Business Jet Utilization Options

There are many ways to enjoy the time-saving- value-enhancing benefits of Business Aviation. If whole-ownership does not suit your budget or mission needs- or if you own an aircraft but need supplemental lift- there are options available. Over several decades- alternative utilization solutions have evolved. These include Charter- Jet Cards and Fractional Ownership.

Global Biz Av

Gil Wolin | 1st April 2011

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Gil Wolin

Gil Wolin draws upon almost 40 years’ aviation management experience as an industry consultant....
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Whole-ownership is not the only route to business jet use

There are many ways to enjoy the time-saving- value-enhancing benefits of Business Aviation. If whole-ownership does not suit your budget or mission needs- or if you own an aircraft but need supplemental lift- there are options available. Over several decades- alternative utilization solutions have evolved. These include Charter- Jet Cards and Fractional Ownership.

One of the key advantages of Business Aviation is the flexibility that it offers. Although not all of the following methods of business jet utilization are wholly available in China yet- adapted versions are sure to emerge as the market grows in the region.

Business Jet Charter

Charter is the most common starting point for executives considering business jet travel. It places in-flight productivity and time-savings at your fingertips- with no long-term capital or personnel commitment.

It is also a safe and effective means for evaluating the advantages of Business Aviation to meet your critical travel needs - to evaluate and determine which aircraft best suits the majority of your travel requirements.

Charter aircraft are- for the most part- regionally-based. That means that you usually will pay for the aircraft to return to its home base- even if your flight is one-way - so you are best served- from a cost standpoint- to charter an aircraft from an operator based at- or near to your trip’s point of origin.
Selecting the right charter operator requires diligence: remember you will be entrusting that operator with the safety and security of your key executives- clients and vendors- as well as family and friends. Beware the broker who has little investment or industry knowledge- and cares only about the commission margin. While you may have received recommendations- vetting an operator is best left to the expertise of an aviation consultant.

Many consultants provide charter auditing services- and they can thoroughly review any operator you request before you book a flight. They can also help develop company policy and procedure for authorizing and booking future charter flights. Key questions - such as those posed below - should be answered:

• What is the correct process to pre-select charter providers?
• What resources- in addition to consultants- are available to identify qualified charter providers?
• Is the operator’s fleet large enough to ensure aircraft availability?
• Is the operator authorized to subcontract to another operator to meet a flight request?
• What circumstances justify chartering for company business- and who is authorized to request charter?
• How does a company establish sufficient oversight of a charter operator to assure that safety precautions are always observed- while service quality remains high?

Note: there’s no mention of price here. You should address price only after questions of safety and service quality are answered satisfactorily.

When selected and used correctly- Charter can effectively turn your travel time into productive time – one trip at a time.

Jet Cards

Jet cards enable you to contract to fly and pre-pay for 25 to 50 occupied hours annually with no capital investment or long-term commitment. As such- this travel solution can be flexible and cost-effective for executives whose trips have various origin points- or whose intermediate stops require extended time on the ground.

All of the major U.S.-based fractional ownership operators (including NetJets- CitationAir- Flight Options and Jet Solutions) as well as many national and regional charter operators and charter brokers offer a jet card option.

The business model enables you to pre-pay for annual hours based on the size of aircraft you anticipate using most- drawing down on that deposit as you fly. Most jet card companies will allow you either to extend your contract term- or to add the unused hours to your renewal commitment for the next contract year (be sure to check before placing your deposit).

Scheduling a trip is very similar to booking a charter flight- with the primary difference being that you book a category of aircraft- rather than a specific make and model. For example- “mid-size” can mean any one of an extensive number of aircraft models.

To meet your trip requirements- the jet card charter broker will vet potential charter providers- auditing them for operational safety and reliability as well as for financial stability. The broker’s profitability depends in large-measure on its ability to purchase “empty legs” (repositioning legs already paid for by another charter client) at a discount- and reselling them to its own jet card clients at contract rates.

You have a similar option with a jet card offered by fractional operators. Here you are gaining access to an entire fractional aircraft fleet with no capital commitment and no monthly management fee. In exchange- you pay a higher occupied per-hour charge.

With a fractional jet card- you are committing to fly aboard a specific make/model aircraft in the provider’s Fractional fleet- with the option to trade up or down on specific flights (with an appropriate adjustment to the hourly cost).

There are a myriad of other issues relative to each specific program beyond the scope of this article- so you may find it is best to use a professional aviation consultant to help answer those questions – and to determine which program is best for you. Ultimately- the jet card provides an excellent compromise between charter and fractional ownership.

Fractional Ownership

As the name implies- fractional ownership is a percentage ownership in a particular aircraft. This business model- however- entitles the fractional owner to the privilege of using other aircraft within the entire fleet of fractionally-owned aircraft operated by the fractional provider.

Fractionally operated aircraft are usually divided into shares ranging from one-sixteenth to one-quarter ownership- based upon the aircraft being flown a total of 700-800 hours per year among all the owners of a particular fleet aircraft. A purchaser can elect to buy whatever size or number of shares he wishes. For example- using 800 hours per year as our model- purchasing one-sixteenth of an aircraft entitles the owner to 50 hours of usage per year.

The owner can request simultaneous usage of more than one aircraft of similar size in the fractional provider’s fleet- provided the total number of accumulated hours does not exceed his yearly allotment. He can also trade hours in his aircraft for a larger or smaller aircraft within the fractional provider’s fleet- on a trip-by-trip basis.

Typically the contract term for fractional ownership is five years; fees include a monthly management fee- a per-hour fee and miscellaneous fees. At the end of the five-year term (possibly earlier under certain conditions)- the fractional owner can return his share to the fractional provider and recoup the fair market value of his share of the aircraft- less certain brokerage fees.

The details of most fractional contracts are individually negotiated between the purchaser of a fractional share and the fractional provider.

Fractional ownership enables easier entry into Business Aviation through reduced capital costs (no need to purchase the entire aircraft)- immediate utilization of the aircraft (fractional providers have experience operating aircraft)- considerable versatility (more than one aircraft can be put in service at the same time)- and a high level of predictability for owners who are new to Business Aviation.

For all the flexibility that fractional programs offer- though- they have some restrictions. Some limit to three the number of aircraft you can access on a given day- so you may have to make charter arrangements for that fourth Board member to attend the quarterly meeting.

Fractional owners should be wary of exceeding their annual hour-allocation too early in the year. If the guarantees of availability- one-way pricing- and standardized aircraft are important on some- but not all flights- then you should be willing to use charter on some trips to avoid exceeding your share hours.

For example- you might own a fractional share in a six-seat light jet but have the occasional requirement to transport 12 passengers. You can use a larger aircraft in the fractional program- but the cost in terms of hours exchanged might be too expensive. The best solution would be to charter- thereby enabling you to save money- and to allocate your fractional hours to other trips.

Some companies purchase fractional shares and then allocate the hours among key personnel to ensure their mobility. The executive must monitor their usage to make sure they do not run out of hours before year-end. Again- there will be some trips where charter makes more sense.

Considerations for utilizing Fractional Ownership

You must decide which travel mode meets your cost parameters and preserves fractional hours for when they are most needed. The following points may help:

• Use Charter to cover peak days when the fractional share or jet card does not guarantee either availability or response time.
• Hold some fractional share hours in reserve- to cover emergency travel or owned-aircraft breakdowns.
• Conduct quarterly reviews of usage- to ensure you will use up- but not exceed your annual fractional or jet card hours. Use this for planning to right-size your fractional renewal- jet card commitments- and charter budget.
• Use these reviews to evaluate the various service providers. For example- if the service was good- you may want to carry over unused hours onto the renewal contract. If not- burn-off all hours prior to contract expiration.
• Use other individual parameters/expectations (e.g.- crew composition- aircraft age- other aircraft characteristics) to select the service that best suits your needs- or those of your risk managers.
• If the perception of business jet-use concerns you- do not accept free upgrades to larger aircraft- especially if your profile places you in the public eye.

Select the right business aircraft “tool” and form of transportation for each job- thereby making the best use of your budget and travel resources.

Read more about: Business Aviation in China