31. Page 5-2
Private Jet Travel: Understanding the Options
Some programs by their very nature have a high level of financial complexity.
Whole Aircraft Ownership, as an example, typically involves a laundry list of fixed
expenses (financing or lease payment, pilot salaries or monthly management
fees, hangar rentals, chart subscriptions, insurance) and variable expenses (fuel,
maintenance, maintenance reserves, airport charges, catering, weather reports
and charts for specific flights; these are often called “DOC’s”, for Direct Operating
Charter prices, at the other end of the scale, are not particularly complicated. You
pay the agreed hourly rate for each flight hour, plus any incidentals (we are
ignoring positioning flights, daily minimums and similar “inefficiency” issues here,
as they’re dealt with in the discussion of usage patterns).
Block Charter and Block-Frax programs generally offer an uncomplicated pricing
model. Pre-pay and commit to a defined number of hours at a pre-determined
rate. Some, though, debit on the basis of dollars, effectively meaning that the
price per hour can be escalated.
Fractional programs have a somewhat more complex pricing model. You pay
three main charges – acquisition cost, monthly management fee and occupied
hourly rate. These mimic the same categories of expenditures noted for
Ownership, but are aggregated and therefore somewhat simplified. They are
subject to various escalation provisions. Upgrading and downgrading impact
pricing, but in clear, formulaic fashion. You will also pay a take-off/landing fee
that is designed to compensate the program for the costs of the taxi portion of the
trip, on top of the flight hours.
Many costs in business aviation are uncertain.
Whole Aircraft Ownership can involve a high degree of financial uncertainty.
Some costs are fairly predictable (e.g., pilot salaries) and some are quite volatile
(fuel and, lately, insurance). A financial analysis of the all-in cost of Ownership
will be fairly heavily dependent on the resale (“residual value”) assumption used.
How much will the aircraft be worth when you go to sell it? Other costs are also
uncertain. How much will you spend if the FAA decides that your aircraft needs a
special inspection under an Airworthiness Directive or Service Bulletin? What
will you pay for the next heavy maintenance visit (this can be smoothed through
“power-by-the-hour” programs)? What kind of interest rate can you get on an
aircraft loan, or should you lease? And how do you account for the “opportunity
cost” of the investment?
Fractional programs often identify their price certainty, especially as compared to
Ownership, as a major contributor to their success. The Acquisition cost is what
Ownership can be
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.