NAFA Administrator posted an articleAircraft Share Options Explained: Fractional Jet Ownership vs. Charter vs. Jet Card see more
NAFA member, H. Lee Rohde, III, President and CEO of Essex Aviation, discusses discusses private jet share options.
Flying private has long been a popular alternative to flying commercial due to the luxury, privacy, and convenience it affords — but now, in these uncertain times, flying private also provides a much-needed sense of security and peace of mind. As a result, a growing number of individuals are starting to explore private jet share options, particularly fractional ownership, charter programs, and jet card programs, each of which offer the same amenities as outright acquisition with less of a commitment.
In this blog post, we’ll compare fractional jet ownership vs. charter program vs. jet card program to help you find the private jet share option that best meets your unique travel needs.
Table of Contents
- What is a Private Jet Share?
- What is Fractional Jet Ownership?
- When Does Fractional Jet Ownership Make Sense?
- What is Private Jet Chartering?
- When Does Private Jet Chartering Make Sense?
- What Are Membership & Jet Card Programs?
- When Do Membership & Jet Card Programs Make Sense?
- At a Glance: Fractional Jet Ownership vs. Charter vs. Jet Card Programs
- Fly Safer with Essex Aviation
What is a Private Jet Share?
As implied by its name, a private jet share refers to any private aviation program in which you own or lease a share of an aircraft rather than own it outright. There are multiple private jet share options to choose from, including fractional aircraft ownership, private jet membership or card programs and private jet chartering. How a private jet share is structured depends entirely on the program, aircraft model, and number of hours utilized.
What is Fractional Jet Ownership?
Those interested in fractional ownership purchase a share of a specific aircraft type and agree to an annual amount of allotted flight hours. Most fractional ownership programs require a minimum size share of 50 hours of flight time per year, though this can vary depending on the provider. The maximum share size is 800 hours of flight time per year, which is roughly equivalent to ownership of an entire aircraft.
Fractional ownership shares are acquired from the company that operates the aircraft and that has a designed shared ownership program and services agreement in which all share owners participate. This company also employs pilots, cabin crew and flight operations coordinators, administers maintenance and covers airport and hangar fees and insurance, which can be attractive to individuals who want the benefits of aircraft ownership without the responsibility. Some fractional ownership programs even provide the option to upgrade or downgrade the size of the aircraft depending on your trip requirements.
When Does Fractional Jet Ownership Make Sense?
Although the total cost, including the share acquisition or lease, is more expensive than other alternatives, fractional ownership doesn’t require you to pay a “deadhead cost” — that is, any costs incurred from positioning the aircraft at your departure point. Additionally, it’s possible to sell fractional shares back to the program provider, though these shares tend to depreciate more due to their high level of annual utilization, resulting in lower residual values.
Fractional ownership is a popular option among those who frequently travel for business-related reasons because it offers tax benefits. Frequent fliers also appreciate the consistency and continuity that fractional ownership offers. Most groups that operate fractional programs, such as NetJets, FlexJet and AirShare are highly reputable and have well-documented, standardized procedures for everything from how they vet operators to how they sanitize aircraft between one flight and the next.
Fractional aircraft ownership is ideal for individuals who want the experience of flying with an organization with a dedicated fleet of aircraft, pilots, and crew, and who require the flexibility to avoid duty times and other restrictions.
What is Private Jet Chartering?
Private jet chartering is an on-demand service that enables you to compare pricing and amenities for various aircraft types and book the one that best meets your travel needs in much the same way as you’d book a seat on a commercial flight. Those interested in chartering have the option of working with either a charter operator or a charter broker, though it’s best practice to work with a private aviation consultant before considering either option.
When Does Private Jet Chartering Make Sense?
Of the three types of private jet share presented in article — fractional jet ownership vs. charter vs. jet card — private jet chartering requires the least commitment, both in terms of time and expense.
In fact, chartering is the most popular private aviation option due to the fact that it doesn’t require a significant capital cost upfront or fixed costs associated with maintenance and staff salaries — all you have to pay for is the utilization of the aircraft on a trip-by-trip basis. This makes chartering ideal for anyone who wants the private aviation experience without any of the responsibility. It’s important to note, though, that what you save on chartering, you’ll make up for in terms of non-guaranteed availability in a specific aircraft type: It can sometimes be challenging to find an aircraft that meets both your specific needs and your schedule, so you may be forced to choose between one and the other.
What Are Membership & Jet Card Programs?
Membership and jet card programs, though often referred to interchangeably, are structurally unique. With a membership program, you agree to a fixed cost per hour at the start of the contract and are billed after each flight. You’re also typically subjected to either monthly management or annual membership fees.
There are two types of jet card programs: a dedicated service with a predetermined number of hours on a specific aircraft type or size category, and a debit card service that enables you to fund an established travel account and select the aircraft category on a trip-by-trip basis with agreed-to hourly rates. Depending on the program, the provider will either quote you for a certain number of hours during booking and bill actual time upon completion of the trip or deduct the final total cost of the trip from your balance after it is completed.
When Do Membership & Jet Card Programs Make Sense?
Much like chartering, membership and jet card programs are best suited for individuals who want a short-term commitment and require a much lower investment than fractional ownership. Jet card programs, in particular, are appealing because they come at a fixed rate. There’s no need to negotiate the price for each flight — just add money to your jet card account and go. In some cases, you can even cancel your membership and get a refund for unused hours if you’re dissatisfied with your service, which makes jet card programs one of the most accessible points of entry to the private aviation market.
Another compelling reason to consider a membership or jet card program is because most major private aviation companies offer them, making them a reliable option. When evaluating either membership or jet card programs, be sure to work with an experienced private aviation consultant who can steer you toward a reputable company and help you understand the relationship between the program provider and the aircraft you intend to utilize.
If you’re interested in joining a membership or jet card program, keep in mind that they often come with a longer advance notice requirement to schedule an aircraft. This is less of an issue if you’re the type of traveler who books their trips well in advance but can be challenging if you frequently make last-minute travel arrangements, especially during peak periods such as holidays.
At a Glance: Fractional Jet Ownership vs. Charter vs. Jet Card Programs
Fly Safer with Essex Aviation
If you’re in need of private aviation assistance, Essex Aviation Group is here for you. From private jet charter consulting to new aircraft acquisition to aircraft completion management, we offer a wide variety of services tailored to support the travel needs of each and every customer. Contact us today to let us know how we can help you find the private jet share option that’s right for you.
This article was originally published by Essex Aviation.
NAFA Administrator posted an articlePrivate Aviation Tax Considerations for Prospective Aircraft Buyers see more
NAFA member, H. Lee Rohde, III, President & CEO of Essex Aviation Group, Inc., discusses tax considerations when purchasing an aircraft.
Acquiring a private aircraft for personal use is an exciting experience, one that opens innumerable doors for frequent travelers — however, to ultimately realize the benefits of your investment, you must first ensure that you’ve fully accounted for all financial considerations, especially aviation taxes.
Too often, private aircraft owners aren’t fully informed of certain taxes that are involved in the ownership and operation of the aircraft; which are important as it relates to their operating budget and the overall aircraft ownership experience. That’s because tax considerations should be structured not only during the initial transaction, but throughout the ownership lifecycle, and can affect how you decide to utilize your aircraft.
Read the recommendations below to avoid being blindsided by private aviation taxes.
Location, Location, Location
You might be surprised to learn just how many soon-to-be private aircraft owners ignore the opportunity to create even the most basic tax plan in advance of a transaction. Generally speaking, this isn’t for lack of interest but, rather, lack of understanding. Many buyers simply lack the awareness and experience to appreciate how seemingly minor factors, such as the physical location of the aircraft at closing or the location of the hangar where they intend to house their aircraft, can affect taxes.
For example, some states place a substantial sales tax on aircraft, while others have fly-away exemptions with strict timelines and requirements. Certain states also apply use and property taxes to aircraft purchases or transactions, which can vary and are affected by a number of factors. As federal and state tax laws change over time, working with an experienced aviation advisory team during your transaction will only become more valuable and necessary.
Plan in Advance
It’s unreasonable to expect potential buyers to automatically be familiar with state aviation tax regulations and laws, especially as they pertain to private aircraft, which is why it’s important to work with a qualified aircraft consultant and aviation tax advisory firm. Although private aviation consultants aren’t able to provide complete tax advice, they can help you determine the following in advance of your purchase date:
- What your regular usage will be
- Where you intend to fly (and for how long)
- Where you intend to store your aircraft
- How tax considerations affect your ownership structure
- How to identify aviation tax counsel
Your consultant can also act as a liaison between you and the seller, representing you throughout the transaction, as well as managing the process of positioning your aircraft at the right location during the time of closing for tax purposes.
Consult a Tax Attorney
In addition to determining your private aircraft usage and handling your acquisition, an aviation consultant can set you up with experienced aviation tax advisors and tax attorneys to round out your team. Aviation tax advisors and tax attorneys are well-versed in aircraft-specific tax codes and have the expertise to identify possible deductions or opportunities to maximize your tax savings by reducing the amount you pay for sales, property and ongoing use taxes. It’s impossible to emphasize enough just how important it is to work with aviation-experienced tax advisors and attorneys — only professionals with extensive industry experience will have the unique knowledge to properly address all of your tax considerations.
Your private aviation consultant should work closely with your tax team every step of the way. Even if you do your due diligence from a tax perspective, there’s a possibility that, at some point, you’ll be audited. Should this occur, your consultant, tax advisor and aviation attorney will collaborate and help represent you during the audit.
The right aviation advisory team will consistently go above and beyond for its clients, whether that entails figuring out which private aviation travel option best meets their unique needs, helping them understand how tax considerations affect their cost of ownership and operation, or tirelessly advocating on their behalf. With a collective 70 years of experience in the aviation industry under their belt and a vast network of connections, the consultants at Essex Aviation Group are uniquely qualified to usher clients through every step of the private aircraft acquisition process, as well as put them in touch with some of the best aviation tax advisors and attorneys in the industry.
This article was originally published by Essex Aviation.
The Aircraft Buyer’s Guide to Private Jet Financing see more
NAFA member, H. Lee Rohde, III, founder, President and CEO of Essex Aviation Group, Inc., shares tips on private jet financing.
Even for high-net-worth individuals, whether to purchase a private aircraft might rank as one of the most expensive — and, potentially, lifestyle-changing — decisions they’ll ever make. From upfront costs to the ongoing costs of maintenance, hangarage and direct operating costs, private aircraft ownership requires a significant capital investment but, for those who frequently fly for business or personal reasons, it provides unparalleled travel experiences.
The fact of the matter is that the comfort, convenience, luxury and freedom that private aviation offers would be compelling to just about anyone and considered well worth the cost by those who can afford it — so let’s talk about the options to best structure it through private jet financing.
Let’s Talk Costs
Before a buyer kickstarts their search for a private aviation lender, they’ll first want to thoroughly consider the costs of purchasing a private jet. Conservative estimates place the cost of a brand-new private jet between $7 million and $75 million, while the most expensive private aircraft in the world — those of commercial size but modified for private use — cost well above that range.
For those buyers hoping to minimize their capital investment in an aircraft, acquiring a pre-owned aircraft can offer many of the same benefits as a new model with a reduced capital cost. However, for the following new aircraft, current industry data included in the VREF Aircraft Value Reference Guide offers some perspective on pricing and just how expansive the private jet financing industry is.
Bombardier • Lear 75: $13.8m
• Challenger 650: $32.4m
• Global 5000: $50.4m
• Global 6000: $62.3m
• Global 7500: $72.8m
Cessna • Citation M2: $5m
• Citation CJ3+: $8.6m
• Citation CJ4: $9.6m
• Citation XLS+: $13.6m
• Citation Latitude: $17.3m
• Citation Sovereign 680+: $18.8m
Embraer • Phenom 100 EV: $4.5m
• Phenom 300: $9m
• Legacy 450: $16.6m
• Praetor 500: $17m
• Praetor 600: $21m
• Legacy 650E: $26m
• Lineage: $50m
Dassault • Falcon 2000S: $30m
• Falcon 2000LXS: $35.1m
• Falcon 900LX: $44.8m
• Falcon 7X: $53.8m
• Falcon 8X: $59.3m
Gulfstream • G500: $46.5m
• G600: $57.9m
• G650: $69.5m
Pilatus • PC-24: $9.5m
Choosing the Right Lender
The road to private aircraft ownership should begin with the decision to retain the services of an aviation consultant or a jet financing broker. It is the responsibility of an aviation consultant to understand the buyer’s needs and situation to direct them to an appropriate tax attorney and, ultimately viable lenders and financing structures. Once the consultant has completed these steps, the process of researching lenders, requesting and reviewing lender proposals and working with the client or the client’s team is fairly straightforward. A consultant’s primary contribution is to apply their knowledge and considerable network of industry connections to facilitate the financing solution that best serves the client’s unique needs and requirements.
High-net-worth individuals often partner with aviation consultants and finance brokers through their private wealth advisors or in-house finance team in order to identify the best options available. Clients in different segments of the market who might not have the same level of in-house financing staff to support their needs can also benefit from assembling a team of third-party experts within the private aviation industry. Whether they’re working with an in-house finance team, a third-party private aviation consultant or an aircraft finance broker to evaluate lenders, buyers have three private jet financing options from which to choose:
- Traditional Banks: For most buyers, utilizing their current bank can be the most efficient choice for jet financing due to their existing relationship. The bank already has a complete portfolio of the buyer’s finances, which can make the loan process that much more efficient.
- Banks With Aircraft Finance Groups: In the event that a buyer’s current bank cannot provide jet financing, it may still be able to use its industry connections to put the buyer in touch with a different bank that has a dedicated aircraft finance group. These institutions specifically have a vested interest in private jet financing and already manage a large aircraft portfolio and would therefore be more inclined to offer private jet financing to a buyer without an existing relationship.
- Private Lending Groups: This type of lender is able to provide private jet financing by raising capital within equity markets to support their portfolio growth. Though private aircraft lenders are less common than their traditional banking counterparts, they are a viable option for buyers who, for whatever reason, wish to avoid securing a loan with their primary bank or a traditional bank. Buyers who choose to pursue this private jet financing option are still advised to work with a private aviation consultant and tax attorney to confirm the lender’s position in the market and whether it’s a suitable option for the buyer in question.
Criteria for Private Jet Financing Evaluation
It is, understandably, in a lender’s best interest to be highly discerning about who it grants private jet financing to and how much it lends. Therefore, similar to home mortgage lenders, private aircraft lenders have strict criteria for evaluating potential borrowers, as well as additional portfolio parameters based on the age and models of aircraft they’re able to finance.
For buyers who want a better understanding of this criteria, look no further than the “5 Cs” of credit: character, capital, capacity, collateral and conditions.
- Character refers to the borrower’s reputation and the stability of their credit.
- Capital refers to the borrower’s net worth and the types of capital assets they currently own.
- Capacity refers to the borrower’s ability to pay on the loan, as well as their current debt-to-income ratio.
- Collateral refers to the assets that the borrower is able to pledge to secure the loan.
- And, finally, conditions refer to how the borrower intends to use the aircraft, as well as external factors such as pending legislation that could affect the loan and the current state of the economy.
Buyers should be aware that most lenders have specific loan covenants, and that their lender of choice might require periodic reviews of the aircraft’s market value and also organize third-party inspections to determine whether the aircraft is being kept in the proper condition.
Alternatives to Private Jet Ownership
For individuals who want to replicate the experience of owning their own aircraft without having to worry about securing private jet financing, there are multiple alternatives to outright ownership:
- Private Jet Lease: The individual leases an aircraft from the owner for a specified period of time and assumes full operational control — similar to direct ownership — without transferring the aircraft title. Private jet leasing offers similar operational benefits, which can make it a viable option for buyers who are not able to take advantage of the tax benefits that direct ownership can provide. In some cases, however, private jet leasing agreements preclude the lessee from using the aircraft for third-party charter (FAR Part 135).
- Fractional Aircraft Ownership: The individual invests in partial ownership by purchasing a share of a specific aircraft type and agrees to an annual amount of flight hours depending on their specific travel needs. Fractional ownership often comes with significant upfront acquisition and monthly operational costs, but fractional owners save on deadhead costs.
- Private Jet Membership: The individual agrees to a fixed cost per hour at the start of the contract and is billed after each flight. Members are also expected to pay monthly management or annual membership fees.
- Jet Card Program: The individual either agrees to a predetermined number of hours on a specific aircraft type or size category (dedicated service) or funds an established travel account and chooses the aircraft category on a trip-by-trip basis, after which the cost of trip is calculated and deducted from the account’s balance (debit card service).
- Private Jet Charter: The individual charters — that is, rents — an aircraft for each specific trip they wish to take. Private jet chartering can be well-suited for individuals with relatively low annual travel requirements, but who fly to areas that cannot be easily reached by scheduled airline service.
A Final Note
Buyers interested in purchasing a private jet should assemble a team of professionals to assist them at every step of the process. From sorting out aircraft-specific tax considerationsto hiring an aircraft management company to handle day-to-day operations and support once the purchase is complete, buyers will want to have qualified and capable industry experts on their side — starting with a private aviation consultant.
At Essex Aviation, we have a combined 70 years of aviation experience; in that time, we’ve had the opportunity to learn the ins and outs of the private aviation industry, as well as develop strong relationships with service providers and other vendors. We’re able to leverage this knowledge and our vast network of industry connections in order to ensure that our clients’ unique private aviation requirements are met with unbiased guidance and that they have a quality client experience, from start to finish.
This article was originally published by Essex Aviation Group, Inc.
Private Aviation Case Study: Finding the Right Combination of Services see more
NAFA member, H. Lee Rohde, III, President & CEO of Essex Aviation, shares a private aviation case study on finding the right combination of services for your aviation needs..
The client, an executive in the venture capital division of a global asset management firm, spends a significant amount of time traveling, for both professional and personal reasons. A longtime private flyer, the client also frequently makes use of private aviation services for his family.
Prior to working with a dedicated private aviation consultancy, the client utilized the services of a number of different jet carriers on a charter basis, quoting and scheduling each flight individually with help from his executive assistant.
Following a move from Massachusetts to Vermont, the client saw a significant increase in his volume of travel, both personally and professionally. Since the client continued to work in Boston, he began to use small light jet charters to commute from Vermont to Massachusetts on a weekly basis. As the number of charters began to add up, the client realized he needed a more practical solution to his private aviation needs.
In addition to an increased volume of travel, the client also increased his use of other charter aircraft instead of his charter provider’s fleet of aircraft; this prompted the client to look at alternative or supplemental lift options for his ongoing travel.
Based on a referral from his wealth management firm, which has worked with Essex in the past to handle other clients’ travel requirements, the client turned to Essex Aviation Group for dedicated private aviation consulting services.
The consultants at Essex immediately set to work conducting a comprehensive flight history analysis for the client, examining key metrics such as the average duration of the client’s flights, mileage, frequency, aircraft type, etc. Based on the results of this analysis, Lee Rohde, President and CEO of Essex Aviation, crafted a multiple service provider program that would best meet the client’s various business and personal travel needs. The program Lee developed included a combination of a membership program, card program and fractional share provider, which reduced some of the overall flight costs by as much as 50 percent.
By working with Essex Aviation the client was able to reduce some of the overall flight costs by as much as 50%
Essex Aviation’s ability to adapt to the client’s changing private aviation needs has contributed to a positive, ongoing relationship.
Recently, Essex facilitated the sale of the client’s shares in the fractional share program, processed renewals with his business aviation services provider and re-evaluated his usage, helping him shift from a 25-hour jet travel card to a 50-hour renewal. According to the client’s executive assistant, the client continues to rely on Essex for tracking analysis and fully intends to engage Essex’s services in the future for an updated usage analysis.
“Lee’s always ready with the next step and the next idea — he often points out options I might not think of or see,” said the client’s executive assistant. “He’s also patient with us as our needs change, especially since we don’t always have time to delve into things ourselves.”
Together, the client and the team at Essex have developed an efficient system for exchanging and updating information, as well as demarcating professional and personal usage, all of which allow for more in-depth ongoing usage analysis.
Said the client’s executive assistant, “It’s been a pleasure all along to work with Lee. He’s extremely responsive and has been able to provide a quick turnaround on everything we’ve asked for. Everything’s running like a well-oiled machine.”
To download the full case study, click here.
This article was originally published on Essex Aviation's blog.
Mission Requirements Changing? Lee Rohde Discusses Your Options with Business Aviation Advisor MagazineH. Lee Rohde, President of Essex Aviation, discusses options to consider when aviation needs change. see more
NAFA member H. Lee Rohde, founder, President, and CEO of Essex Aviation, advises on a few different options to consider when your aviation needs change.
When your aviation needs change, there are a few options to consider, such as total aircraft replacement, refurbishment or utilizing third party supplemental lift services. Lee Rohde, President & CEO of Essex Aviation recently shared three avenues to consider with Business Aviation Advisor in their featured cover story, Time for a New Aircraft – or Not?
An experienced and unbiased aviation advisor can help you weigh the different options and make a choice that is right for you or your client’s unique needs. Read the full article to learn more about the alternatives to aircraft replacement and then contact Lee Rohde or Tom Mitchell who can help answer any of your questions.
This article has been publish as it appeared in the March/April issue of Business Aviation Advisor.