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, many of them are 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 for more than 400 hours, jet cards for 25 to 50 hours, and on-demand charter for fewer than 25 hours of flying.
We 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 whether you should consider fractional ownership and long-term lease options from fractional providers, we enlisted the help of James Butler, the CEO of Shaircraft Solutions LLC.
Butler specializes in advising private flyers on buying and leasing fractional aircraft, investing in jet cards, and negotiating 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 an ongoing demand sufficient to own their own airplanes or, if they already owned one, needed multiple airplanes regularly.
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 exist until around the turn of the century. They didn’t take off until after the Great Recession, when many private aviation users began seeking short-term solutions.
Since that point, the number of jet card providers and programs has more than doubled, with over 80 providers and more than 500 programs. Some have thousands of members. Others run by boutique brokers have a dozen or so.
At the same time, you can count the number of fractional providers on two hands: Traqpak listed nine in 2019. 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. It 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 plane, 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 costs $7.5 million.
You then pay a monthly management fee, an hourly rate for actual flight hours, and various additional fees, including fuel surcharges, enhanced catering, and certain airport charges and taxes.
You can also lease a fractional share of an aircraft 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 day-based leases, with the latter reserved for its Gulfstream G650 program.
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 a portion of your initial outlay back. However, there are no guaranteed minimums, so any return is tied entirely to your aircraft’s market value. 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 in upgrading to larger ones. Still, it’s generally most cost-effective to purchase a share in the planet that will most often suit your needs.
That is because providers charge an interchange fee for upgrades or downgrades, which is generally a premium over what owners of that aircraft type 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 you use to 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 their 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 program administrator.
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 explains how your flight time will be calculated, what you’ll pay if fuel prices rise, and how far in advance you must reserve your flight.
There is also your right to interchange, i.e., use other aircraft models in the fleet, and how you’ll be charged if you do. It specifies peak travel days when more stringent restrictions apply to your aircraft use, and it maps 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 rather than 91k as an additional shield against litigation in the event 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 purchase 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 that Global Express, which began in 2003 and ended in 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 through your provider’s marketplace, you can likely roll them over.
If you are unsure that the proposal reflects your year-in, year-out needs, make sure to understand the rollover provisions and penalties.
Is fractional ownership or leasing the right solution for you?
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 booking a charter flight that 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 that ‘Everyone signs the same documents.’ Not so!”
You may first consider calling 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 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.”
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.
