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Business Aviation Options:
Choices to Borrow- Share or Buy your Business Jet.
Companies can access the advantages of Business Aviation in a multitude of ways- ranging from occasional charter to whole-aircraft ownership. David Wyndham discusses the differences and similarities. Using Business Aviation once was seemingly an all-or-nothing proposition. Either you owned a business aircraft or you accessed on-demand charter. Today- many options offer differing prices.
Charter is the “easy-on- easy-off” Business Aviation solution. Typically- you book the aircraft for your desired departure time and itinerary. One difficulty may be finding the aircraft type that you want within a reasonable distance of your home airport. (When you charter- you pay for 100% of the hours flown- whether you are on board or not. If the closest suitable charter aircraft is 200 miles away- you must pay for the aircraft to fly to your location- fly your trip- and return to its home base.
Charter works best when you can meet most of the following situations:
• Live near a major Business Aviation airport (more vendor/aircraft options)
• Use the aircraft for out-and-back trips (paying for hours flown aboard)
• Have a relatively stable schedule (e.g. one-day trip unlikely to develop into a three-day trip)
• Have frequent requirements for different size aircraft (three passengers one day- a dozen the next; vastly different trip lengths)
• Fly infrequently
• Fly no more than 25-50 annual hours.
With charter- costs are a la carte. Waiting time is billed- as are landing fees- overnight fees- Federal Excise Taxes- and other charges as incurred. A midsize jet might cost $3-100 to $3-400 per hour- but fees and taxes could add 15% to that cost. Overnight trips would cost more to cover expenses.
If your flying needs increase beyond approximately 25 annual hours- and if many of your trips are oneway- you may wish to consider the use of a jet card. In its simplest form- such an arrangement is an advance purchase of charter hours with a guaranteed cost.
Typical cards offer prepaid time flying in a certain category of aircraft- and there is a single contact number for booking the trip.
Pricing for cards can vary. Current prices range from $155-000 to $250-000 for a 25-hour card- which calculates to be $6-200 to $10-000 per hour according to aircraft size. But these are occupied hours. There are no positioning fees and no overnight fees. Most cards offer some level of coverage for miscellaneous fees. Many card programs also offer concierge-level services such as ground transport- hotels- etc.- and include guaranteed availability within a certain booking window. The charter aircraft that you want might be unavailable because it is already booked.
Jet card pricing generally is valid for one year. If you do not use the allotted hours- cash remains in your account but the cost per hour could rise. Provisions for a refund are stipulated within the contract. With charter and jet cards- there are no long-term contracts. The costs for each trip can be calculated- and allocation of cost between different business units is straightforward.
Similar to renting a car- at some point ownership begins to make sense. In aviation- Fractional Ownership provides an intermediate step. Through agreements with a management company- aircraft are owned and shared by a certain number of users (usually no more than 16). Fractional ownership is typically based on occupied hours- with a “full share” being equivalent to 800 annual hours use.
Share sizes start at one-sixteenth (50 hours) and can rise in 25 or 50-hour increments. Standard contract lengths are for five years with as little as two-years being offered in restricted circumstances.
Like jet cards- fractional programs also offer concierge-level services and have guaranteed aircraft availability within a certain booking window. The major US fractional programs also offer jet cards as an entry into their systems.
Costing the flying of the fractional share is more difficult because three costs are involved—ownership cost and two operating costs. Some fractional programs offer different plans that may include a fixed monthly fee for all costs- no hourly fees- and a limited number of annual hours flown.
The initial acquisition cost varies with the share size- and size of the aircraft. A one-eighth share of a $16 million aircraft would be $2 million. If used for business- this can be written down to zero as a tax deduction. If/when you sell your share- there is a fair market value sale of the share- so the total ownership cost and tax-advantages are far less than the initial acquisition price. Both leasing and financing are available for fractional shares.
Fractional contracts have both a monthly management fee and an occupied hourly fee. The management fee is relative to share size- while the hourly fee is based on the aircraft model. For the one-eighth share of a mid-size business jet- the monthly management fees are about $250-000 per year. The hourly cost may be $2-500 per hour plus an added fuel cost adjustment of another $1-500 per hour (based on the mid-size Hawker 900XP or Learjet 60). These hourly costs are only for the hours you use the aircraft- however.
Once in a fractional program- the “cost” for the next trip is the just the hourly cost. You can also pro-rate the management fees into allocating the cost of the trip to the business unit using the aircraft. Assigning the ownership costs (loss of fair market value over time) is difficult.
Depending on the program- you can trade hours in your category of aircraft for larger or smaller when needed (e.g. 1.5 hours of your mid-size business jet for 1.0 hour use of a large jet).
Fractional ownership can be a bridge to fullownership- or a means for providing additional lift when your owned aircraft is unavailable- thereby increasing flexibility and utility of Business Aviation to your company. While full-ownership tends to make financial sense at somewhere around 250 to 300 annual hours usage- there are many variables involved- and many different reasons beyond just cost that can justify owning a business aircraft.
Do you have any questions or opinions on the above topic?
Get them answered/published in World Aircraft Sales Magazine. Email feedback to: Jack@avbuyer.com