Owning vs Fractional??

[PilotKitch]

Looking for opinions from people who may have been through this exercise and have the other side of the story which the sales guy does NOT mention.

We have a Part 91 GIV that averages 200 hrs per year, single owner that is 100% leisure travel.

His is considering a 1/16 share (50 hrs) on both a GIV and GV with Netjets and 1/8 share (100 hrs) on a Challenger 300 with Flex.

It appears the package that they have put in front of him is showing a substantial enough savings to be able to get used to different crews, aircraft, etc.

What kind of back-end charges can he expect with the fractionals? The majority of our flying has been domestic with 1.5-2.5 hr legs, with 2-3 Europe trips mixed in per year.

Looking to justify our existence here since the sales guys never bring up the disadvantages with duty times, scheduling, fuel surcharge, etc. He also has 3 large (80-90) dogs that travel with him most of the time that the sales rep says will NOT be an issue. (True/False)

The more feedback the better.......

 

[Gulfstream 200]

From my limited experience:

When it comes down to it, you can either afford to own an airplane or you cant.

The owners of our airplane looked at and did demos on fractionals and came out perplexed as to why anyone would ever buy into one..fuel surcharges, ratty beat up planes, substitute planes, unknown crews etc...the answer is USUALLY that they cant afford their own plane (a 100% luxury item, no matter what crap NBAA spews) The old line of not having to worry about the headaches of running your own department is solved by hiring good people who work directly for you - to those who can afford it.

Older aircraft are losing value fast and can get expensive to run with unpredictable costs. This scares people after a few years of bills.

For example - if one bought a brand new G550 2-3 years ago you could have possibly seen enough in appreciation to date to run it for free (on paper)...but try that with 90% of the used aircraft out there and you would have lost a fortune. Add in the headaches of owning an aircraft out of warranty etc..adds up quick. Next thing you know they are searching for charter revenue, fractionals etc...

He knows the numbers and his financial situation better than you, sometimes this is already out of your hands. Good Luck!

 

[ElCid88]

Have your owner's financial person take a very close look at the numbers and small print that the frac. sales people don't like to mention. You also might want to talk to your boss about "right sizing" his current aircraft and maintaining ownership. Of course, getting rid of the old aircraft might be difficult. At any rate, best of luck to you.

 

[NJAowner]

I have not had these "hidden extras" and have been with NJ for a long time. That said -- if I had more $$$ -- I would buy a plane and also work into the budget a card with NJ to handle unexpected maintenance and problems, sick crew, or just inefficient flights. If I had even more $$$$, I'd probably hire Gulfstream 200 to run my department! As far as duty time, I have had many days where I have left home at 6 a.m. and returned back at 10 p.m. and NJ has either swapped out the crew or the entire jet because of duty time.

If you want to save your job, find ways to make yourself/department indispensable -- so comparing only costs would be like comparing apples and newspapers. Can't be done.

 

[Gulfstream 200]

If I had even more $$$$, I'd probably hire Gulfstream 200 to run my department!

I'm always avail for the right price!...LOL...did you ever get your pilots license???

 

[CA1900]

He also has 3 large (80-90) dogs that travel with him most of the time that the sales rep says will NOT be an issue. (True/False)

Absolutely true with Netjets. I carry dogs all the time, and they're always welcome. Just let the company know when you book your flight so they can be accounted for on the weight-and-balance. Note that dogs can be an issue for international travel, but that's a customs/immigration issue with various countries, not something specific to us.

The only restriction is that the dogs will be required to be secured for takeoff and landing in a proper location (varies by aircraft). Many owners bring their own dog harnesses for this purpose, though most planes are equipped with at least one. (For three dogs, he'll most certainly need to bring his own to be sure.)

 

[waka]

Just tell the owner that the scheduling departments at fracs try to squeeze every last bit of blood out of their pilots each and every day and that most are always tired from being used and abused.

 

[guido411]

Just tell the owner that the scheduling departments at fracs try to squeeze every last bit of blood out of their pilots each and every day and that most are always tired from being used and abused.

Which is why the fractionals have such a horrible safety record? Not sure what you're getting at but if you're implying that fractional pilots are unsafe then you will lose that argument.

 

[Gulfstream 200]

Just tell the owner that the scheduling departments at fracs try to squeeze every last bit of blood out of their pilots each and every day and that most are always tired from being used and abused.

I know plenty of Pt91 operators who squeeze harder.

The entire situation in Pt91 depends solely on the owner and their commitment to Safety and STAFFING.

 

[gern_blanston]

From my limited experience:

When it comes down to it, you can either afford to own an airplane or you cant.

The owners of our airplane looked at and did demos on fractionals and came out perplexed as to why anyone would ever buy into one..fuel surcharges, ratty beat up planes, substitute planes, unknown crews etc...the answer is USUALLY that they cant afford their own plane (a 100% luxury item, no matter what crap NBAA spews) The old line of not having to worry about the headaches of running your own department is solved by hiring good people who work directly for you - to those who can afford it....

Precisely.

 

[100-1/2]

Times are hard and everyone is cutting fat. Wholesale Aircraft Values are in the drink.

Consider a (Mortgage) loss the owner would take selling an an older GXXX against the newer inventory already (Stale) on the market.

At 200 Hours you are in better shape than most in terms of operating cost. Pure dollars and sense 'per hour' should find your current arrangement very competitive against NJ/EJ marketing for Fractions large enough to cover that utilization volume. Ultimately, NJ/EJ will ALWAYS hold all the power in how utilization is/was/will be calculated and terms are ALWAYS subject to CHANGE. Particularly after they have already collected your owner's money and his signature on the TOS! Surcharges are the solution for poorly tendered marketing, structure or worse yet, terrible flight deck management. Sometimes the Owner demand will increase with a recovering economy necessitating more hours, in which restructuring penalties of the NJ/EJ agreement or hassles (penalties/broker fees) with selling the smaller share in exchange for a larger share. You always have to calculate the "what-ifs" for the boss/Owner.

If you have a good crew and the department is small enough, a respectable bunch should consider making the department as efficient as possible, recommend alternative airports and lengthier ground logistics to curb costs for prime fuel/real estate at the downtown airport fbo? And yes, have payroll reduction as a nuclear option as a matter of survival. Drop the T&A in the tight skirt and blouse and show the owner how to use the stove and coffee pot!

I am kind of with another post here, however. The fact you are being consulted, is likely an indirect courtesy by the owner to let you know "it is already in the works?"

Good luck.
100-1/2

 

[PilotKitch]

I am kind of with another post here, however. The fact you are being consulted, is likely an indirect courtesy by the owner to let you know "it is already in the works?"

Unfortunately, we were consulted as a whole by the boss telling us the savings are significant enough to make his aircraft look unjustifiable and he plans to go sign. He seems to have the opinion that no matter how much money you have waste is waste.

I am just gathering as many opinions and "facts"as possible so IF we get the chance to "justify" ourselves we will have as much info as possible. He can afford it, we just have to try and persuade him as to ALL of the benefits and conveniences having a stand alone operation brings him...... HOPEFULLY!!

 

[gret]

Probably heresy...but have you considered offering your a/c out for charter? 100-150 hours of charter would go a long way toward off-setting your fixed costs and the numbers will flip in your favor in a jack second.

If he bought the a/c in the past few years, he is really upside down so his loss is huge. Most likely not deductible for tax purposes because all his use was personal. Leave that one to the tax guys, but be sure and consider it.

Some downside with Part 135, but pick you poison...your job, or flying a bit more.

 

[NJAowner]

Budgeting Hours

Does he fly the same numbers of hours every year +/-? If you are trying to save your dept., see if he really wants to start budgeting his hours and worrying about them. What if they want to take an extra trip skiing this year -- that is another 8 hours (if from the east coast). If he is used to unlimited flexibility this may be difficult to get used to. NJ is not as flexible as the others of needing additional hours. You can only borrow from furture years but your can not "buy" extra unused hours from other owners who are underflying their shares and wish to sell.

 

[waka]

Which is why the fractionals have such a horrible safety record? Not sure what you're getting at but if you're implying that fractional pilots are unsafe then you will lose that argument.

I didn't say anything about the safety record of fracs....didn't even imply it.

 

[waka]

I know plenty of Pt91 operators who squeeze harder.

The entire situation in Pt91 depends solely on the owner and their commitment to Safety and STAFFING.

True, which is exactly why I suggested it. If the owner was one that didn't push their pilots, then it would indeed be a selling point.

In my frac days, you could pretty much count on being abused, 4 to 6 legs a day, min rest in crappy hotels, 8 days in a row. If I was wealthy enough to have my own G Whizz and my own pilots, damn right I would keep them.

 

[Twotter76]

In my frac days, you could pretty much count on being abused, 4 to 6 legs a day, min rest in crappy hotels, 8 days in a row. [\QUOTE]

Yes we do work more than your average part 91 operator but I can assure you that there isn't a part 91 operator out there that has a fatigue policy that's as good as ours. I have no complaints about hotels either - Hiltons and Marriotts suit me just fine, though the Fairmont that I'm in tonight is particularly nice.

As a final point point I do exactly 3 8 day trips a year and never longer than that unless its voluntary. I haven't seen a min rest turn in months, though I certainly would not mind one in order to set up for an owner trip to ensure continuity of their schedule.

 

[SonnyD]

How much is NetJets saying the owner will lose at the end of the contract when your boss tries to sell back his share? How much of that loss is guaranteed, and how much is at risk? In five years, his tail# is likely going to have 5-6,000 hours more time than it has today. What's the hourly depreciation NJ is pricing in for capital recovery at the end of the contract?
How closely is the fuel surcharge tied to retail Jet A?
How much of a loss will your owner bank by selling your GIV tomorrow?
Have you mentioned how much time he has before the frac crew times out trying to fly him back from Europe if he's running a few hours late?
Does your boss like to travel on NetJets's peak travel days? And during his travel days, does he tend to run later than he says? How valuable is it to him to have you sit around and wait for him to show up on his schedule?

NetJets puts out competitive mgmt fees and attractive basic hourly rates. Above, I've ried to give you a sampling of what they don't list. Their fractional product is truly awesome, but it's not for everyone.

 

[BigMike]

You're not implying that NetJets buys airplanes wholesale, sells fractions at retail+ then sells for whatever they can hustle the deal at? You

 

[SonnyD]

You're go$%$#@mn right I'm implying that. Funny how that never makes it into their presentations, leaving the in situ pilots with that unemployment dear-in-the-headlights stare.

You're dealing with commission-seeking professionals who know how to talk NPV and opportunity cost and discount rate. They like to talk "simplified cost structure" with their headline mgmt fees and competitive hourly rates, glossing over win-lose CPI adjustments, and use language in the fuel surcharge clause leaving the end user liable for fuel increases on the charter card side of things.

I'm not knocking NJ, they're a seriously well-oiled machine. I just want to see a fair fight, that's all, and I think the average corporate pilot will walk away a bit shell shocked from the refined sales presentations done by the big dogs. Good luck.

 

[BoilerUP]

NetJets wanted $2.2M acquisition price for a quarter share of a Citation Ultra in late 2007.

$8.8M total for an airplane that hadn't been produced since at LEAST 1999, and probably didn't cost $5M brand new.

Let's just say my boss didn't see the "value proposition" in such an agreement...

 

[gern_blanston]

You're go$%$#@mn right I'm implying that. Funny how that never makes it into their presentations, leaving the in situ pilots with that unemployment dear-in-the-headlights stare.

I know. It's the one truly amazing part of this fascinating business model... Blatantly ripping people off, OR allowing people to show off a bigger jet than they can afford.

 

[PilotKitch]

Thanks for everyone's insight and information, unfortunately the boss is out on his first QS trip this week and has several "good" offers of the aircraft.

Time to update the resume and logbook..........

 

[LongBoarder]

NetJets wanted $2.2M acquisition price for a quarter share of a Citation Ultra in late 2007.

$8.8M total for an airplane that hadn't been produced since at LEAST 1999, and probably didn't cost $5M brand new.

Let's just say my boss didn't see the "value proposition" in such an agreement...

Do you need a quart of milk or do you need a gallon? I am happy to sell gallons all day long for $4.00 but if you only need a quart it costs $2.25. Aircraft is not the only place that this situation happens.

SF

 

[gutshotdraw]

Thanks for everyone's insight and information, unfortunately the boss is out on his first QS trip this week and has several "good" offers of the aircraft.

Time to update the resume and logbook..........

Sorry to hear it Kitch. I have been in your shoes. It's how I ended up where I did.

Having talked to my old boss on trips since he switched to NJ 12 years ago, I can tell you he has DEFINITELY spent more than he would have owning his own airplane. He was willing to pay more because:

1. The service WAS good.
2. The product is simple (one phone call, one check).
3. The product is scalable to the trip requirement (upgrade, downgrade).
4. The recovery options for the inevitable mechanicals, etc. just can't be matched by a one or two-ship operator.

Fractional IS NOT cheaper but it does fill a need and, as previously noted, it isn't for everyone.

Jobs are starting to open up a bit especially for guys like you with large aircraft international experience. Best of luck to you if he signs away the plane.

 

[BoilerUP]

Do you need a quart of milk or do you need a gallon? I am happy to sell gallons all day long for $4.00 but if you only need a quart it costs $2.25. Aircraft is not the only place that this situation happens.

Apples and oranges comparison, especially considering the breakdown of share price is linear depending on your size (1/16 price * 4 = same price as a quarter share).

Smart, financially successful people know when they're being sold a bill of goods...or in this case, a 10 year old Ultra at a price substantially higher than the airframe cost when it was brand new. Some folks don't care and want turn-key lift and are willing to pay a premium for it; for others, its not remotely a good value.

 

[jonjuan]

Apples and oranges comparison, especially considering the breakdown of share price is linear depending on your size (1/16 price * 4 = same price as a quarter share).

Smart, financially successful people know when they're being sold a bill of goods...or in this case, a 10 year old Ultra at a price substantially higher than the airframe cost when it was brand new. Some folks don't care and want turn-key lift and are willing to pay a premium for it; for others, its not remotely a good value.

More of these smart, rich, savvy people go from whole aircraft to fractional than the other way around. Most employ attornies and/or consultants to compare the two. They do more in depth analysis than most pilots here, to include higher DOCs and increased depreciation due to higher airframe time. In most cases, it's cheaper to go frax. Have you seen the difference in interest payments on $5 million versus $40 Million? Have you seen the incredible deals lately on almost new, pre-owned aircraft? Some two-three year old whole aircraft have seen valuation drops of 30-50%. On $20 Million, that's a LOSS of $8 to $10 Million. The same 1/8 share fractional which was $2.5MM new even if worth ZERO today would still be much less of a loss than $8 to $10 million. The delta there is still $5 to $7 Million worse for the whole aircraft. Now if someone is flying 400 hours +/year then it comes close, but 50-200 hours/year, not even close. The owners know this. They ain't dumb.

 

[Gulfstream 200]

More of these smart, rich, savvy people go from whole aircraft to fractional than the other way around. Most employ attornies and/or consultants to compare the two. They do more in depth analysis than most pilots here, to include higher DOCs and increased depreciation due to higher airframe time. In most cases, it's cheaper to go frax. Have you seen the difference in interest payments on $5 million versus $40 Million? Have you seen the incredible deals lately on almost new, pre-owned aircraft? Some two-three year old whole aircraft have seen valuation drops of 30-50%. On $20 Million, that's a LOSS of $8 to $10 Million. The same 1/8 share fractional which was $2.5MM new even if worth ZERO today would still be much less of a loss than $8 to $10 million. The delta there is still $5 to $7 Million worse for the whole aircraft. Now if someone is flying 400 hours +/year then it comes close, but 50-200 hours/year, not even close. The owners know this. They ain't dumb.

this is, hands down, the dumbest $hit I have read on flightinfo in a long time!



Show me a $40mil+ aircraft (Global, G550, 7X?) puchased in the last 2-3 years that has lost value at all (nevermind 50%!!) and then find another with "interest payments"



Incredible deals? on what?? Old Astras, Hawkers, and 25yr old GIVs? - the killer deal days are long gone on most desired aircraft.

 

[G4G5]

I think Bernie Madoff was the first one to come up with that Ponzi scheme called Netjets. Woops that's right a former Goldman executive thought it up. Let's see we get the aircraft for $20 million and sell a 1/4 share for $7 million each, then charge a monthly fee on top of that.

Now I wonder how many owners / big US corporations are going to get involved with a company that no longer flies any US built jets? Buy American, not at Netjets

 

[G4G5]

http://www.cnbc.com/id/41877271/page/3/

Yesterday's Warren Buffetr transcript on Squawk Box:

I give Joe Kernan credit for asking this, if you watch the clip live you can see that it visably bothered Buffet to have someone come out publicly and say that Netjet was "anti-American". I wonder how many big corporations will like doing business with a company that no longer has any US made Jets?


BECKY: OK. Joe, you have a question, too?
JOE: Yeah, I do. And a--I should say I probably have a follow-up, too, because I'm going to get to where I'm going, but it always takes a while. I know that. Warren, we think about jobs in the country and how to get jobs. And then we also think about how to run businesses. And that huge--or that jet acquisition you made from Bombardier, you could have bought Gulfstream. Do you--do you ever think about social responsibility in terms of where the jobs will be--will be generated? That could have gone to Gulfstream, but it didn't, it went to Bombardier, right?
BUFFETT: Yeah, we think about what will be the best deal for our customers in terms of what they're going to want in terms of a wide cabin, long-range plane. And in the end the customer drives every decision we make on something of that sort.
JOE: That's a global--are you're buying--is that plane you're talking about?
BUFFETT: It's a series of four planes over the next decade or so. Eventually they'll bring in a 7,000 and an 8,000, so there's--and incidentally Gulfstream will be bringing in new planes over the next decade, too. But we evaluated the options just as we did in the small cabin planes, tried to decide what, in terms of the demands of our owners, what they want in terms of range, in terms of cabin width, in terms of all kinds of things, cost, and made that decision, because in the end we can buy planes, but we also have to sell planes, and the customer's going to make that decision.
JOE: We--I guess this indicates that both business travel, which I figure use the big cabin ones, and also--you bought--you bought in Marquis jet, right? That goes more to, what?
BUFFETT: Right.
JOE: Pleasure? How's that acquisition going, and are we seeing then, you're saying, a bounce in both business travel and individuals?
BUFFETT: Yeah. And we bought Marquis late last year, and Kenny Dichter, who runs that operation, is doing a terrific job for us. Our sales of Marquis cards in the month since we bought it are appreciably ahead of the same months a year ago, and it made sense for us to buy Marquis and I'm glad we own it. We're seeing--we're seeing increases in both personal use and in business use. And sometimes it's hard to tell. Sometimes in small businesses an owner will have $100 or something, and we don't really know whether he's using it for personal or business use.
But we have seen--we have not seen a surge in demand at all. We have seen our present customers using more hours per month by a considerable margin than they were two years ago. They're usage right after Lehman fell off dramatically. They were still paying us the monthly management fee and all of it. They had the right to the same number of hours, but they weren't using them. It was amazing to me, because you had these very wealthy people and they had homes and, you know, that they went to at Christmas or Thanksgiving. But maybe they started going to them by bus. But our usage really fell off there significantly in the six months following Lehman. It's come back quite a ways. Our sales have picked up, but they're not remotely like they were four or five years ago when everybody was feeling flush. JOE: Well, you're making a huge bet on the future of this. And, you know, you--sometimes you lessen investments like Washington Post or something, that it looks like even though NetJets has never--has it been a big moneymaker for you? You're going in, you know, full bore at this point.
BUFFETT: Yeah. Well, Net, since we bought it, we made a couple hundred million dollars last year and that brought it--brought us back to where for the full 11 years we more or less broke even.
JOE: Right.
BUFFETT: So it has not been a satisfactory investment financially. It's been--it's been a significant winner in the marketplace. We have five times the market share of our leading competitor. Nobody's gained market share on us, nobody gets the customer satisfaction reports that we get. But we have not--we have not made money. We were spending more money than we were taking in, which catches up with you eventually. Under Dave Sokol, it's now doing very well. But it is now--we have not gone back to a period like 2005 and '06 and '07 when the hedge fund operators and everybody were signing up hand over fist. We're selling more than we were a year ago and are using more than a year ago, but it's not dramatic.
JOE: Well, it looks like you're expecting it to be.





Say good by to Cessna at Netjets
http://www.businessweek.com/news/2010-10-18/berkshire-s-netjets-to-buy-up-to-125-embraer-planes.html