Fractional ownership or leasing of a private jet is a big decision. We give you a comprehensive overview of factors that will guide your decision.
Having read and reviewed dozens of articles that cover fractional aircraft ownership, I find many of them somewhat misinformed. The typical approach is to espouse fractional ownership as the ideal solution if your annual flying ranges between 50 and 400 hours.
Said articles recommend full ownership if you fly more than 400 hours, jet cards for 25 to 50 hours, and on-demand charter for less than 25 hours of flying.
I don’t want to say these generalizations are wrong. They’re just overly simplistic and can lead you to make a decision that might not be the best fit.
Even in 2001, a long time ago, but long before jet cards and other shorter-term options really took hold, a white paper from Embry-Riddle Aeronautical University pegged the sweet spot for fractional ownership at between 145 and 387 hours of annual usage.
To help you understand if you should be thinking about fractional ownership and long-term lease options from fractional providers, I enlisted the help of James Butler, the CEO of Shaircraft Solutions LLC and an aviation attorney and expert.
Butler specializes in advising private flyers in terms of buying and leasing fractional aircraft, investing in jet cards, etc., and negotiates the contracts for these investments. I’ve quoted Butler extensively in this article.
The fractional ownership concept in the private aircraft arena is closely tied to Richard Santulli, who pioneered it by launching NetJets in 1987 before selling the company to Warren Buffett’s Berkshire Hathaway in 1998 for $725 million.
The idea was to target companies and UHNW families that might not have ongoing demand sufficient to own their own airplanes or, if they already owned one, needed multiple airplanes on a regular basis.
At the time, the only other option was on-demand charter, and there was often very little transparency about the safety and operational standards of charter companies.
Block charter offered some bulk-purchasing opportunities with fixed rates but generally didn’t guarantee availability. In other words, when you needed to fly, a plane might not be available, or at least a plane you were happy with.
Jet cards offering fixed one-way rates and guaranteed availability didn’t come on the scene until around the turn of the century and didn’t propagate until after the Great Recession, when many private aviation users began looking for short-term solutions.
Since that point, the number of jet card providers and programs more than doubled, so there are over 60 providers and more than 300 jet card programs. Some have thousands of members. Others run by boutique brokers have a dozen or so.
At the same time, you can count on two hands the number of fractional providers: Traqpak lists nine. NetJets controls 64% of the market, followed by Directional’s Flexjet, Planesense (focused on the Pilatus PC-12 and now PC-24), Flight Options (also owned by Directional, although they are phasing it out), Airshare (which recently announced an expansion), Airsprint (in Canada), Nicholas Air, and Northern Jet Management.
Still, fractional ownership remains a preferred solution for many private fliers and offers a wide variety of options, from turboprops and light jets to ultra-long-range aircraft from Bombardier and Gulfstream.
In the fractional model, the fractional company sells shares in multiple aircraft to various buyers. Each buyer agrees that all other shareowners may use its aircraft, all of which are managed and operated by the provider. In this way, fractional ownership guarantees the shareowner access to an entire fleet of aircraft for a contracted number of hours.
Instead of worrying about hiring and training pilots, complying with operating regulations and maintaining aircraft, the shareowner essentially purchases an on-demand, executive airline.
To buy in, the standard minimum commitment is at least 50 hours of flight time per year and a contract term of at least three years, although five years is more typical. Some providers have options that can extend your contract for an additional five years, so up to 10 years.
To buy a share, you pay a purchase price for your fractional share of an aircraft. So buying a quarter share of a $30 million private jet means a $7.5 million outlay.
You then pay a monthly management fee and an hourly rate for actual flight hours, plus various additional fees that include fuel surcharges, enhanced catering, and certain airport charges and taxes.
You can also lease a fractional share of an aircraft if you want to avoid ownership. In that case, the acquisition costs and depreciation are built into your lease payments.
Fractional providers typically use an annual occupied flight hours approach based on the following: 50 hours = 1/16th share; 100 hours = 1/8th share; 200 hours = 1/4th share; 400 hours = 1/2 share; 800 hours = Full share.
| Annual Flight Hours | Share of Aircraft Purchased or Leased |
| 50 hours | 1/16 |
| 100 hours | 1/8 |
| 200 hours | 1/4 |
| 400 hours | 1/2 |
| 800 hours | 1/1 |
However, there are variations. Airshare and Flexjet both offer fractional ownership and leases based on days, with the latter reserved for its Gulfstream G650 program.
Save time: Compare 65 variables for 250+ top Private Jet Cards and Fractional Ownership Programs side-by-side, plus our Guides to Best Charter Brokers and Jet Sharing. Find the programs that best meet your needs in minutes. Your 12-month subscription includes personal phone and email assistance…
In addition to flying at least 50 hours per year (the minimum size of most fractional shares), Butler explains the key benefits of fractional ownership.
Butler adds, “You’re not just buying flight time, you’re going into business with the program operator and relying on that operator to run the business and buy back your share at the end of your term (generally five years).”
Butler says, “In corporate settings, leases can be preferable to fractional ownership as they may be better received by shareholders and in public reports. Many shareholders may find travel expenses (i.e. through leasing) more agreeable than an asset (i.e. fractional ownership). It can sometimes be a less controversial option.”
He notes, “With a lease, there is no upfront investment, whereas, with fractional ownership, you have a large upfront share purchase. Therefore, you lose the immediate use of that capital with a fractional contract, although you can expect to get some portion of that back at the end of the contract term.”
He adds, “Fractional shares typically are repurchased by the provider at the end of the contract term. At that time, you’ll receive back a portion of your initial outlay. However, there are no guaranteed minimums, and so any return is completely tied to the market value of your aircraft. You may get much less back than you expected. With a lease, however, the market risk is shifted to the provider, a variable that certainly is factored into the lease cost, but which also cabins your financial uncertainty.”
Most programs offer more flexibility in downgrading to smaller aircraft than upgrading to larger aircraft, but either way, it’s generally most cost-effective to purchase a share in the aircraft that most often will suit your needs.
That is because providers charge an interchange fee in connection with an upgrade or downgrade, which is generally a premium to what owners of that type of aircraft are paying. In other words, you can switch. However, there is an extra cost.
Butler writes, “Once you’ve decided to purchase a fractional share, you’ll receive a set of contract documents from your provider. Your salesperson will do his best to convince you that everyone signs the same simple contract. The contracts are short and are made to look like standard boilerplate. Don’t be fooled. These documents govern your rights and obligations with respect to what most likely will be a multi-million dollar investment, and they are negotiable.”
Here’s Butler’s brief description of the critically important documents and what they mean to you:
If your provider is awaiting the delivery of your aircraft, it’ll want you to put up a deposit to hold your share. This document should identify the specific aircraft in which you’re buying the share, guarantee that the pricing won’t change and include a firm delivery date. Most importantly, make sure you understand how and when your deposit becomes nonrefundable.
This is the document through which you purchase your share from the provider. Just as important, the Purchase Agreement provides the terms under which the provider will repurchase your share at the end of your contract term. All too often, buyers don’t consider the likely decline in value of their aircraft, and thus their share, when projecting the “all in” cost of their investment.
This document governs the relationship among all fractional owners in the program. Essentially, each owner agrees to share his plane with every other owner, thus enabling the provider to utilize the entire fleet to service all the owners. This arrangement is a common feature of all fractional programs; so much so that you may rarely, if ever, actually fly on the aircraft in which you own a share.
This document governs the core issues of your investment. Nominally, it reflects your appointment of the provider as the manager of your aircraft and as the administrator of the program.
But more importantly, the Management Agreement tells you when you can fly, how many hours you can fly and what costs you’ll incur when you fly.
It describes how your flight time will be calculated, what you’ll pay if fuel prices go up, and how far in advance you must reserve your flight.
There is also your right to interchange, i.e., use other models of aircraft in the fleet, and how you’ll be charged if you do. It specifies peak travel days when greater restrictions on your use of the aircraft apply, and it maps out the service area within which you can fly.
Butler says, “These documents, and not that beautiful brochure, will govern your rights and obligations. The contracts may look simple, but if you don’t read and negotiate them carefully, you may make a million-dollar mistake.”
As providers exit aircraft types, they typically offer them as jet cards. However, you might also be able to get the types on a short-term lease.
You may also want your flights to operate under Part 135 instead of 91k as an additional shield against litigation in case of an accident or injury.
Also, keep in mind that the larger the share you buy, the more clout you will have, and if you buy multiple shares, you will have added leverage.
While you can look at historic values, it’s hard to predict. An article by Corporate Jet Investor notes, “In 1987 you could buy a new GIV for about $17.8 million (about $42.75 million in today’s dollars). You could have flown that jet about 400 hours a year (typical utilization) for the next 15 years and then sold it in 2002 for about what you bought it for.” The same article shows a Global Express new in 2003 to the end of 2016 saw its value fall from $44.4 million to $13.5 million.
That same 2017 article said the new normal is “a rule of thumb, business jets should depreciate at about 9% to 10% annually” with caveats “type of aircraft, global economy, OEM production rates, and retail pricing along with engineering and technological developments.”
In some cases, providers have a marketplace where owners can buy and sell hours they need or don’t need. However, Butler says, you pay a fee and you shouldn’t assume what you need will be readily available when you need it. He and others say fractional ownership and leases work best when you are sure that you will have similar flying patterns and aircraft type needs for the term of your contract.
If you can’t sell the hours via your provider’s marketplace, you likely can roll over unused hours. If you are unsure that the proposal reflects your year-in, year-out needs, make sure to understand what provisions there are to rollover hours, penalties, and if fractional ownership or leases are indeed the right solutions.
Butler says you’re going to need an aviation attorney who has experience negotiating contracts with providers, and it’s better to start with one before you sign, so you will understand what options you will have if you need to exit early.
Butler writes, “Most private air travel arrangements, such as buying a fractional jet share or buying into jet card or block charter programs, involve rather complicated legal, regulatory and liability issues, and substantial dollars, and so deserve a careful legal review.”
Indeed, it’s not the alluring brochure or the salesman’s pitch that will govern your rights and obligations, but rather a contract drafted by the jet provider for its benefit.
“As a general rule of thumb, says Butler, “anytime you’re parting with more than $25,000 in exchange for a promise by a jet company to fly you sometime in the future, you should have an experienced attorney review the paperwork. Indeed, even if you’re just booking a charter flight, which may cost less than $25,000, issues like cancellation fees, aircraft and crew specifications, safety standards, etc. are likely to be covered in the fine print that comes with most standard charter contracts. You’ve got to sweat the details.”
Butler explains, “Jet companies, fractional ones in particular, have a subtle way of making their contracts seem simple (and so non-threatening). They print them in a way that makes them seem short and full of boilerplate. Some will even tell you that they don’t change their contracts and, ‘Everyone signs the same documents.’ Not so!”
You may first think to call on your in-house or family attorney. “Bad idea,” says Butler. “Your average attorney understandably won’t have experience with how these contracts work and so won’t know which aspects are negotiable and which are not. Faced with these circumstances, you may be inclined to just go ahead and sign the ‘standard’ contract, only to find out later that you’ve made a costly mistake.”
Butler concludes, “In the end, anytime you contract for a private jet flight—putting your dollars and, more importantly, your safety and that of your family and business associates on the line, you should have an experienced attorney, who specializes in aviation transactions, review the contracts.”
Butler can be reached at info@shaircraft.com or 301.652.9885
Find the perfect solution for your private aviation needs
Save Time. Buy Confidently.
Receive an apples-to-apples comparison of programs that meet your needs from more than 500 jet card and fractional options covering 65 points of differentiation and over 40,000 data points.
