Do separate accounts provide security in a flight provider failure?

Nobody wants to lose money they have deposited for future jet card flights or flights paid for an upcoming on-demand private jet charter.

But how do you protect yourself?

What are the tradeoffs?

Here, we look at separate accounts to protect your funds.

Some flight providers promote separate accounts as a way of protection and to demonstrate financial stability.

The funds you paid were put into a separate bank account from the general operating accounts.

The reason private jet flight providers – both brokers and operators – pitch that they don’t mix funds is two-fold.

First, they see keeping your flight prepayments in a separate account as a best practice.

They are not using your prepayments to fund the business’s daily operations.

They are not using your prepayments to fund somebody else’s ad hoc or jet card flight.

We’ve covered what happens to your jet card prepayments here.

We’ve also covered that ad hoc charters are not necessarily a safe haven.

Refundable jet cards are often pitched as a safety valve. We’ve covered them as well.

Separate Accounts

Are separate accounts beneficial?

Yes, it’s good to know the cash you are paying today isn’t used to pay last month’s electric bill.

On the surface, maintaining separate accounts for jet card deposits and payments for upcoming ad hoc charters is a best practice.

It means the provider – operator or broker – is not using your funds for rent, salaries, vendor payments, or fulfilling flights by other clients.

Of course, in some ways, it also depends on the flight provider model.

Do they own or lease the fleet? Are they merely a broker? Is it a managed fleet?

The amount of cash they need to fulfill your flight when you call is based on their sourcing model.

Some broker jet card models entail spending millions of dollars prepaying operators for future jet card flights.

It’s called GRPs, or guaranteed revenue programs.

A lawsuit between FlyExclusive and Wheels Up revealed the latter had paid $37.5 million to secure aircraft it could use for off-fleet guaranteed availability flights during the Covid demand surge.

An operator that owns or leases its fleet doesn’t have the same dollar percentage cost to fulfill a flight as a pure broker, paying 100% of the flight cost when you call and then source that trip.

READ: Where does your jet card private jet come from?

However, the second inference is that separate accounts for flight prepayments protect your money.

If something goes wrong, that’s not necessarily true.

In the separate account setups I am aware of, the flight provider can move funds in and out and between accounts as they see fit.

This removes the friction of escrow accounts that require your signature to release the funds.

So, a flight provider that says preflight funds are held in a separate account is good.

However, it doesn’t provide you protection.

If the provider enters bankruptcy, you could still be an unsecured creditor.

It all depends on how the account is structured.

This article from Investopedia discusses segregated accounts from a financial services perspective. 

But here’s another critical point.

Need Cash Now

What if the flight provider needs cash for operations?

What if the flight provider is a broker and needs cash to buy flights for another customer?

In other words, what if no funds exist in their other accounts?

You probably know the answer.

If funds are kept in a separate account that doesn’t require customer approval for transfers, the flight provider can use the funds from the separate account for those immediate obligations.

And that’s the point.

During our last subscriber survey, we asked about financial stability when choosing a private jet flight provider.

A plurality (44.8%) of you checked off, “It’s important, but it is very hard to truly know since most companies are privately held.”

And that’s the rub.

While being told, “We put your funds in a separate account” sounds good, it is mostly trust without verification.

One thing we’ve seen with failures is that they are not necessarily limited to start-ups.

Of course, the key is to make sure you have identified the providers with programs that best fit your flying needs based on their rules and policies.

From there, you can begin your due diligence and balance financial risks against program benefits and pricing.

When you are getting ready to compare, remember to submit a Decider Custom Analysis request so we can help you identify the best options based on your needs.