NAFA member, Amanda Applegate, Partner with Aerlex Law Group, answers your questions regarding private aviation during and after a pandemic.
As the United States and other countries around the world start to lift their stay-at-home restrictions, many individuals and companies are electing to increase or exclusively fly privately for the foreseeable future. Prior to the global pandemic, a number of companies and individuals used either a hybrid solution of flying, which included both private and commercial flights, while others elected to fly all flights commercially, even when private aviation was financially viable. The reasons for these choices, such as cost savings or flight shaming, are now being significantly overshadowed as a result of the global pandemic. Today those companies that previously used a hybrid model have new mandates which extend private flying rights to more employees for both business and/or personal use. In addition, those who previously elected to fly commercially are now more likely to select a private aviation solution when it is financially practicable.
I have been inundated with questions related to immediately available solutions to cover the new normal individuals and companies are navigating. When looking for a private aviation solution the usual choices are still available: ad hoc charter, membership programs, pre-paid jet cards, leases, fractional ownership and whole aircraft ownership. What is different and hard to evaluate is the financial stability of the various service providers. When considering a service provider for private aviation, a few new questions should be asked:
• What was the cash position of the service provider prior to the pandemic?
• Did the service provider receive any funds from the CARES Act?
• Has the service provider defaulted on any significant loans?
• If funds are prepaid to the service provider, are the funds maintained in separate accounts and who is the owner of those accounts?
• What budget cuts has the service provider implemented during the pandemic? Have any employees been laid off?
We have already seen the closure of some private aviation companies as a result of the downturn in flying caused by the global pandemic. Some of these companies had significant prepaid deposits from customers on hand at the time of the closure, which are unlikely to be recoverable. Furthermore, we know that as companies struggle financially that budget cuts will be made, and it is important to understand how the budget cuts may impact safety and service.
As a result of the financial uncertainty of many private aviation companies, it is more important than ever to have any unsecured prepaid funds maintained in a separate account and in the name of the customer. If that is not an option and the financial information of the service provider is questionable or not available, then negotiating that the prepayment of funds be adjusted into smaller and more frequent payments is recommended.
When transitioning into a private aviation solution and/or increasing private aviation use, it is also important to look at the duration of time that the use and/or increase in private aviation use will occur. If the new normal for you or your company will likely become a permanent change, then whole aircraft ownership or fractional ownership should be strongly considered, particularly if the number of flight hours needed per year will exceed 100. If the change is anticipated to be temporary or the number of flight hours needed is not significant, then a less permanent solution such as a membership program, jet card or a fractional lease should be considered. If whole aircraft ownership is not the solution selected, then the cleaning process and safety procedures implemented by the service providers should also be evaluated.
Finally, it is important to not rush the process of purchasing an aircraft or selecting a private aviation service provider. Be sure to evaluate the service provider selected and in the case of the purchase of a whole aircraft, the aircraft selected should go through a complete pre-purchase inspection. Taking such precautions and being deliberate in your evaluations will save you money and help you avoid pitfalls in the future.
This article was originally published by Aerlex Law Group on July 14, 2020, in Articles, BusinessAir Magazine, The Latest.