Fractional Jet Ownership

[3 in trail]

Hey guys and gals. I have a sister that has been chartering Lears for the last few months and is hooked on biz jet travel. She has commissioned me to explore the merits of fractional jet ownership. I have been out of the biz jet field since the inception of fractions but have been doing some homework on the particular companies offerings. I am particularly entised about the prospect of getting a 1/4 share in a Flight Options used Citation III or Hawker 800 for about the same price you can get a Citation Excel in NetJets. What is the catch? Any knowledge anyone could share on this particular or any other fractional jet subject would be very much appreciated.

[jollyboy]

I work for Flexjet Europe. We operate Challenger, Lear 60 and Lear 31A. Your best bet is to talk direct to the sales people for each program and ask them the questions straight out. There is no such thing as a free lunch and therefore waht you save in price/gain in larger aircraft must be paid for down the line ie older aircraft and therefore maybe more prone to tech probs etc or interiors not so nice or call out times are longer
Let me know if I can be of any help

[LAVDUMPER]

3 in trail,

Good question. First, I believe all of the fractional programs are good ones and have their own merits and demerits.

In the case of Flight Options, all of its aircraft are fully-refurbished with at least 5 years of history on them. In this case, the benefits of owning a pre-owned (or used) aircraft include lower share cost (market value of aircraft is already reduced) and, most important, the existence of accelerated depreciation.

The sales people at Netjets and Flexjet do not want you to know about accelerated depreciation... It is clear that the value of an extensively-used corporate aircraft is decreased after its first 5 years of use. At the end of that 5-year period, an owner might want to sell that aircraft and would have to settle for a drop in price because of wear-and-tear over the past 5 years. Well, if you buy a fractional share of a brand-new aircraft, the "residual value" or end value of your share will be considerably less after that 5-year period (comparing the value at the beginning with a new aircraft and the value of a 5-year old aircraft). In other words, there is a big decrease in value of your share from brand-new to 5-years old.

Now, Flight Options acquires aircraft with 5+ years of life on them - after the value has been reduced through depreciation for the original owner. The aircraft is fully refurbished but repriced to reflect that depreciation - or the current "market value." One quarter share of a 5-year old aircraft could be much lower than that of a comparable "brand-new" aircraft.

The key is that the end or "residual" value of your Flight Options aircraft share would not decrease AS MUCH because the difference in value between a 5-year old aircraft and a 10-year old aircraft (if you use your 5-year old Flight Options aircraft for 5 more years) is not as much as the difference between a brand-new aircraft and a 5-year old aircraft. The value of your Flight Options share would not decrease as much over the 5-year period that you use it - you could eventually sell your residual or end value for an amount closer to your original share purchase price. To sum up, the drop in value over the first 5 years of the aircraft is considerable.

Plus, if you were determined to spend X-amount on an aircraft share, you could probably afford a share in a bigger aircraft at Flight Options (e.g., you could probably buy a 1/4 share in a Flight Options Falcon 50 for the same amount you would spend on a NetJets Hawker share and get the same residual, etc.).

The choice is yours. I think all of the fractional programs are good. Flight Options, however, is experiencing tremendous growth because financial people (i.e., CFOs) are beginning to understand that they get comparable aircraft and service for considerably less at Flight Options (they understand the concepts of depreciation and residual values).

Of course, NetJets might offer more international options and service at this point, but Flight Options will be adding pre-owned intercontinental Gulfstream IVs in the near future to offer its clients a broader array of "options". Hey, I should be their official spokesman... I hope this discussion wasn't too technical or boring. Information is key in these types of expensive decisions.

Regards


------------------
In the land of the blind, the one-eyed pilot is king!

[rick1128]

3 in Trail,

There is another option your sister should look at. Ownership. First how much flying does she forecast doing? If it is 400 hours or more a year, she will be better off owning. If it is anywhere close to 400 hours, she should give it careful consideration. She will find that having an aircraft available all the time that she will find more uses for it. If she doesn't want the bother of managing the aircraft herself, there are several management companies.

[jollyboy]

3 in Trail
What lavdumper says is correct. These sort of questions should be asked direct to the sales people. make them feel hot under the collar. The slight difference with Flex in Europe(and Im not doing a sales job here) is that we dont actually sell a share of an aircraft. The client pays a fully refundable deposit, which is repaid when you leave the scheme.
What rick1128 says also is good info. If your sister flies anything more than 300 hours/yaer she should consider her own aircraft.

atb
jollyboy

[Daifly]

Mail me - I'll help ya!

It might be more biased towards ownership, but we're one of the most experienced Lear operators in Europe.

[Mzee]

Talk to Chauffair at Farnborough, they have a good similar programme called 'AirShare', less money up front and cheaper. They operate Hawkers Citations abd Lears but are getting 7-9 Excel's next year.

[Foxxy]

How old's your sister?, sounds like she needs to go for a nice meal in an English pub with an expert corporate aviation consultant, capable of giving an accurate summary of her best way to achieve her goal.

[mstodd]

The benefit of using the older aircraft in Flight Options is that the aircraft residual value is higher since you are buying into an older aircraft that has already depreciated. Anyone trying to divest a share in a newer aircraft pays a heavy financial penalty upon exit/upgrade (especially with in the first 5 years within the US). Be sure to look at the value of the aircraft a few years down the road.

[3 in trail]

My sincerest appologies to Jollyboy, Rick 1128, Daifly, Mzee, Foxxy, Mstodd, and especially Lavdumper. Shortly after posting this message I spent a week in the hospital with a bad wheel. I am back in bizness and back online. Thanks to all of you for your replies. Some very good info.

My Sister is very close to choosing a fractional plan. I think this is best for her and her family because she only plans on flying 175-200 per year. My understanding is that anything under 50 hours, charter, anything over 400, purchase. So we will see how the first year goes and she if she needs more or less time, or mayby trade up or down in size. These programs seem flexable in that regard.

She will fly in and out of San Jose (SJC), California and have on average 4 pax for intercontinental travel. But mainly on the West Coast, USA. My recomendation to her, if the desciion was mostly economically motivated was the Citation III with Flight options. Lots of swept wing A/C for about the same as a Citation Ultra. If the descision was not about money, but about speed and comfort, I am partial to the Lear 45 with FlexJet. I am a little partial to the Lears with 3000+ TT in the 30 series. I was at the 97 Paris airshow (flew a Lear 35 up and around from Oregon) as was very immpressed with the mock up they had on static display. I was drooling. A streched Lear 35 with single point, fuel heaters, I think, APU, a real lav and external bags. If she wants a new light Jet and does not care about cost or depreciation, the 45 gets my vote.

I think a new A/C is extremely overrated, for the obvious finalcial reasons Lavdumper so elloquently spelled out, and for the asthetic as well. You can have a 1-2 year old A/C, but if it is not maintained well it does not matter. I flew 15 - 20 year old A/C that were absolutely spotless with care of maintenance to match. This leads me to my next question. I would love to see a couple of Flight Options A/C but am unable to get out. Anyone with any knowledge of how clean they keep their equipment?

Again, thanks to all that took the time to respond.

Cheers from the left coast (USA)
3 in trail