Shared Ownership (Part 1): Making the Business Case

Shared aircraft ownership is an opportunity for two or more parties to own a corporate aircraft together. Different from Fractional Ownership, what is it, and how does one begin to build a sound business case? René Armas Maes discusses…

René Armas Maes  |  24th January 2023
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    René Armas Maes
    René Armas Maes

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

    How to tell if Shared Aircraft Ownership is Right

    Within the spectrum of aircraft ownership solutions, shared ownership is intended for those who cannot justify the cost of whole aircraft ownership. Sharing a business aircraft with another entity allows two (or sometimes more) users to operate the aircraft, splitting the ownership burden. 

    Shared ownership could be aligned with an aircraft management company to further defray some of the operating cost through charter revenue, since some owners prefer to keep costs down. But more commonly, the aircraft will be managed and operated between the aircraft owners themselves. 

    While shared ownership is not a solution that suits everybody, if it holds appeal for you, how should you explore the option and build a sound business case to determine its suitability? We’ll explore methods over the following paragraphs. 

    Business Case Methodology 

    For those keen to explore shared ownership, it’s important to begin by ascertaining who would have access to the aircraft. Simultaneously, undertake a review of how these individuals have travelled in the past on company business, whether via scheduled airline, rail, road, private ad hoc charter, or using a jet card.

    Next, outline the number of trips, analyzing the corporation’s transportation budget. Establish the average cost per trip, identifying key city-pairs and noting any cost escalations. Ultimately, your analysis should include assessments of the most-visited destinations, the starting points, the average and longest stage lengths, the average business trip time (in days), and the average passenger load. 

    Figure A: Corporate Aircraft Flight and Block Time Calibration

     Once these details are known, you should be able to determine the total travel cost per person shortlisted as a would-be user of the aircraft. Summarize your findings, revising the budget to show the total cost per travel service (airline, rail, road, private charter), and the total cost per trip. Be sure to include hotel, car rental, taxi costs, and meal expenses in your analysis at this point. You should ultimately be seeking to do a total annual transportation budget calculation. 

    Next, start to piece together the expected number of flight hours required for the aircraft to fulfil each travel need of your passengers during the next year. Using the number of employees that will have access to the business aircraft, assess the number of trips they make monthly. Do they travel together, or separately? What would a typical passenger load be? 

    Figure A (above) depicts an example of calculating ‘block hours’ – the amount of time required monthly and yearly for use of the shared aircraft – which should enable you to build the annual and five-year corporate aircraft budget forecast. 

    In addition to the time spent flying passengers between Points A and B, it’s necessary to consider any potential deadhead time, Air Traffic Control delays (due, for example, to congested airspace), and even the time taken to taxi from the ramp to the runway, and the runway to the ramp at either end of the journey. As an example, it if takes six minutes to taxi prior to take-off, and six minutes to taxi after landing, factor in 0.2 block time (12 minutes/60 minutes = 0.2 hours). 

    Next Steps: Capex and Aircraft Search 

    You should seek to determine the total aircraft capital expenditure (capex) as well as the level of shared capital expenditure for the corporate aircraft. 

    Figure B: Aircraft Search Scope and Shared Owner Satisfaction Drivers

    Focus on the average required stage length that you have identified as you search for a suitable aircraft that can meet the mission requirement, making sure that you understand the acquisition cost as well as the variable/fixed operating costs, plus the cost of any financing you may require to buy the aircraft. 

    Calibrate the aircraft acquisition model by considering different aircraft utilization scenarios, including your block time utilization as well as the potential shared owner’s intended hours, plus the number of Part 135 hours (if you choose to charter the aircraft out when it’s not in use). 

    And finally, should the utilization increase over time, try to determine the impact that will have on the aircraft’s hourly costs and the net cash flow. 

    Business Case in Action 

    To consider the viability of shared ownership, it’s necessary to assess the feasibility of purchasing a corporate aircraft – including aircraft ownership costs, fixed and variable costs – and comparing these against the cost and related costs of airline and rail travel.

    When doing this, put a value on the time-savings for your passengers. Several S&P 500 Senior Executives have said that they can’t have a productive workday sitting in an airport terminal. These same executives typically see 50-75% time savings on trips using Business Aviation where they cut out the lengthy security and check-in processes, and the airplane is flying non-stop to their destination, accommodating their schedule.

    Further, a five-year pre-tax cashflow model must also be executed to determine the net cashflow of the aircraft when flying ‘X’ hours annually.

    And among the other assumptions that need to be made are annual inflationary adjustment, cost of fuel (per gallon), projected aircraft residual value, aircraft financing, aircraft acquisition, and fixed and variable costs. A depreciation schedule will need to be built too, helping to account for the aircraft’s deteriorating value over the projected time of ownership.

    Don’t forget the cost to hire a crew to fly the airplane and maintain it (if you’re not placing it with a management company), plus a hangar for storage when not in use. Some shared-ownership agreements prefer to use a management company because of the ‘bulk-buy’ power of the chosen management company to negotiate discounts in insurance, spare parts and fuel, for example.

    Finally, be aware that some further passenger travel costs will inevitably be incurred due to scheduling conflicts, which are liable to happen sometimes in a shared ownership arrangement. This may require passengers to book alternative travel arrangements with the scheduled airlines, railways, or by car.

    In Summary… 

    The preceding article should highlight why it’s important that before a shared ownership arrangement is considered, a detailed travel profile analysis is executed. Only then will you understand how well your travel needs will fit with the needs of a second aircraft owner.

    Typically, a shared ownership agreement works best for aircraft owners with a combined flight requirement ranging between 75 and 200 hours per year.

    At a time that many first-time buyers, many of whom bought aircraft during the Covid pandemic, are discovering the realities of the cost of aircraft ownership, it is possible that shared ownership structures will increase within Business Aviation.

    If you’ve prepared a compelling case for a shared ownership arrangement, you’ll want to know how to make the most of them, and how to ensure the arrangement isn’t lopsided, favoring one owner over another. These are questions we’ll consider in subsequent articles.

    Read more articles in this series:

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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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