January 14, 2015

Fractional vs. Private Jet Ownership: A Whole Lot of Difference

January 14, 2015

Fractional vs. Private Jet Ownership: A Whole Lot of Difference

charter-jet-private-jetThe introduction of fractional jet ownership in the 1986 was a watershed moment, bringing the guaranteed availability of a private jet to a much larger audience. The basic concept – have several unrelated parties share in the cost of maintaining a jet full time for a single fractional owner’s small amount of use. It lowered the cost to a point where someone flying only 50-100 hours per year could have guaranteed availability of an aircraft without the expense of whole aircraft ownership. There are downsides to fractional ownership, however – you never fly on your aircraft, you never see the same pilots, and there’s no local client service representatives to service your needs.

Now, nearly 30 years later, much has changed in the industry and economics of whole aircraft ownership. Today you can own your own jet and offset your expense in a way very similar to fractional ownership. Instead of selling fractions of your aircraft to other parties to reduce your cost, Jet Linx can lease the extra available time on your aircraft through our Jet Card program, creating revenue to offset your cost of ownership. The basic concept is the same as fractional ownership (have unrelated parties share in the cost), but the benefits are much greater – you get to fly on your own aircraft, you have your own pilots, and you have local client services representatives to service your needs. You are the only owner being supported, not 16 owners in a single aircraft.

purchase price

“The thought of owning a ‘whole’ aircraft versus a ‘fraction’ of an aircraft can be intimidating,” said Ray Bennett, Jet Linx Aviation Vice President of Sales. “One thing to consider in today’s market is that previously owned aircraft values are still at record lows, which brings the purchase price down to compete much better with the purchase price of a new fractional.

“We also point out that many of the fractional providers are purchasing aircraft with huge volume discounts and then selling the aircraft in shares at retail plus markup,” Bennett said. “This equates to an aircraft value discrepancy when the owner exits the fractional program and receives a ‘wholesale’ valuation. This doesn’t happen when you own the asset yourself – you buy at market prices and sell at market prices.”

operating cost

Once you own a fraction or whole aircraft, there’s the monthly and annual cost to consider. Both options have monthly fixed expenses to pay.

“We provide a clear and concise financial model that includes accurate and real world operating costs for whole aircraft ownership,” said Ron Smith, Jet Linx Atlanta Base President. “We include true representations of the cost and how commercial operations (Part 135 charter revenue operations) benefit and drive down ownership costs. And most importantly, we provide the best forecast possible of future airframe valuations to help manage the exit sale price.” In addition to providing transparent cost analysis, partnering with Jet Linx for aircraft management of your fully owned aircraft has an additional benefit.

“Full aircraft ownership with management services provided by Jet Linx offers the aircraft owner revenue generating opportunities, reducing his or her ownership costs that fractional ownership cannot provide,” Smith added. “Providing a comprehensive operations overview that has all of these elements, in addition to financing and depreciation of the asset, allows a prospective aircraft owner an opportunity to make a good and well educated purchase decision,” Smith added.

reading the fine print

“As with any significant purchase, a full aircraft owner needs to clearly understand all the risks that come with ownership,” Smith said. “While I feel full ownership is more beneficial, there are risks such as unexpected maintenance events, market fluctuations and general upkeep and improvements that are required to maintain value. Many people feel full aircraft ownership can be a hassle and more complicated than becoming a fractional owner, but this is not the case.”

Many details can affect whether a fractional aircraft share is financially viable. “The fractional share purchaser needs to understand the exit provision of the fractional provider,” Bennett explained. “How is the fair market value of the aircraft determined? Is there a remarketing fee? Who is doing the maintenance of the aircraft? The benefit of Jet Linx is that we can assist and elevate those concerns. We can analyze our customer’s flight profile to identify the proper aircraft, assist with the acquisition of that aircraft and then manage that aircraft to the highest safety and maintenance standards,” he said. “We are truly a turnkey flight department.”

“True residual value of the fractional asset has always been in question,” Ropp said. “Typically, a fractional aircraft will accumulate substantial flight hours during the ownership period, which can degrade the residual value of the aircraft. A five-year-old aircraft with five thousand flight hours will have less value than a five-year-old aircraft two thousand flight hours. Fractional ownership programs typically include remarketing fees and have been known to sell the fractional share at a retail rate and then re-market at a lower market valuation. In the end, all of the ‘unknown’ fees quickly increase the owner’s hourly cost.”

before you sign

Ropp included an important piece of advice for anyone considering an aircraft purchase. “Hire aviation experts,” he said. “This is our profession and it will make the ownership experience easier, eliminate unnecessary surprises, uncover costly repairs, and provide owners with the simplicity that aircraft ownership can truly provide.” Smith agreed, adding, “Having a professional and trusted aviation advisor is critical. It’s easy to make a decision to buy based on financial modeling. Purchasing the right aircraft with a quality pedigree and one that will offer the best re-sale value must be done carefully.”

Before you sign on the dotted line, give yourself a chance to try before you buy. “If you’re considering aircraft ownership, buy a jet card and allow yourself to learn what your flight patterns are, what is important to you about the aircraft and what aircraft might is most appealing to you as a prospective owner,” Ropp concluded.

For even more about the differences between fractional and whole jet ownership, Jet Linx, private jet ownership and more, read our magazine, SOAR, today!

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