What Is Fractional Ownership of Private Jets and How It Works

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Often you will see massive numbers being thrown around when it comes to private jets. It is not at all uncommon for a long-range jet to be able to fetch in excess of $70 million dollars. While it might be factually true that there are luxury airplane that are in that range, the reality is that there are many ways in which you can get access to private aircraft while still staying within your budget. For many people, the world of private jets seems to be a luxury that only the richest of the richest seem to be able to afford. People who spend their summers in Monaco because they have to do their taxes there. On the other hand, it seems that most Instagram influencers seem to be going around on private jets all year. There are some trade secrets in the private jet industry that I will be divulging today, so stay tuned as I take you on a very revealing journey of how people who don’t make above the median wage are able to enjoy all the luxuries that life has to offer.

In short, it requires a bit of cunning and just a tinge of bargain-hunting in order to do this.

Chartering Private Jets

Perhaps the most popular way of private air travel is by chartering a jet. You do not need to pay the monstrous cost of paying for the jet, all you have to do is essentially rent it for the duration of your journey. You will be provided with the staff as well as all the goodies that private jet travel is supposed to come with, and you don’t have to deal with any of the boring stuff. If you fly first-class, there is a good chance that you might be able to find jet charters that are actually cheaper than a first-class ticket over the same distance. Let me explain how that works. Decently sized private jets are able to take anything from 7 to 14 people. This means that you can actually divide the cost per passenger and the per head cost will actually be lower than what you will be paying for going down the first-class route. In fact, there are arrangements where you can share the cost with another party who have the same mission profile as yours. So, if you have a family of four, all you need to do is find another family of four which wants to do the same. Your total cost will actually be divided by 8 and your per head cost might turn out to be lower than first-class.

There are also some other bargains like hunting for empty-leg flights that can seriously pull down the cost of private jet travel. Empty-leg flights are essentially flights where the jet is away from its home base and needs to make the journey back. They have to make the journey back even if there are no passengers and jet charter companies would rather have people pay a discounted rate than pay nothing at all. There are generally massive discounts on these flights and if you look hard enough, you are sure to find an empty leg flight that will seriously be a great bargain. The only con is the fact that you will have to adhere to the schedule of the flight so it might become a little hard to adjust but there are numerous flights like these each day and there is a good chance that you will find an empty leg flight that suits your itinerary.

Aircraft Leasing

If you do have a significant amount of capital and a lot of flying hours a year, it might be wise to lease an aircraft. The benefits are obvious, you have essentially ownership of an aircraft without the biggest negative factor, the depreciation. These are mostly used by airliners who do not have the money to invest in aircraft but still have demand that they can fulfill. This allows them to increase their capacity for a short period of time and is generally used by companies when they know that a bulge in demand is going to come in the future. However, you can also lease an aircraft as an individual.

There are essentially two types of these leases, dry and wet leases. Dry leases are when the owner only provides the aircraft, nothing less and nothing more. It is then the responsibility of the party that has leased the aircraft to hire all the crew and train them. In fact, you are not even required to have an air carrier certificate if you are only going to be leasing the aircraft for your own personal use. However, it is highly recommended to rent out the aircraft to other parties since your own personal use would most likely not be nearly enough to satisfy the full capacity of your aircraft. It is also interesting to note that in dry leasing, the legal ownership of the aircraft still rests with the owner of the aircraft. Generally, these leases tend to last more than 2 years.

There is also the option of a wet lease. This is more popular compared to dry leases as it is much more convenient. The company that is the owner of the aircraft provides the crew as well as the aircraft. This means that you do not need to waste time and money in order to hire and train your own crew. The choice of wet leave vs dry lease is also interesting. There are also certain liabilities that come into play when you have to hire or train your crew and that generally means that it is better to opt for a wet lease as it does most of the boring stuff for you. Although it goes without saying that the cost of a wet lease exceeds the cost of the dry lease in keeping with the additional services that wet leasing provides. There are a lot of famous leasing companies like AerCap or Air Lease Corporation that deal in this sector.

Fractional Jet Ownership

This is actually the most interesting option. For a lot of people, the hassle of chartering a jet is too much as they accumulate too many hours while chartering and end up paying a significant amount for them. However, they still do not understand the investment of actually leasing an aircraft for a period of time. You are paying a lot of money in order to just rent out the aircraft. For people who like the taste of private jet food and the luxury of owning equity, the next best option is fractional jet ownership. Here’s why fractional jet ownership is so popular. Essentially, people with even the busiest flying schedules are only utilizing a fraction of the utility that their aircraft can provide. Keep the word ‘fraction’ in your mind. It is actually a much smarter option to own a fraction of the aircraft that is in keeping with your use. You can own 1/16th of an aircraft or 1/8th and your privileges and the number of flying hours that you will receive will also be proportional to that.

Just to put things into perspective, a 1/8th share will typically entitle you to 100 flight hours a year. Considering that the flight time from London to Paris is about 1 hour and 20 minutes, you are entitled to about 75 trips from London to Paris a year. Even for the people who are really fond of the Eiffel Tower, this is a tall order to complete. The only other issue that you will have is that your flying hours will have to be in tandem with the flying hours of the other owners, as you cannot have conflicting flights. This is similar to siblings that have to share a PlayStation amongst them. However, most fractional ownership companies offer a service where you will be able to use another similar aircraft if your own aircraft is out of commission due to a plethora of reasons or being used by another owner. The legal mechanics are quite simple as well. Essentially, a holding company owns the aircraft, and the owners of that holding company are the owners of the aircraft. Your share in the holding company entitles you to the corresponding shares in the aircraft as well.

We all know the inspiring genius of Warren Buffet and how he steered Berkshire Hathaway into one of the biggest business juggernauts in the world. The first company that ever offered the services of private jet ownership was actually NetJets in 1986. Seeing the obvious potential of this venture, the wise people at Berkshire Hathaway the company in 1998. From its humble beginnings with a fleet of 10 Learjet 23s, NetJets has grown exponentially into an operation that employs about 7000 people.

In fact, there is a NetJets Direct Financing Program that allows you to finance your share. The interest rates are actually quite great. What is an underrated plus of that program is the fact that NetJets removes the need for an external financier who will cough up the funds. This essentially eliminates the third party and streamlines the whole process quite a bit. The application requires less than a week to process and you can become the proud (fractional) owner of an aircraft through this process. The monthly payments are fixed so you can plan ahead with some security and assurance. On top of that, private jets are a depreciable asset that can grant you certain tax advantages as well. NetJets also proudly boast that they can provide a level of personal service that is simply not possible with other companies. Considering that they are the oldest company in this particular business and literally invented the concept of fractional ownership in the jet, I am inclined to agree.

Except for outright owning an aircraft. There are several ways in which you can utilize the services of an aircraft while still minimizing your cost. The fact of the matter is that people have vastly varying needs. Perhaps a couple only likes to use a private jet for their yearly anniversary for a private flight to Paris. For them, chartering a jet is the best option. You are essentially entering into a ‘rent-a-jet’ situation and most of the hassle is already taken care of for you as long as you are willing to pay the hefty hourly cost. For people who want an aircraft all to themselves throughout the year, there really is no better option than a wet lease. You get ownership of the aircraft for a period of time and are spared the agony of seeing an asset depreciate as you don’t really own it.

The third option is fractional ownership. If you have a very predictable number of flight hours in a year, you can pay only a fraction of the sticker price of the jet and become a de-facto owner who has all the perks and privileges. Companies like NetJets have streamlined the process so much that you only need to pay 20-40% of the share of the aircraft as a down payment and the rest can be financed internally through NetJets. This removes the hassle of going to a bank and one thing that we can agree on is that we hate banks like nothing else.

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