Introduced in 1986 by NetJets as an alternative to buying a whole business aircraft or using charter, fractional ownership allows you to share the cost of owning and operating an aircraft with others, while retaining the tax and depreciation advantages of making a capital investment. Fractional ownership differs from charter and membership services, because in both of those alternative lift options, you are paying to fly on someone else’s aircraft instead of taking ownership of the airplane.
Today there are more than a half dozen business jet and turboprop fractional programs, each offering its own unique blend of new and preowned aircraft, from light jets and turboprops, to large-cabin, long-range jets, and helicopters. Some owners rely on fractional operators for all their business aircraft needs, while others use them for supplemental lift when their fully owned aircraft is unavailable.
The number of shares you purchase in a fractional ownership transaction is informed by how often you plan to fly. You can purchase as little as a one-sixteenth share, which entitles you to 50 hours of use annually, or up to a one-half share for 400 hours per year. As a fractional owner, you are not limited to flying only aboard your own shared aircraft. A fleet interchange agreement provides you with full access to a fleet of similar aircraft, ensuring that you always have availability on demand. If your particular owned aircraft isn’t available, the fractional aircraft management company will offer you another one from the fleet at the same cost per hour. In all cases, you are paying only for occupied hours, with no charge for pre- or post-flight positioning within a defined area of operations (e.g. continental U.S. or Europe).
Typically, whole aircraft owners/operators are responsible for the maintenance, flight crew, insurance, regulation compliance, and all other details involved with the care and operation of their aircraft. With fractional ownership, however, the management company provides everything, including the hangar space, scheduling, staffing, flight planning, maintenance, catering, and insurance. As a fractional owner, you are guaranteed that an aircraft will be available to you on as few as four hours’ notice. The larger your share size, the shorter the guaranteed response time.
There are three costs involved with fractional ownership: the purchase price, an annual or monthly management fee, and a per-hour rate to use the aircraft. Financing is available for the purchase price, although it comes with stringent requirements. As with full ownership, a subsidiary, affiliated corporation, or special purpose entity can own the aircraft.
Fractional ownership offers both advantages and disadvantages.
An annual travel requirement of 200 hours is the generally accepted level at which owning a whole aircraft begins to make economic sense. With almost 700 fractional business jets and turboprops aircraft available from among the seven leading operators, as well as an additional 5,500+ charter business jets and turboprops available as back up, a fractional share can be logical choice both for moderate business aircraft users, as well as for supplemental lift for whole aircraft owners. BAA
Advantages:
- Lower acquisition cost for an aircraft
- Costs of ownership shared with others
- Guaranteed availability and rapid response
- Ease and simplicity of use and ownership
- Flexibility to use other aircraft types per contract
- Tax and depreciation benefits commensurate with share of ownership
Disadvantages:
- Aircraft and crew differ on each flight
- Higher hourly costs May have “blackout” dates limiting access
- Aircraft show age quickly (due to high annual utilization)
- Reduced resale value due to high times on airframes and engines: 1,200 to 1,500 hours per year
- You may be liable for an accident on owned aircraft, even when owners are not on board
- Typically requires a five-year contract with penalties for early termination
Publisher of Business Aviation Advisor, has nearly 50 years in business aviation including executive positions at aircraft management/charter and ground services companies. He is a past director of the NATA and Corporate Angel Network.
