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The Ultimate Upgrade
Fractional purchase, leasing and membership plans can bring a private jet within your reach.
by Jim Glab – Executive Travel – 06/01/04
So, you think you're pretty special
with your Platinum-level frequent flyer memberships,
limitless first-class upgrades, private airport lounges
and airline employees who know you by name?
But you're still standing in the security line with
everybody else, killing time in hub airports waiting
for connections, and booking flights of two, three or
four segments to get where you need to be. Maybe
it's time for the ultimate upgrade: a private jet.
OK, so your company doesn't have millions of
dollars in its budget to buy a Gulfstream or a Lear
for exclusive use by you and your fellow execs. But
today's business aviation industry has plenty of other
options. You can always charter a jet for a given individual
trip, but the real status symbol these days is
having a jet waiting at your beck and call without
buying it outright. One of the fastest-growing segments
in aviation is called "fractional ownership";
and now there are even newer programs that let you
acquire as little as 25 hours of private jet-flying time
without buying an ownership share. If you and your
top corporate colleagues currently have an annual
air travel budget that's approaching or greater than
six figures, it might be time to look into private jet
membership plans or fractional ownership.
According to a study by Honeywell Aerospace,
the number of individuals and companies owning
a share of a business jet (as opposed to a whole
jet) jumped 124 percent between 1999 and 2002,
to 5,827. And that's only "a small fraction of the
potential fractional business," the company says.
This segment of aviation is becoming so significant
that last year, the Federal Aviation Administration
(FAA) issued separate operational and safety regulations
applying specifically to the operators of fractionally-owned aircraft, essentially subjecting them
to the same stringent rules as jet charter operators.
"A lot of fractional owners are executives with
companies—some publicly traded, but more often
privately owned. Others are large companies that
have their own aircraft but have gone to fractional
as a way to expand their aircraft usage without having
to expand their own fleet," says Stephen Hofer,
an attorney with Santa Monica, Calif.-based Bailey &
Partners and a specialist in fractional jet purchases.
He adds that many of his own clients are movie
producers, directors and actors who buy fractional
shares for their personal convenience.
Convenience, he notes, is a big part of the reason
for going fractional: You travel when you want to,
not when the airline has a flight scheduled. You'll
probably use a smaller airport with none of the
traffic congestion and crowds of big commercial
airports. You fly directly to your final destination
without connections or layovers. You can often
make a round-trip in a single day instead of staying
over. And, of course, you and your colleagues have
an entire plane to yourselves.
Here's how it works: The purchaser buys a
fractional interest in the aircraft of choice, ranging
from a one-sixteenth to a one-half share. These
are typically five-year commitments, and the size
of the share determines how many hours of flying
time you're entitled to per year—ranging from 50
hours for a one-sixteenth share to 400 for a one-half interest. The cost varies considerably, depending
on the size of the plane: Bailey & Partners cites
a range of $275,000 for a one-sixteenth share in a
used BeechJet that seats seven to $20 million for a
half-share in a Boeing Business Jet (i.e., a modified
737). You may not fly in the exact same aircraft
each time, but you will fly in the kind you bought
into, usually with no more than a few hours'
notice required. The operating company provides
the flight crew and takes care of the aircraft and all
related services.
A typical purchase, Bailey & Partners says, would
be a one-eighth share (100 flight hours per year)
for $1.25 million. But that's just the cost to buy
in; fractional ownership also requires payment of
management fees (covering pilot salaries, administrative
costs, hangar rentals, insurance and such)
that average around $12,500 a month; and usage
charges (for fuel, maintenance and landing fees) of
about $1,750 an hour, bringing the total five-year
cost of this typical fractional purchase close to $3
million, including insurance and finance fees.
Purchasers must figure out what kind of plane
best suits their needs and whether it's worth the
cost. "We always advise clients to analyze their
standard mission profile," Hofer says. "Where
they do most of their flying; what it's costing in
additional time lost with hub-and-spoke travel, layovers
and changed flights; how fresh the executives
are when they land.... Some of these things are hard
to quantify, but if a CEO has to take two days for a
business trip that he could make in one day, there
may be a significant benefit to the company [in]
having him back in the office the next day instead of
being trapped in an airport somewhere."
Aircraft selection depends on lots of factors, Hofer
adds. Not just where you're likely to go most often,
but how many people will usually be traveling, how
much luggage space they need, and whether they
expect to conduct meetings on board. "If most of
your traveling is from Chicago to Minneapolis or
St. Louis, you don't need a G4," he says. "If most is
between Los Angeles and New York and you don't
want to make a fuel stop, then you have to look at a
different type of aircraft."
He notes that the major fractional ownership
programs (see below) allow participants to switch
to another type of aircraft for a specific trip if they
need to—a transaction called an interchange. "With
NetJets [the largest fractional operator], for example,
you can go from a Citation Excel all the way up
to a Boeing Business Jet; the only difference is you'll
pay an interchange rate—a surcharge based on the
percentage difference of operating a bigger versus
a smaller plane," Hofer says. "And it works both
ways—if you bought a G4 and for a particular flight
you only need the capabilities of a Citation XL, you
can interchange down to the smaller aircraft."
Besides aircraft type and cost, there are other factors
to consider in a fractional purchase: the terms
for getting out of your ownership stake, either by
selling it back to the operator or to a third party;
how much insurance the operator provides, and
whether you have to buy additional coverage yourself;
the tax benefits of ownership; and so on.
Security at executive jet terminals has tightened
up considerably since September 11, 2001, Hofer
notes. "That said, it's hugely more convenient to
go through a private jet terminal [than a commercial
airport]. Basically, the pilot walks out and sees
you're Mr. Smith of the Smith Company, and if you
can identify yourself, he's going to walk you out to
the jet right away. It's the difference between half
an hour getting through the terminal in a public
airport versus five minutes in an executive air terminal....
You're not taking your shoes off or going
through metal detectors."
Still, if committing to at least 50 flight hours
a year and the other associated costs is too rich
for your blood, there are alternatives, including
blocked charter hours and subleases of fractional
shares. These types of jet membership programs,
which generally allow you to buy a minimum of 25
hours of private jet flight per year, don't involve the
purchase of a share in the aircraft and don't require
monthly management fees or usage charges; but
they do have some of the same advantages as fractional
ownership, including guaranteed availability
of the type of plane you want, access to thousands
of airports nationwide instead of just the few hundred
served by commercial airlines, and interchange
possibilities for other aircraft types. For example:
The Marquis Jet Card program starts at about
$110,000 for 25 hours on a Citation V Ultra.
Marquis uses the hundreds of planes in the NetJets
fleet. If the plane you want isn't available, you may
get an upgrade to a larger or more luxurious model
at no cost. www.marquisjet.com
Sentient Private Jet Membership will sell you a
Silver TravelCard for a minimum of $100,000 or a
Gold one for a $250,000 commitment. Cardholders
apply their investment toward flight time on their
choice of private jets, at hourly rates ranging from
$2,050 round-trip for a light jet to $7,100 one-
way on a heavy jet (all private jets are classified
as light, medium or heavy, depending on size and
capacity). The card is refundable and transferable.
www.sentient.com
Delta AirElite Business Jets, a private jet charter
subsidiary of Delta Air Lines, last year introduced a
plan called Fleet Membership Select, in partnership
with Bombardier Flexjet. Participants buy flight
time in increments of 25 hours, with prices starting
at just under $100,000 for 25 hours aboard a
light jet. Members earn an "efficiency bonus" for
round-trip flying that lets them extend their allowable
flight hours by 30 to 40 percent. And they get
automatic Medallion status in Delta's SkyMiles program.
www.airelite.com/membership
CitationShares, a fractional operator jointly
owned by Cessna Aircraft and TAG Aviation USA,
is expected to launch the Vector Jet Card this year,
providing 25 hours of flying time for all-inclusive
starting prices ranging from $84,995 for a five-
passenger Citation CJ1 with a range of 1,430 miles
to $144,995 for an eight-seat Citation Excel that can
fly 2,100 miles nonstop. www.citationshares.com
Skyjet, Bombardier's online charter reservation
service, offers a new Premier Fleet Jet Membership
plan that permits flat hourly rates for a minimum
25-hour flight-time commitment. www.skyjet.com
Bailey & Partners' Hofer notes that there have
been "huge, traumatic changes" in the fractional jet
business since the FAA started its rulemaking procedure
four years ago. For instance, he says that fractional
fleets have expanded to include larger models
like the Boeing Business Jet; fractional share leasing
options have developed; more sources of financing
for fractional shares have opened up; many regional
fractional operators have come into the marketplace;
fractional programs have expanded overseas;
and private jet cards like those just mentioned have
been invented.
"All of these things have occurred in the four
years it took the FAA to figure out how to regulate
fractional ownership," Hofer says. "There's no question
people in the aviation business are going to
continue pushing the envelope in terms of how to
expand the fractional world with things you might
think of as fractional look-alikes."
Better deals to come
If the private jet fractional ownership or membership
plans mentioned here are still beyond your
budget, just wait a few years: New models of
small business jets now under development are
expected to bring costs down dramatically, and to
expand the domestic jet charter/fractional/air taxi
market even more.
For example, Eclipse Aviation of Albuquerque—
founded by a former colleague of Bill Gates at
Microsoft—is building a low-priced, six-passenger
jet called the Eclipse 500. Connecticut-based
Avocet Aircraft has teamed up with Israel Aircraft
Industries to develop another six-seat, next-generation product called the Avocet ProJet.
Even Japan's Honda Motor Company is getting
into the game: The auto manufacturer is reportedly
test-flying a new six-passenger HondaJet in
Greensboro, N.C.
All of these projects have some things in
common: They will use innovative technology and
smaller, more powerful engines to reduce the purchase
price and the operating cost of small jets
to a fraction of what they are today. Their developers
predict that once these new planes are
deployed, the cost of chartering your own private
jet could be as low as buying a first-class ticket
on a major airline.
Where to find out more
The four big national operators of fractional jet
fleets include:
NetJets, a subsidiary of Warren Buffet's
Berkshire Hathaway. Operates a quarter-million
flights annually to 140 countries; has affiliated
programs in Europe and the Middle East. Its
fleet includes hundreds of aircraft ranging from
seven-seat Cessna Citations to 18-seat Boeing
Business Jets. www.netjets.com
Flexjet, a division of aircraft manufacturer
Bombardier Aerospace. Fleet ranges from a
seven-passenger, 1,400-mile Learjet 31A to a
nine-passenger Challenger 604 with intercontinental
range. www.flexjet.com
Flight Options, founded in 1998 and
merged with Raytheon Travel Air in 2001, seeks
to make fractional ownership more affordable
by offering shares in previously owned
aircraft. Now has more than 200 new and
used planes, and recently added the 13-passenger,
3,200-mile Embraer Legacy to its fleet.
www.flightoptions.com
CitationShares, a joint venture of Cessna
Aircraft and TAG Aviation, has a fleet of all Citation
jets, including five-passenger CJ1s, seven-passenger
Bravos and eight-passenger Excels. Started as a
regional operator in 2000, but expanded nationwide
in late 2003. www.citationshares.com
For basic information on the ins and outs of
fractional jet ownership, you can find lots of background
information from the law firm of Bailey
& Partners at www.fractionalownership.com,
including answers to a number of frequently asked
questions and descriptions of many of the most
common business jet aircraft types.
For information on chartering business jets,
a good starting point is the Air Charter Guide at
www.aircharterguide.com.
Jim Glab is a freelance writer based in New York and a frequent contributor to this magazine.
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