Fractional vs. owned aircraft, pros and cons

[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.