Fractional vs. owned aircraft, pros and cons

[BoilerUP]

The flexibility a fractional provides a client in terms of AOG response and aircraft adaptability comes at a VERY steep premium, especially if you fly more than 250-300 hours per year.

In Oct 2007 our company did an analysis on replacing our Citation II with a quarter share of a NJA Ultra. The 1/4 share was $2.2M, and after all the surcharges & hourly costs related to the quarter share's 200 annual flight hours were totaled, we could operate our Citation II for around 350 hours...which is +/- 5% of our average annual utilization. Even taking the Ultra's marginally faster speeds into account, we were still money WAY ahead keeping our aircraft.

In our case, if we need lift to supplement our aircraft (in case of maintenance, AOG, etc) or need a larger aircraft for a particular trip, we can charter an Excel, Hawker, LR45, etc. (from a local vendor, EJM, etc) for substantially less cost than the premium paid for a fractional.

Fractionals provide a great product with superior flexibility...but that product simply isn't cost effective if you fly a substantial number of hours per year.

 

[cjdriver]

Seems like no company that uses their plane for actual business vs pleasure goes the fractional route. Most of the customers I flew in frac were pleasure trips. All of the trips I fly 91 for my company are business. Two different customer bases. If someone needs a ride to the beach or mountains, maybe frac is the way to go. If you need to fly 8 employees 1000nm to do business then turn around and get another 8, whole ownership is the way to go.

 

[CALRepublic]

My boss went to the fractionals and bought shares in a GIV for a few years. He gave up when he and his wife were waiting to be picked-up in the GIV and here comes a Citation that the previous passenger had thrown-up in, and they were running two hours late, the F/O started throwing the bags into the cargo compartment. I had to find some fabrezee and the boss and I ended up re-loading the bags. After this we received a brand new Challenger, Thanks’ to fractionals I still have a job.

Hang on to that one incident buddy.

I understand your frustation, but let's not go there. Are you going to tell me that never happens at a charter/flt. dept.??? You're flying along and someone throws up in your challenger, you're suppose to wait 5 hours and take'em back... What happens then???

Give us the pros of owning, let's not start bashing eachother.

 

[pilotviolin]

Pros of Owning:

*No need for passenger lists. Whomever shows up, gets on board.

*Complete Flexibility. If our Principles show up a half an hour to 3 days late it doesn't matter. Or Visa Versa..

*Destination changes in flight. Happens several times a year for us. No big deal.

* No B.S. fuel surcharges, Management fees.. e.g.

* Leave stuff on the airplane. Jackets, computers, bags, medicine, tools, always on the airplane when the need them.

* VFR flights, special requests. Took a trip once, scouting out Mt. Biking areas.

There are other ones, but there are pros and cons both way. It is like owning your own car and renting.

 

[gutshotdraw]

Pros of Owning:

*No need for passenger lists. Whomever shows up, gets on board.

Not when the TSA gets done with this LASP bu!!&hite. If the jet weighs more than 12, 500 lbs, you get to run no fly lists too. And pay to get a security plan authorized. And pay an outside third-party auditer every two years to check it. And get wanded and screened at the FBO. And get told you can't go to Smalltown USA because the security there is "inadequate." And you can't take the boss hunting anymore because his shotguns are a danger to national security.

Sorry, thread creep. Rant complete. Carry on.

 

[CA1900]

Seems like no company that uses their plane for actual business vs pleasure goes the fractional route. Most of the customers I flew in frac were pleasure trips....

My experience has been the complete opposite. More than half of my flights have been corporate accounts, flying on business trips.[/quote]

If you need to fly 8 employees 1000nm to do business then turn around and get another 8, whole ownership is the way to go.

Or with fractional shares, you could have them there are the same time, and not fly an empty round-trip.

*No need for passenger lists. Whomever shows up, gets on board.

Yep. And hopefully this LASP thing will get killed, and it'll stay that way.

*Destination changes in flight. Happens several times a year for us. No big deal.

Nor for us, either. I've done inflight destination changes on many occasions. We just let the company know where the plane's going, and they adjust the day's plan for the other flights. Not an issue at all.

* No B.S. fuel surcharges, Management fees.. e.g.

In place of those, an owned airplane has fuel bills, pilot salaries, benefits, insurance, hangar costs, maintenance costs, etc.

Agree with you on the other pros of owning. There are definitely pros and cons for both.

 

[FurloughedAgain]

Now you are my nemesis CA1900.

 

[Buckeye]

johnsonrod I wouldn't put to much faith in what KPMG says:
http://www.cheatingculture.com/kpmg.htm
http://www.google.com/search?sourceid=navclient&ie=UTF-8&rlz=1T4TSHA_enUS311US311&q=KPMG+scandal

 

[CA1900]

Now you are my nemesis CA1900.

I've always been your nemesis. :laugh:

 

[jehtplane]

As far as individual preferences go, at least at NJA, there is an individual profile on most of our briefs that can get quite detailed- I've seen profiles that include things like "customer prefers eggs to be cooked only in iron skillets" or "customer prefers a pillow placed on seat before arrival", or even notes to have certain products removed from the aircraft for allergies or if from competing companies and even music and movie preferences. These notes are easy to add to for following crews and do allow for a bit more "personal" feel for the customers even though they may never fly with the same crew more than once. We definitely have some passengers who are higher maintenance than others, but when things have gotten too unreasonable owners have been asked to leave the program (luckily I haven't had to deal with any of them). I haven't seen a note that requested 6 ice cubes, but if I find one that does I wouldn't have a problem fullfilling that wish as long as it was before the aircraft was moving- the customers are paying a lot of money to be there and I think they should expect a little more than the airlines offer for the money they are paying.

Gee, you think NJ's are the only one's that do that?

 

[NJAowner]

Pros of Owning:

*No need for passenger lists. Whomever shows up, gets on board. NEVER HAD A PROBLEM BUT ONLY SHOWN UP WITH EXTRA PAX FOR DOMESTIC FLIGHTS.

*Complete Flexibility. If our Principles show up a half an hour to 3 days late it doesn't matter. Or Visa Versa.. NO PROBLEM HERE AS LONG AS I CALL. I ASSUME YOU DO NOT SIT AT THE FBO FOR THE ENTIRE 3 DAYS BEING READY (IF SO YOU ARE PROBABLY TOO TIRED TO FLY).

*Destination changes in flight. Happens several times a year for us. No big deal. DONE THIS SEVERAL TIMES WITHOUT A PROBLEM DURING A FLIGHT WHEN THE NEED AROSE.

* No B.S. fuel surcharges, Management fees.. e.g. ALREADY COVERED.

* Leave stuff on the airplane. Jackets, computers, bags, medicine, tools, always on the airplane when the need them. GOT ME HERE.

* VFR flights, special requests. Took a trip once, scouting out Mt. Biking areas. ASKED TO FLY OVER MY HOUSE AND MY VACATION HOME. NOT A PROBLEM AS LONG AS I GAVE ABOUT 2-3 DAYS ADVANCE NOTICE SO THEY COULD CHECK OUT THE ROUTE.

Yes, I agree, owning yourown jet is much more flexible. However, how do you fly one group from NJ to Florida and another from Chicago to Florida at the same time so they can meet for a meeting with 1 jet? An advantage to frax is simultaneous use.

Both have their respective pros and cons. One is not the best for all -- just the most suitable for you.

For me, I am glad RTS invented frax.

Fly safe.

 

[guido411]

I've done my share of Frax flying prior to working for a 91 flight department, know both pretty well. Flying Part 91 now I obviously like to look at the pros of ownership because I also don't want my job to go away. Here are some that haven't been mentioned.

If you fly a new airplane, I think asset depreciation and last year's (continuing through this year) bonus depreciation needs a little more attention on this thread than it has gotten so far. For people that HATE to pay their high (soon to be higher) taxes, any way to offset that is worth looking into. That fact alone keeps us looking at new airplanes rather than used when our depreciation schedule and warranty run out.

We operate into some smaller airports. We do not have to comply with 60% or even 80% runway rules. We use our heads and decide if it's smart to take our airplane into the 4000' strip that day or somewhere else.

If you base your aircraft at a smaller airport you may be able to leave on the days that there has been bad winter weather. We have a hangar at a small airport so if it snowed overnight we pull the airplane out and blast. Any RON's are stuck because there is no available hangar space for anything bigger than a twin Cessna. De-ice equipment is subpar to say the least.

AOG, the frax do have the edge here with being able to recover a trip. . .unless that pilot group is in a labor dispute. Look at the DA on NetJets and Flops while pilots have been in heated negotiations. Do you REALLY think the airplanes broke more during this period? No, pilots were just less motivated to carry the MEL paperwork to the next destination after the pax deplaned or refused to do one more landing when the brake wear pins were getting "close". I would never advocate flying an unsafe airplane, but I would also not inconvenience my boss with an MEL paperwork delay for a burned out nav light discovered on preflight.

If you're really looking to offset cost of ownership or hourly cost look into finding another partner. Let them buy a "share" of your jet.

Lastly, and this advice goes to all in Part 91 ops, don't let your ego buy you out of a job. When your boss asks you for research on airplane purchases, be fair to him and to yourself. Look at what you NEED, what would be NICE, and what you WANT. There are many flight departments that ended up with the X and a bank note when the paid off Ultra would do.

All that said, a smart owner will face facts. There are costs that stay the same each year (hangar, insurance, pilot salries, etc) and those costs have to be defrayed over the hourly cost of operation. There gets to a low yearly hour number where those fixed costs make the cost of ownership higher than the frax. I hope for your sake your airplane keeps flying.

That's as objective as I can be.

 

[NJAowner]

and if your owner is really a good and fair guy, if you save him many $$ and put yourself out of a job he will/shoud take care of you somehow; find you another job, give you a very large severance package related to savings, or something. But I will note that I know very few good and fair employers who would do this.

 

[Publishers]

Having had them all, it really boils down to personal preferences. I think wealthy individuals may prefer ownership. This all assumes the need although I have 3 people now with older Gulfstreams that don't fly 200 hours a year. They want the comfort of knowing the crew, leaving their stuff on the aircraft, being in control.
Business aircraft are obviously different animals unless the business owner is like above. They do the numbers, realize the extent of a fractional back up, and know if they have the hours to need it. Basically you go from 250 for a light jet to 450 for a GIV as the base requirement.
Lastly is the whole management aspect which for me is where there have been significant changes. Now everyone is being convinced that they need the aircraft managed by someone.
Each case is unique and quickly becomes personal preference.

 

[solpilot]

Tracking number of "revenue flights" in the sky on a given day may be a viable barometer for health of an AIRLINE or charter operator, but it doesn't translate as well for determining the health of a FRACTIONAL operator.

Where NetJets (and other fractionals for that matter) make money was explained to me a few years back.... I'll break it down using 2005 numbers so there's no danger of disclosing anything confidential.

Although hourly usage fees are a part of the equation, the majority of revenue is generated by AIRCRAFT SALES.

Say a popular jet costs $15 million. NetJets negotiates a purchase agreement to buy 50 of 'em for the "bulk-order" discount of $14 million each.

NetJets turns-around and sells 1/4-shares ("quarter-shares') at $4 million each - totaling $16 million per plane. Right off the bat, they just made $2 million per jet.

Aircraft Sales alone accounted for 40% of Total Revenue in 2005. ($913 million)

So now we have a lot of folks who own a share of a jet... now what? NetJets then enters into an operating contract with each owner to fly and maintain the aircraft for them. Owners pay "Monthly Management Fees" to cover fixed costs such as infrastructure, labor, insurance, etc, and they pay "Hourly Usage Fees" to cover variable costs such as maintenance, fuel, landing fees, etc.

In 2005, Monthly Management Fees accounted for 25% of revenue ($574 million) and Hourly Usage Fees accounted for 32% of revenue ($725 million).

The remaining 3% of revenue ($75 million) came from profits generated by aircraft leases through the Executive Jet Management branch of the company.

Let's recap:

Aircraft Sales $913 million
Managenent Fees $574 million
Hourly Fees $725 million
Aircraft Leases $ 75 million
----------------------------
Total $2.287 billion

So at least in 2005, hourly usage fees only accounted for 1/3 of revenue. The majority, (aircraft sales and monthly fees) is paid long before any planes get airborne.

I snagged the above from another thread...Our company briefly considerd fractionals but in the end they can be more expensive without some of the great tax benifits.

 

[400A]

It all boils down to preference. My Boss wants to know who is up front. He wants to know that 1 person handles the Maintenance on the Aircraft. He wants to ride on the same aircraft. Pride of ownership is big to him.

While I want to preface the frac pilots do a great job and for the largest part are very professional, I will mention a few things that we found detrimental in our study,

As a former 135 support provider for the fractionals, I can tell you from experience that the owner not getting the kind of aircraft that they wanted or expected is not rare like someone mentioned.

Being based at a MX facility that works on several fractional providers aircraft, I can tell you that while they are not doing anything illegal or unsafe, the aircraft will not receive the level of maintenance control that many(not all) properly run private A/C receive .

As far as the one call no headaches service that the fracs brag about, this is not always true. Calls about a late arrival. Calls about a Charter in place of a owned aircraft. Calls about MX dealys. Work actions. If I were fighting for my job (not a personal attack) I would log on to flight info and show my boss the "How to ground a XXXX aircraft threads. Basically the same issues that could be encountered by a properly fun flight department.


Cosmetics inside and out are not kept to my owners standards, not due to lack of effort, but just due to the heavy usage the fractional aircraft receive.


Taxes. Many company's and individuals need the additional tax benefits.

Resale. I have had several customers take a much larger loss on the sale of their share due to the loss of hull value due to the extreme high time loss of value of the aircraft.

The Fractionals have a great place in our industry. They provide a great and normally professional service. I recently recommended 2 customers I was consulting for to stay with net jets due to a mission that could only be satisfied by a fleet that size. They also desperately needed the wide range of aircraft. They use everything from the Excel to the BBJ. They can offer a reduced headache level for some owners, but if a owner is willing to let his/her Chief Pilot do their job properly the same thing can be accomplished. If the owner is a micro-manager, this may not work for him and he might like the fracs better.