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Fractional Ownership VS Leasing an Aircraft

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Fractional Ownership VS Leasing an Aircraft

jet in the air

The starting cost of owning an aircraft is quite a lot. Even a new light jet aircraft will cost anywhere between $10-$15 million. That’s just the initial cost of the aircraft. There are running costs that you need to take in mind as well. You will need to hire a staff, pay landing costs and pay all the maintenance costs as well. I haven’t even begun to talk about the biggest running cost when it comes to owning an aircraft, the massive depreciation that takes place even after the first year.

Since an aircraft has to literally fly in the air and any functional issue with the aircraft will present a very real danger of the aircraft crashing, there are very tight security checks that have to be done before an aircraft is considered to be worthy of flying. In order to make sure that the aircraft always passes these tests with flying colors, there has to be regular maintenance done. This can be quite expensive in the long run.  Today, we have a comparison between the two main ways of owning an aircraft. One is fractional ownership of an aircraft while the other is the leasing of an aircraft. There are many differences between these approaches.

One has to understand that there is no single ‘best approach’ when it comes to acquiring an aircraft for personal use. Essentially, you have to look at your own circumstances and situations and find the option that is the best fit for your particular situation. In order to really make this comparison a fair one, we will also be looking into other ways of being able to use private jets for travel.

interior of a jet

Owning One Outright

The single most expensive option is to simply pay the entire cost yourself. This means that you will have to bear all the costs when it comes to the aircraft as the aircraft is solely owned by you. You can either pay for all of it upfront or pay using financing as both of these options are now easily available for prospective buyers. All the costs that I have already mentioned will be incurred by you and that is why it is a relatively unpopular option to go for. Mostly exercised either by large conglomerates, billionaires, or businesses that plan to use the jet to create revenue, this is an option with too high an initial cost for many to afford.

Chartering A Jet

Chartering a jet is possibly the easiest option when it comes to using a private aircraft. There are many reasons for that. The first is that you are buying no stake in the jet itself, there is not even the semblance of any sort of ownership attached. All you are doing is renting the services of the jet and the staff for the duration of the flight. Generally, different aircraft will have a different per-hour rate. For example, the hourly rate for a Phenom 300 is considered to be somewhere around the $3500 mark. This means that if you are going on a 4-hour flight, you will be charged around $14,000 for it.

What is perhaps one of the most interesting things about chartering a jet is the fact that it can often be cheaper than getting a first-class ticket. The Embraer Phenom 300 can actually seat 11 passengers at once. This means that per passenger, you are only paying $318 per hour. Considering that you are going to be alone with the people who you truly care for rather than hearing the orchestra of wailing babies in a commercial airline, I’d say that cost is well worth it. This cost can go down even more if you are willing to be a little bit more flexible on your schedule and shop around a bit for bargains. There are empty leg flights that are considerably cheaper than normal routes. An empty leg flight is a route that a private jet has to run whether there are passengers aboard or not. It could be about returning back to its home base or to another destination in order to fulfill a commitment. Since the charter companies would much rather have a passenger paying a discounted rate rather than no passenger at all, you can get great bargains with empty leg flights. The only thing to note is that you will have to adhere to the schedule of the empty leg flight while using a normal route, you would be pretty much able to dictate when you need to go.

Private jet flying

Leasing An Aircraft

Now, the biggest cost when you are considering buying an aircraft is the depreciation itself. Aircraft generally tend to depreciate quite fast and depending on the cost of the aircraft, you could lose millions in just the first year of ownership itself. It makes them seem almost like terrible investments. So, the simple answer is not to make that investment yourself. Someone else can make that investment and you can just lease the aircraft from them. Essentially, a lease is when a party who owns the asset (the lessor) decides to give over possession of the asset to another party (the lessee) in exchange for regular payments.

If you lease the aircraft for 5 years, at the end of that period, the aircraft will end up going to the party who owns it in reality. There are two types of leasing, wet leasing, and dry leasing. In the comparison of wet leasing vs dry leasing, you have to consider many things. Wet leasing is when the lessor will provide you with a staff that operates the aircraft as well as the aircraft itself. This means that you won’t need to train the staff yourself as they would come completely equipped with the aircraft itself. It would be similar to chartering an aircraft but different in the sense that you are functionally the owner of the aircraft 24/7 for the next few years.

On the other hand, a dry lease only gives you the aircraft and nothing else. This means that there will be lower costs associated with the lease as there will be no staff. If you are the lessee in this situation, you will have to take the responsibility of hiring the staff involved as well as training them. There will be mandatory courses that they will have to take in order to be considered fully trained. All the associated costs that will come with the training will have to be paid by the lessee themselves. Essentially, leasing is generally exercised between airlines. If an airline is expecting a very busy season and believes that its current fleet is not enough to satisfy the load of passengers, it will lease an aircraft from another airline. It could start with a wet lease as the lessee airline will want to understand the parameters of the operations of the aircraft using the staff provided by the lessor but then convert into a dry lease once they are confident that they can operate the staff themselves. In fact, this model has been followed by many airline companies in their infancy.

Fractional Ownership

If you truly want to own a piece of your aircraft in a permanent way, then leasing an aircraft is not the way for you. When you are leasing an aircraft, you are simply renting it from the real owner. However, considering that buying an aircraft outright is not an option since the costs are so high, what can you do? The answer is simple, fractional ownership. Fractional ownership was the result of a couple of people realizing that there was a gap in the private jet market in the 80s. There were many people who were willing to pay a lot more money than just the cost of chartering a jet but would shy away at the idea of buying one outright. For people who could afford a lot more than just chartering a jet, there was no proper option that was able to give them ownership.

Another factor that made this problem even more enticing was the fact that a single jet could easily fulfill the flying requirements of multiple people. We are not talking about people who charter a jet to Paris once a year, we are talking about executives who fly practically every week for business. So, you had people who were willing to pay a lot of money for ownership and the fact that a single jet could easily satisfy the flying requirements of multiple people. The answer was quite simple, a jet jointly owned by multiple people. Essentially, the jet is owned by a holding company that was shareholders in turn. The size of your share in the company is in proportion to the size of your share in the jet itself. There are generally 1/8th shares or 1/16th shares that you can have. They correspond to the number of hours you can fly with your aircraft. NetJets was the company that first pioneered this business model in 1986. This was so successful that it ended up becoming the subsidiary of Berkshire Hathaway in 1998. If you are being endorsed by Warren Buffet, then I am sure to trust you.

One of the great things about fractional ownership is its ease of it. Companies like NetJets have been able to perfect the formula over the past few decades that the experience of owning an aircraft with other people seems like you are just the owner of it. If there is a conflict of schedule between two of the owners, one of the owners will get to use the aircraft while the other will be given a similar aircraft, often of the same model in order to really drive home the experience. In fact, they will even try to perfectly match your own personal configuration as well. Generally, these shares are transferable as well so you can sell your share to someone else as well. In fact, in order to make it even more financially viable, you can get your share financed. Don’t be worrying about banks as companies like NetJets do the financing in-house.

This is a very comprehensive comparison of the process of leasing an aircraft versus owning a fractional share in one. The most important thing to understand is that there are many options out there for you that you need to research as much as you can before making the decision. The fact of the matter is that everyone has different needs, and everyone will have a different ‘best option’ that they should exercise.

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