company A offering a higher percentage of hourly  jet charter revenues to the operator. By comparison, Management Company B meets, and exceeds the Owner's desired contribution.

    Having done due diligence on the three management companies, the case strengthens for Company B when the aircraft owner discovers it operates a large fuel farm and may be able to offer a better fuel price per gallon, because of bulk purchasing.

    As part of the contract negotiation with that aircraft management company, the aircraft owner seeks to lock-in a preferred fuel price at between $4.8 and $4.9 per gallon (down from $5) over the following six months. Thus, the aircraft owner seeks to understand how fuel prices could impact its financial target contribution. To do so, the owner executes a sensitivity analysis on fuel prices (see Table C).

    As shown in Table C, Management Company B’s contribution to the financial target contribution is 1.8% or $121 per hour at a fuel price of $5.0 per gallon exceeding the owner’s requirements.

    With a preferred (negotiated) fuel price of $4.8 per gallon, the financial target contribution grows from 1.8% to 2.8%; another 49% on top of the $121 per hour, generating a total $180 per hour more than the owner’s financial target contribution.

    Other Key Areas to Assess

    Naturally, other areas will need to be understood, including contractual matters and Part 135 conformity requirements; aircraft usage and availability; taxes; insurance; liability coverage; and accounting practices – including depreciation methods. Find these discussed in Part 2...

    Read Is it Worth Chartering Out Your Jet (Part 2)

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    René Armas Maes

    René Armas Maes

    Editor, Buyer Strategy & Finance

    René Armas Maes, Vice President, Commercial, Jet Link International LLC, is an international aviation consultant and experienced C-Level professional. He has built a successful track record for developing and delivering Business Aviation strategies for Fortune 500 companies, Venture Capital firms, and HNWIs.

    René is a regular columnist for Bloomberg (financial), America Economia (business) and a speaker at aviation conferences worldwide.



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