11. Page 3-2
3. Program Characteristics
Private Jet Travel: Understanding the Options
other aircraft in the Fractional Ownership program. This contract, by and
between all Fractional owners in the program, allows an owner of one specific
aircraft to use an aircraft owned by another group of individuals.
As you will be taking legal ownership of an aircraft share, the documentation
involved in Fractional Ownership is fairly substantial. While outside advice is not
necessary, it is common.
Financial Considerations of Fractional
The Fractional programs, whether new or used, generally follow the same
financial model. Payments fall under three categories: share acquisition cost,
aircraft management fee, and an occupied hourly charge. The acquisition cost
reflects the shareowner's portion of the "sticker price" of the aircraft (i.e., a
quarter share owner will pay 25 percent of the price of the aircraft). The "sticker
price", however, could be wholesale, retail, retail-plus, or anywhere in between.
The program typically agrees to repurchase your share at the end of the term for
"fair market value", less a remarketing fee. You assume the risk or reward as the
value of the aircraft changes during the ownership period.
The management fee is typically paid to the Fractional program on a monthly
basis. The amount differs by the type of aircraft involved and the size of share
owned. The fee is meant to cover fixed costs such as pilot salaries and
expenses, insurance, and other miscellaneous costs. As contract terms can
often last five years or more, most programs include escalation clauses on the
monthly management fee (often a derivative of CPI).
The occupied hourly rate is the amount paid for each flight hour used. The
bigger the aircraft the higher the rate. Fuel and maintenance are the biggest
drivers of this fee. You pay for the time from takeoff to landing, with most
programs adding time (typically 1/10 hour) before takeoff and after landing to
compensate for time spent on the ground (e.g., taxi time). Most programs have
set one hour as the minimum flight time charged. The occupied hourly rate is
often escalated based on a CPI derivative, with a separate adjustment for the
price of fuel.
The major Fractional programs do not directly charge you for any type of
repositioning flights (i.e., flights required to move the aircraft to where it is
needed, flights to maintenance bases, etc.). Expenses associated with these
flights are "built in" to the program rates and spread among all the shareowners.
Of course, a large network of aircraft allows programs to more efficiently serve
customers' trip requirements.
If you live in a relatively remote area, Fractional (or Block-Frax - see next section)
may be the most economically viable options. The Fractional operating model
does not penalize inefficient travel or levy a fee for positioning flights as others
Fractional is usually a great value for users with high annual travel requirements
or from a per-hour perspective over multiple years. In addition, the highly
Independent Source: Deloitte Private Wealth, Private aircraft: Flying private makes sense for those with the right information (page 20)
*This website has no affiliation with Deloitte.