- 13 Sep 2021
- René Armas Maes
Shared-use structures are relatively common in Business Aviation. For all of the advantages they bring to the right type of aircraft owner, however, they’re not for everyone. Who does benefit most, and how can you make the most of one? René Armas Maes explores…Back to Articles
For those who cannot afford to own and operate a business aircraft by themselves, a sharing agreement allows some users to operate a jet while sharing the ownership burden. But when should a shared-use structure ultimately be considered?
What is the ideal number of annual flight hours to justify such an arrangement? Moreover, what types of shared-use structures are available, and how can multiple owners derive maximum value out of co-ownership, without compromising flight privileges and aircraft availability?
These are all key questions that must be answered before an aircraft sharing agreement is entered into.
First, a customer profile analysis will be necessary. This should examine the number of annual flight hours, along with operational, legal, tax, and liability issues, plus costs, among other needs, to determine how far the benefit of a shared-use structure would apply to multiple owners’ needs.
Establishing the Utilization Sweet-Spot
Typically designed to suit owners with the need for more than 75 hours of aircraft utilization per year, Business Aviation offers a number of shared-use structures and ownership options, from fractional ownership and joint ownership, plus more.
Figure 1 highlights the focus area for this article (i.e. aircraft owners with a requirement for between 75 and 200 hours per year) and depicts how a shared-use structure could work for them.
Figure 1: Annual Flying Hours & Potential Shared-Use Structures
As shown, there are two common shared-use structures available to owners typically flying between 75 and 200 hours per year. Discussion of these will form the basis for the remainder of the article.
1) Shared-Used Structure (Supported by an Aircraft Management Company)
Owning a business aircraft can be logistically complex, thus most first-time buyers entering Business Aviation may prefer not to handle all of the operational details themselves. They may seek peace of mind in terms of record-keeping and regulatory oversight.
Having an airplane registered on an aircraft management company’s certificate can bring operational flexibility, in terms of sourcing flight crews, aircraft maintenance, flight planning, hangarage, insurance, and even providing access to supplemental lift should an unexpected maintenance issue occur. Similarly, it can provide the use of additional aircraft if more than one is required at the same time.
Ultimately, the shared-use structure supported by an aircraft management company can greatly relieve an aircraft owner of the burden of managing their business aircraft.
The management company can also leverage bulk purchase discounts (including fuel, which typically accounts for 50% of a business jet’s direct operating cost), and they may pass those discounts on to you.
For all of the advantages, however, an aircraft management solution will not suit every owner. An analysis needs to be made on a case-by-case basis to determine how far the benefits would apply to a specific owner’s needs. It will also be necessary to identify the best management company and solution that meets the owner’s mission needs.
Perhaps enrolment of the aircraft in a Part 135 charter management program (run by the management company) will allow the owner(s) to maximize their return on investment, generating revenue when the aircraft is not being used, assuming the goal is to make the aircraft available for revenue flights.
Under this type of sharing arrangement, scheduling conflicts could potentially arise, as, typically the aircraft management company would like to increase the aircraft’s utilization up to 250 hours, or more, annually.
To make this shared-use structure work, planning and flexibility are key, and will be needed on both sides. Plan ahead, and discuss your month-by-month flight schedule needs, and your ‘guaranteed’ aircraft availability with the aircraft management company. Agree when the aircraft will be available for Part 135 activities.
It is important to be clear and up-front as to how your aircraft can be used for charter activities. For example, should it only fly domestically with a same day return to base?
You may also want to stipulate some rules, such as the type of food and beverages that will be served onboard. To prevent stains on the cabin (and deep cleaning costs), you may choose to forbid red wine from being consumed onboard, for example. Similarly, you may choose to ban pets from flying onboard.
Agree on which type of cabin cleaning procedure should be executed after each charter flight, and the remedy if the aircraft is not available for your personal or business use, as agreed. Pre-agreeing these, and others terms, will allow you to build a relationship of trust with the aircraft management company.
2) Co- and Joint-ownership Models
Under a Co-ownership structure, multiple individuals or entities agree to share the ownership of an aircraft. Each co-owner may decide to operate the aircraft independently, or collectively contract for aircraft management services.
A Joint-ownership, as described by the FAA, is a very specific shared arrangement that allows the owners to charge each other for operating the aircraft. The key difference between a Co- and Joint- ownership model is that the Co-ownership agreement does not allow owners to charge one another for operating the aircraft.
The Co- and Joint-ownership models bridge the gaps between charter and whole aircraft ownership, particularly for owners with individual requirements to operate an aircraft between 75 to 100 hours per year. Such arrangements are usually seen as a stepping-stone for owners to test the water before stepping into whole ownership.
The structures for Co- and Joint-ownership can be complex, especially where multiple owners and users are involved. To make them work, it is essential to find the right partner(s), and each must have an understanding of the others’ flight usage and profiles, average stage length requirements, and typical passenger loads (among other things).
Therefore, a professional corporate travel profile analysis that includes historical scheduled airline travel is recommended.
Operating costs, versus intended operation budget must be reviewed, and financial targets (i.e. direct operating costs, and cost per seat mile) should be determined. When conducting this exercise, if operating costs exceed the budget, making the airplane available for charter may allow you to defray a portion of your cost.
Flexibility will be key to the successful implementation of these shared-use structures. If any of the individual owners are not flexible, the arrangement may create more problems than benefit.
With this in mind, the size of the aircraft and allotted hours to each owner should be carefully discussed, as well as any residual value expectations at the time of asset disposal – especially if one of the owners decides to break the agreement prematurely.
Sharing agreements in Business Aviation may never have been more popular than they are now. Other sharing structures exist, including fractional ownership, time-sharing and aircraft leases.