- 23 Jan 2019
- David Wyndham
- Aircraft Ownership
What to Consider When Chartering Your Jet
Previously, David Wyndham explored reducing the total cost of aircraft ownership through the charter your business jet when you’re not using it. Here, he discusses potential issues and concerns for operators to consider…
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David Wyndham
David Wyndham has extensive expertise in aircraft sales and acquisitions, asset management, cost and...
Previously, David Wyndham considered when charter can offset jet operating costs when you’re not using it. Here, he discusses potential issues and concerns for operators to consider…
Putting an aircraft on a charter operator's certificate may incur expenses for the initial inspections that are required to demonstrate its compliance with FAA standards for commercial service. Both the aircraft and crew must conform to the charter operator's approved operating limitations.
The aircraft must also be enrolled on the charter operator's approved maintenance program, which could require more frequent inspections, while commercial operations may necessitate the installation of additional safety equipment and the crews must train to the approved operating standards of the charter operator.
The above costs, which are typically borne by the aircraft owner, can range from several thousand to tens of thousands of dollars.
Given the added costs of approving your aircraft for on-demand commercial service, there must be sufficient charter revenue to make the arrangement work financially.
The more you fly for your own purposes, however, the less time the charter operator has available to monetize your aircraft. This can be a delicate balance to find, since scheduling charter flights will impact the aircraft’s availability for company travel.
Moreover, peak demand for charter may overlap with your own intended travel schedule, especially in the summer and around holidays. So, you will either forgo the charter revenue or be forced to adjust your own itinerary to accommodate.
Some charter operators may claim that they can charter your aircraft for 700 hours per year - but that won’t be possible unless you fly infrequently and avoid peak travel periods. If you fly more than 100–150 hours annually, you may not be able to generate enough charter revenues to make the extra work worthwhile.
Growing Maintenance Cost
Another consideration is that maintenance costs will likely increase, driven – in part – by the added equipment that must be operational for dispatching the aircraft on a Part 135 trip. The charter regulations may not allow for as much flexibility in terms of what equipment may be required, meaning that some inoperative equipment that your pilot may elect to fly with on a Part 91 flight may be required for a revenue flight.
For a business jet you must have operational Wi-Fi onboard. For many charter customers, Wi-Fi is expected. While the charter operator can pass on a portion of the fees to the client, the cost of modern connectivity equipment is ultimately borne by you, the owner.
General wear and tear will also increase on your aircraft. Part of that will be due to the increased utilization.
That interior you just refurbished won’t last as many years if you double or triple the use. Another factor is the ‘rental effect’, whereby charter customers may take less care of your aircraft than you would, resulting in occasional damage.
Another contributor to the increased maintenance costs is the shipping of parts. If the charter operator is to generate significant charter revenue, the aircraft cannot remain grounded for very long while it awaits delivery of a part. Most non-scheduled parts will therefore be shipped using expedited service, resulting in higher costs.
Total parts usage may also increase where the charter operator elects to replace several parts at once to get a charter trip launched on schedule, rather than spend time troubleshooting to find the exact problem. Though this is admittedly rare, it does occasionally happen when generating revenue and taking care of the charter client has priority over minimizing costs.
Other Issues to Consider
There may be tax benefits associated with chartering your aircraft, however. Essentially, you will ‘lose’ money, and that loss may be advantageous with proper tax planning. It is important to note that you, as the owner, are not actively involved in the charter business so the charter revenue is usually characterized as passive income.
You should consult a trained aviation tax advisor to discuss how charter revenue will impact your taxes and tax depreciation.
Finally, speaking of depreciation, the decrease in market value for your aircraft will be accelerated in line with the greater utilization charter flying will generate. Some of that loss in value can be offset by having your aircraft on a guaranteed hourly maintenance program (GHMP). The GHMP will accrue for maintenance and this reserve account will ensure that major maintenance items will be covered, especially for the engines. The GHMP can help minimize the market depreciation.
In summary, if you are not using your aircraft for a lot of flying, can take advantage of the possible tax benefits, and have a charter management company that you can work with, then chartering your aircraft can be a positive experience. Either way, you must weigh the decision carefully before deciding which route to take.
More information from www.conklindd.com
- Read more about Jet Charter
- Read more about Jet Ownership
- Find Private Jets for Sale
Read More About: Operating Costs
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David Wyndham
David Wyndham has extensive expertise in aircraft sales and acquisitions, asset management, cost and budget analysis and finance fundamentals. With several decades supporting aircraft owners and operators in making fully-informed decisions about their aircraft needs, his expertise spans from the flight department to the executive boardroom.
David is the founder of David Wyndham + Associates, and previously he was a Co-owner and President of Conklin & de Decker where he consulted with large corporations, individuals, and government agencies on their aircraft needs.
