32. Page 5-3
Private Jet Travel: Understanding the Options
it is. The Monthly Management Fee is essentially fixed, though it might have a
CPI-based escalation. The Occupied Hourly Rate is also essentially fixed,
though subject to inflation and fuel escalation. The main area of financial
uncertainty in a Fractional program relates to the resale value of the share. The
program commits to pay you fair market value (less the remarking fee) but how
much will that be at termination?
Block Charter, Block-Frax and Charter programs offer an even higher level of
financial certainty. After all fees have been disclosed and agreed to, charter has
almost no uncertainty. Within a contract term, you can predict most of your Block
Charter and Block-Frax costs quite accurately (but there are fuel escalators, and
see our comment on the potential for rate escalation where the programs debit
on a dollar, rather than hour, basis).
Some, though by no means all, of the programs quite naturally do not go out of
their way to point out some of the smaller costs that users can incur. These are
sometimes called “hidden charges”, though they are typically spelled out in the
contract. Nonetheless, they can add up, and comparing a quoted price from
such a program can give a false picture, without diving in deeply, especially if
comparing it to a true “all-in” price from another program. Overnight charges and
daily minimum fees in some programs have to be analyzed. Similarly, some
charge a take-off/landing fee that might exceed the true ground time, depending
on airports used.
The financial aspects of the programs can be heavily driven by tax
considerations, especially, though not exclusively, if you take title to the asset.
How much depreciation will you take? Over what time frame? Accelerated or
straight-line? What about recapture at the time of sale? Or capital gains tax?
Will you engage in a like-kind exchange? Will you have to pay any state sales
and use taxes? What about Federal transportation Excise Taxes on
“commercial” operations? What will your tax bracket be at the time of resale?
Will your holding company create “passive” losses, and if so do you have
sufficient passive gains to offset them? Which of your trips are for legitimate
business purposes allowing income tax deductions? These questions just begin
to scratch the surface of the types of taxation issues that can come up.
Whole Aircraft Ownership and Fractional programs can involve business
deduction, depreciation, capital gains, like-kind exchange, states sales and use,
and potentially “passive” loss taxation issues.
Block Charter, Block-Frax and Charter programs would ordinarily involve only
Federal transportation Excise Tax, business deduction and potentially “passive”
Beware of hidden
Tax issues 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.