A Guide to Various Methods of Private Jet Ownership

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One of the greatest misconceptions that people have when it comes to buying private jets is that most owners of these jets are just buying them outright. That is strictly untrue. There are a plethora of different methods that you can use in order to gain the privilege of using an aircraft. All of these methods are best suited for different types of users. As a disclaimer, it needs to be understood that there are a variety of costs that are associated with using a private jet. These costs can be anything from massive depreciation costs to the training and hiring of staff. In order to make sure that you can truly afford an aircraft, you need to take all of the associated costs into account and look at the upper limit of the cost. There are even some effects on your tax burden as well that come into play if you are owning an aircraft. So, without further ado, here are some of the different ways you can get ownership of an aircraft.

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Buying Outright

At the start of the list, we are looking at the most expensive option, buying the aircraft outright. This essentially means that you are able to go to a seller and just pay the cost of the aircraft upfront. This option is only exercised by the richest of aircraft users as it requires the greatest financial muscle to pull off. Paying $5 to $7 million even for a used Embraer Phenom 300 is a tall order and absolutely no joke at all. It is enough to make even the highest net worth individuals break a sweat. There are some things that you need to make sure to keep in mind. You will have to keep in mind that what you are buying is a depreciable asset. This means that the aircraft is going to lose value each year which is going to amount to a massive number. This is not a car where the depreciation is going to be in the thousands. Here, the depreciation is going to be in the hundreds of thousands, if not the millions. A used Embraer Phenom 300 will cost around $1.5 million a year which includes depreciation as well. If the aircraft has cost you $6 million, that is 25% of the cost of the aircraft being charged to you in the space of a year.

You can go the financing route as well. There are plenty of companies that will be able to offer you fixed monthly payments for your aircraft’s cost. However, it must be noted that you are now paying more than the sticker price in lieu of interest rates and if you can afford to pay outright, you should consider that option first.

Leasing

The primary issue that comes with buying an aircraft is its depreciation. If there was a way to minimize that exposure, that would be pretty cool, right? Well, good for you, because there is a way to do exactly that. Leasing allows you to gain operational usage of the aircraft over a period that can be 2 years and up. Essentially, you give up the aircraft after you have had your use of it and there’s no depreciation cost that you have to incur. There are two types of leasing as well. Dry leasing includes only the aircraft itself and is the cheaper option. None of the parties even need a certificate from the FAA as long as the aircraft is not being used for commercial purposes by the party that is leasing that aircraft. In this particular option, you will have to bear the cost of training the staff as well as hiring them as you will receive nothing else but the aircraft in the deal. The cost of hangers and any federal taxes that you might incur during the flights will also be on your end.

Wet leasing is generally considered to be the more popular option. In this agreement, the company that owns the aircraft also provides the staff to the company that is leasing the aircraft. Generally, the lease route is exercised by airline companies who need to deal with a bulge in demand. For example, if a company expects that 2022 is going to be a busy year, it is going to wet lease an aircraft in order to cope with the demand. The one issue is that you are paying quite a bit and still not owning a single iota of equity in the aircraft. After the end of the lease, you will be in the hole for a significant amount of money and yet still not own anything.

Chartering

Perhaps the most popular way using which people use aircraft is simply chartering one. This is most suited for people who only have a handful of hours of flying in the year and want to spend that time in the utmost luxury possible. Perhaps you want to take your wife to Paris for your anniversary and in order to make her feel truly special, a private jet waiting to get you to your destination is going to be the best way. Some of the advantages include that the overall cost is quite cheap. There is a high degree of customizability as most charter companies will give you a plethora of options. You can choose exactly what kind of aircraft you want to charter. In fact, if you are looking to get multiple people across on the flight, the cost per passenger might even turn out to be lower than a first-class seat. However, the cons are also quite substantial. The biggest con is the fact that the hourly cost is quite high as the company will charge all the running costs from you as well as all their own premium as well since they need to turn a profit as well.

However, one must understand the real burden that this option saves you from. Chartering means that you will not need to deal with any sort of depreciation cost or even deal with the hassle of hiring staff for the aircraft. All of that is taken care of for you and all you need to do is to pay the cost. It’s similar to hiring a taxi. When you are hiring a taxi, you are not the one who is supposed to care about the oil change of the vehicle.

Fractional Ownership

For business professionals who have a very good idea of how many hours they need to spend flying, this is the best option. The biggest plus is the fact that you own equity in an aircraft that no one can take from you. This technique was actually pioneered by the NetJets in the 80s who realized that there were a lot of people who were willing to pay big bucks for ownership but were blocked off from ownership due to the high initial cost. Once they realized that one jet did not need to be owned by just one person one jet’s capability to serve in terms of hours is way more than what even the busiest flyers are able to clock. As a rule of thumb, an eighth of the overall cost of the jet is going to give you 100 hours of flying. That is more than enough even for the busiest of people. That is about 75 rides from Paris to London, which is more than one flight every week.

The mechanics are fairly simple, you own a share in a holding company which in turn owns the aircraft. This is how there can be shareholders in the aircraft. The only big issue is that sometimes you will have to compromise on the schedule as there are other owners as well. However, another innovation that fractional ownership companies have introduced is the feature that allows people to gain access to the same kind of aircraft if their own aircraft is already busy.

NetJets is considered to be the pioneer in this particular business. Their genius business model was only ratified by Berkshire-Hathaway, who decided to buy them in the 90s. We all know that to be owned by Warren Buffet, you have to be extremely solid on your fundamentals. They are recommended by many as the finest fractional ownership company in the game as they quite literally invented the concept. They even offer financing options where you can pay 20-40% of your share in the aircraft as a down payment and pay the rest in the form of fixed payments with a balloon payment at the end of the term. This means that you do not to even pay for your share of the aircraft upfront. Moreover, there are no banks involved in this business as the company itself is the lender.

Tips

There are some tips that you need to keep in mind when it comes to buying an aircraft. The first thing that you need to do is determine your budget. Once you have understood exactly how much money you can invest in the aircraft, you can choose to move on. Please keep the cost of depreciation in your mind as well. The other decision that you need to make is to go for a New or Pre-Owned Aircraft. The cons of buying a new aircraft are quite obvious, with the first being that the maintenance cost is lower due to the aircraft being new and the fact that you will also be getting warranties. On the other hand, buying used is generally preferred. Due to the great depreciation that private jets have to go through; the price of a used aircraft is much lower. Aircraft have long production cycles, with even 30-year-old models being produced today. This generally translates to even a 10-year-old aircraft being relatively modern in terms of technology. However, you will have to remember that the maintenance cost of an aircraft is much higher. The machinery is older and thus needs to go under even more frequent checks. They are even likelier to have more faults, which means that repair costs will also be higher. Older aircraft also have lower fuel efficiency and will cost more in that regard.

So, these are some of the many ways in which you can gain access to an aircraft. Remember that none of these options is the ‘best’. It all depends on how much money you are willing to spend and how much you need to fly. So, the best tip is to simply do an assessment of what you need in an aircraft and how much money you are willing to spend. Sometimes you will realize that you need to really ‘own an aircraft’ and can go for options that are much more hassle-free such as chartering a jet.

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