Exploring what escrow accounts are, how charter and jet card sellers often misuse the term, and why many jet charter providers avoid them.
How safe is the money you pre-pay to your broker or operator for jet card flights, or to hold on account for future flights?
Many companies offer pre-paid jet cards and memberships, or hold your funds on deposit for future flights, putting six figures of your money in someone else’s trust.
Some companies take your payment and put it directly in operating accounts, using it for ordinary business purposes.
Others use terms like segregated accounts, offer separate accounts for individual customers, and even use escrow to create the perception of security.
In many cases, keeping your flight prepayments separate from operating accounts may be good business practice.
But do they really protect your money?
The answer is not as straightforward as you think.
Escrow is a legal term for assets, usually money, that a third party manages during a transaction.
The term comes from English law, which in turn comes from the Old French escroe, meaning a scrap of paper (in this case, a note or asset).
“An escrow account arrangement is a tool to hold and release funds associated with a transaction on agreed terms,” said David G. Mayer, a Dallas lawyer specializing in aviation, in an interview with Private Jet Card Comparisons.
Mayer continued:
‘You insert a neutral party in the transaction, hold the funds, to make sure that if anything goes wrong, there’s a known process to handle any dispute resolution.’
That neutral party is typically a bank or escrow agent (who takes a fee for the role).
Escrow is also common in real estate, Mayer explained, and far more prevalent there than in jet cards.
Assuming no disputes, he said that escrow fund payments “should be released around the same time as a request or a flight.“
The setup and fees required for escrow, then, make it best for large transactions rather than, say, paying a moving company in advance.
Escrow’s biggest advantages are promoting transaction confidence and keeping funds secure with a neutral third party.
It’s most commonly used in real estate, where escrow holds deposits for mortgages and home purchases while the transaction is underway.
Other high-value asset transactions, such as domain names, business acquisitions, intellectual property, and machinery, also use escrow.
Another luxury travel industry that uses escrow accounts is yachting, particularly for vessel sales.
In that industry, escrow reassures both parties that deposits are secure while the buyer inspects the vessel and ensures it meets their standards.
As in other industries, true yachting escrow agents do not release funds to the seller once both parties notify them that the transaction was completed successfully.
Instead, they release funds only after receiving written, official documentation that all agreed-upon assets were transferred.
In aviation, escrow is almost always used for aircraft sales.
Some aircraft-specialized escrow agencies are even based in Oklahoma City because of the FAA offices there.
So, escrow can protect against bankruptcies and financial failures that leave customers all the poorer.
When charter operator JetSuite filed for bankruptcy, customers got back only 3-15 cents for every dollar they had deposited.
Overall, they had deposited $50 million for pre-paid flights with JetSuite.
Losing funds paid in advance is not limited to jet cards and charter flights.
When Florida construction company Van Der Valk Construction shut down, it left customers with half-finished homes and mortgages to pay off.
Madeline Frets, who had spent almost $300,000 on what she hoped would be her retirement home, had to live in a mobile home while her house remained unfinished.
The construction company went bankrupt with over $1 million in liabilities but less than $100,000 in assets.
The same happened when Supreme Pools went out of business in 2024, leaving at least 45 pools unfinished.
One customer told a local TV station, “I can’t even really enjoy this house because my backyard is a mess. It’s a complete train wreck up there.”
And when Crystal Cruises went bankrupt in 2022, before being relaunched under a new owner, it left customers and travel agents $100 million out.
Customers who’d paid with credit cards faced easier refunds than those who’d used cash, but travel agents were left with unpaid commissions.
After Crystal Cruises’s 2023 relaunch, it offered former customers the chance to apply for voyage credits, though not a refund.
Another example was Kadey-Krogen, a yachtbuilder, which filed for bankruptcy in June.
YachtBuilder noted, “Yachts still under construction are unlikely to be completed.”
It continued, “Buyers who placed yacht deposits or progress payments typically become unsecured creditors in the liquidation process.”
Just because the word escrow is used (or misused) doesn’t mean it provides the security you were hoping for.
“If a client pays me money into escrow,” said a private aviation executive who spoke with Private Jet Card Comparisons. “But if I, as the airline (or broker), can do whatever, don’t require the customer’s signature to release funds, then it’s not truly an escrow (account).”
The executive explained that customers must verify whether an agreement meets the criteria for a true escrow account, not just a marketing term.
The requirements for a true escrow account are:
An escrow agent’s job is to follow the instructions in the agreement, not to decide or judge.
The executive clarified that in unresolved disputes, agents will follow the agreement.
Many agreements state that, after a set period, an agent will send the disputed funds to court, where the parties’ lawyers and a judge decide who’s in the right.
Another key point is that escrow accounts should be in the customer’s name, not the seller’s.
If you’re planning to sign an escrow agreement, read every detail to make sure it matches your preferences.
READ: Caveat Emptor: Avoiding private jet scams, bankruptcies, and shutdowns
With that in mind, escrow may seem like a natural fit for jet card memberships.
Jet cards and memberships nearly always require customers to pay in advance.
Some jet cards start with as little as buying 10 hours or $50,000 of future flight time.
More typical is 25 hours or payments between $100,000 and $200,000.
According to current data from Private Jet Card Comparisons, subscribers spent around $300,000 each funding jet card accounts for future flights over the past 12 months.
But most charter providers don’t offer escrow accounts, according to Private Jet Card Comparisons data.
“It (escrow) is not common among the providers,” explained David G. Mayer. “What tends to prompt providing escrows are younger companies; they don’t have a strong credit record or track record to provide to customers.”
Jet card providers mainly offer escrow so customers feel secure that their pre-paid flight funds are safe.
Mayer continued:
‘Take a look at the big guys, NetJets, Flexjet, you won’t see them doing escrows, because they have a strong balance sheet. You also will find, as a business matter, that they would strongly resist even a discussion about escrows because they don’t need it. They’ve got creditworthiness, track record, they’ve got arrangements in their contracts that are solid. And they have a need to maximize their profits by using those funds or investing funds until they are actually dispersed on flights. So it’s much more advantageous to avoid escrows.’
Executives say jet cards have an issue with true escrow accounts, which conflicts with how memberships work.
Instead of distributing funds once or in several big chunks (for example, as a builder progresses on a project), a single jet card can involve dozens of flights.
For an escrow account, that means all parties have to go through the tedious release process constantly to pay for each flight.
A CEO of a large aviation company said the relatively small amount of money for jet cards- hundreds of thousands compared to millions for buying a jet- and the need to disburse payments on short notice in small chunks make true escrow accounts impractical.
Aside from escrow, jet card providers typically deposit customer funds directly into their operating accounts.
“With jet card memberships, jet card issuers rarely, if ever, use escrow funds,” said David M. Hernandez, an attorney specializing in business aviation with Vedder Price, adding, “They just don’t need to.”
Hernandez continued:
‘That business model (jet cards) does not allow for escrow funds for various reasons. One, when you do a prepaid card, it’s (sometimes) non-refundable, and so you have to send 7.5% to the IRS. So that can’t be escrowed. So the IRS gets their money already.’
He explained that jet cards, as a business model, require upfront money.
So charter providers typically use one of two account types for customer deposits.
Operating accounts are the most common.
Customers’ deposits go into a provider’s business funds, which the company can invest or use as it wants.
In return, customers receive flight credits. A provider then funds that promised flight from their cash reserves.
The other alternative is a half-compromise between the cash flow of operating accounts and the rigid security of escrow.
Segregated accounts are a compromise between operating and escrow accounts.
Providers own and maintain a separate account where they place clients’ funds. They then promise to withdraw funds only when a customer requests their flight.
“We hardly ever do escrow, because no client wants it,” said an executive at a charter broker that sells jet cards, in an interview.
He explained how his brokerage offers clients segregated accounts, using it as an example of the practice.
The broker sets up bank accounts in its name and deposits customers’ money there. Clients can view the account and its transaction history.
Customers deposit into the broker, which then transfers it to the bank account.
The broker withdraws money after completing a promised charter flight. That withdrawal does not require a client’s signature.
“It’s (an escrow account) kind of operationally a pain in the butt,” said the executive, explaining why the broker prefers segregated accounts. “And it comes at a cost, which most clients don’t want to absorb.”
He continued:
‘But from time to time, and few and far between, we’ll work on an escrow account with a client. It’s typically for larger deposits.’
Another difference between these account types is how secure a customer’s deposit is.
Reputable escrow agents and institutions may be FDIC-insured, protecting deposits against the agency’s bankruptcy.
But with operating accounts, deposits are uninsured, protected only by the provider’s promise that it is financially healthy.
Which brings us to why escrow accounts have become a selling point for jet cards again.
During the interview, David Hernandez brought up OneFlight, whose finances have drawn scrutiny.
Multiple lawsuits against the broker even alleged it ran a Ponzi scheme.
Hernandez said:
‘Here’s the deal. If it sounds too good to be true, it probably is. So OneFlight sounded too good to be true, and it was. Trust your instincts. I think people just get crazy. They’re going after these great deals and thinking, oh my God, you know, we’re going to get $500,000 in free air credits.’
Despite that, Hernandez clarified that he still approves of jet cards.
“It (a jet card membership) is not a Ponzi scheme,” said Hernandez. “But they certainly need the money, the revenue, to use the money currently as opposed to a year from when they receive it.“
Hernandez recommended customers do their due diligence when evaluating providers and their deals, reiterating, “If it sounds too good to be true, it probably is.”
He continued:
‘The (OneFlight) incentives were too ridiculous. No one can make money off of that. It just made no sense. So they (jet card providers) are going to try to find operators and squeeze the operators. And in this business model, it’s a charter-operators’ market. There was more demand than there was capacity. So, of course they were going to lose money on these deals.
A client literally asked me, ‘What do you think of OneFlight?’
I said, I don’t know of them. I’d never heard of them.
And he said, ‘Well, how’s this work? You think it’s going to make sense?’
I go, no, it doesn’t. Because they can’t offer it. The economics don’t make sense.’
On his last point, the economics, private jet charter brokers only get so much profit margin to work with.
For example, Hernandez described a broker getting paid a million dollars to charter flights. It then pays jet operators $750,000 for the flights.
So, the broker nets a quarter million in revenue. That must cover its own business expenses, including rent, salaries, commissions, marketing, and so forth.
While customers pay retail prices for flights, brokers can negotiate lower wholesale rates because they buy flights in bulk for various clients.
However, that example’s 25% profit margin means (a OneFlight investor presentation showed mark-ups in the low single digits) that charter flight deals can only go so low before they become unprofitable for a broker.
READ: Refundable Jet Cards: The good and bad
So, the critical question is: can escrow protect your deposits from a seller/provider’s potential bankruptcy?
Escrow is more secure than a standard jet card agreement.
However, escrow isn’t an absolute protection for an unsecured creditor if a provider goes bankrupt.
That protection depends on the escrow account’s terms and conditions, applicable banking laws, and the protections available to unsecured creditors.
While escrow is secure, especially when its funds are insured and the account is in the customer’s name, you still need to make sure the account’s terms and conditions cover potential bankruptcies and disputes.
As always, read the fine print. It is a common saying for good reason.
No universal escrow or jet card agreement exists, so read each contract and make sure it protects you and covers all eventualities, even unlikely ones.
Like in other industries, escrow can give jet card customers peace of mind that their deposits will be safe.
However, no known cases show escrow saving a customer’s funds from a charter provider’s bankruptcy.
That may be because escrow is rarely used overall, but it’s still worth noting.
Whether escrow can bolster deposits’ security, or is incompatible with the jet card business model, may need more testing.
But it’s still an option customers can keep in mind, and they can ask whether it’s even on the table.
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