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When to Consider Fractional Ownership of a Jet

If you have relatively limited annual flying requirements, why buy an aircraft and leave it unused most of the time? David Wyndham discusses when might be right to consider Fractional Ownership of a private aircraft…

David Wyndham   |   27th April 2018
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David Wyndham David Wyndham

David Wyndham is vice president, Conklin & de Decker, a JSSI Company, where his expertise in...
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Think of Fractional Ownership of an aircraft as you would a time-share in real estate. If you only use the asset for a limited time, why buy one and leave it unused most of the time? David Wyndham discusses when might be right to consider Fractional Ownership of a private aircraft…

The Fractional Ownership provider ultimately offers its clients access to Business Aviation at a reduced purchase price (proportional to your projected usage). In addition to offering the aircraft itself, the provider takes care of the crew and manages every aspect of the aviation operation.

Each fractional owner purchases an interest in a specific aircraft, based upon 800 occupied hours per year for each whole aircraft. Thus, each owner is guaranteed 50 occupied hours annually for each 1/16 share that they purchase (although helicopter shares can be a small as 1/32).

Hours are billed by block time (i.e. actual flight time plus 12 minutes) and aircraft availability is guaranteed with as little as four-hour’s notice, unless during a pre-defined high demand travel period. (By comparison, a short notice call to a charter provider may not get you an aircraft when you need it.)

Although they purchase a share of a specific aircraft, each share-owner has access to an entire fleet of aircraft within the fractional provider’s fleet, thus ensuring that if their specific aircraft is unavailable when they need it, they will be able to access another aircraft.

The fractional owner can also choose to use a different aircraft type from the one actually purchased, as needed, by exchanging hours at given interchange ratios for different aircraft types.

Indeed, depending on the share size and contract, Fractional Ownership allows for using simultaneous aircraft. If you have a large enough share size, you may be able to book two aircraft at the same time.

In addition to the acquisition cost (or monthly lease payment), the fractional owner will pay a monthly management fee to the provider in proportion to their share size. An hourly fee covers the operating expenses and other nominal fees.

Even though the occupied hourly fee includes fuel, there is usually a fuel cost adjustment to cover fuel price fluctuations. This fuel cost adjustment can be significant and must be considered along with the hourly fee when comparing program costs.

Within each program is a defined Primary Service Area (PSA). Flights outside the PSA may incur additional service charges and positioning fees for the aircraft. This is also true for jet card programs.

If a business owns the fractional interest, that shared asset can qualify for depreciation and other tax benefits when used for business purposes. If the tax benefit is not needed, leases are available.

Fractional contracts can run for three to five years. Pricing, except for the fuel cost adjustment, is set by contract with built-in inflation factors. Fractional providers may offer two-year deals, but they tend to be one-off offers (as opposed to standardized listing). If your flying needs are stable, a multi-year contract may make sense.

Fractional Ownership: When Does it Make Sense?

A fractional aircraft owner can start at 50-hours per year and add hours in 25-hour increments – so if you have a guaranteed 50 hours travel requirement over the next two-three years, that would provide the entry point to begin considering Fractional Ownership.

When comparing prices for traditional charter and jet card programs, the costs favor Fractional Ownership when you are likely to require mostly one-way travel and can plan on using the service for 75 to 150 hours annually.

If you require between 150 and 250 annual hours of use on a regular basis, you may wish to consider whole aircraft ownership.

Depending on the aircraft type, its operating costs and other variables, the difference between owning and operating a quarter share of a new aircraft offered by the fractional provider and owning a used aircraft in excellent condition can be very competitive.

Conklin & de Decker has calculated costs for several prospective fractional owners. One client even had a requirement for 125 hours annually, but had a very predictable flying schedule.

After obtaining a proposal from a management company that would help offset his ownership expenses with charter revenue when he was not using his aircraft, that client found whole aircraft ownership, as opposed to Fractional Ownership made sense in his case.

Another client mostly flew in Mid-size business jets, but also needed a Large Cabin jet for some of their travel needs. The client opted for a fractional contract for a jet in each category.

Although the two fractional contracts cost more than it would to own and operate one Mid-size jet, they were able to meet all of their travel needs without owning two aircraft, or owning one and supplementing their travel needs with a jet card/fractional contract.

The above example should highlight that, even if the total cost to own and operate your own aircraft calculates as less than Fractional Ownership, there will often be other considerations that should factor in your decision. Take each case based on its own merits.

In Summary

Overall, Fractional Ownership offers an excellent first step into the benefits of owning an aircraft. The fractional provider handles all the details, while the share owner has access to experienced flight crews and mechanics. Indeed, if the typical mission profile calls for considerable one-way flying, the costs can be low compared to the other options.

As with all aspects of aircraft ownership, there are plenty of considerations specific to each prospective user that will require in-depth assessment.

 


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Read more about: Fractional Ownership | Business Aviation Ownership | Business Aircraft ownership

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