Frax ?

[psysicx]

Why do people choose a frax over a charter or buying there own plane and having someone manage it? Do they not care there paying more or do they not know? Or is it a safety issue?

 

[hawg2hawk]

Holy crap, a good question.

Good job, psysicx.

 

[XTW]

Just my opinion, convenience. That's it. No headaches with aircraft ownership, broken airplanes, or searching for an available charter operator each time they need to fly. Also, they get a know entity most of the time, save a sell-off. They call one number and tell them when and where they want to go and that's it.


X

 

[FalconPilot69]

Response Time?

Does anyone know how much lead time an owner needs to give a frax company for a flight? I am sure in the perfect world it is 24 to 48 hours notice, but do they get 1 hours notice? I am assuming that since they also own a portion of the aircraft, that they get the same tax write offs as if it were their own.

 

[ProFracPilot]

The lead time depends on how large of a share they own. Typically, a quarter share response time is no less than 4 hours to anywhere within the primary service area (aka the continental U.S.)

 

[gutshotdraw]

Review time.

Fractional ownership programs were originally sold as a cheaper alternative to whole aircraft ownership. Any objective analysis of the finances involved reveals the total 5 year cost (INCLUDING back end repurchase of the share) for the 1000 hours received for the 1/4 share is higher than whole ownership. Any flight department run with the smallest clue will be less expensive overall when flying any more than about 150 hours a year (Yes, I know the salesmen say 200 hours a year -- do you believe a Netjets salesman?). Any less than 150 hours or so and you are better off with block charter if your ONLY concern is cost.

So why do people choose fractional ownership? I believe there are a few major categories.

1. A corporation that needs supplemental lift. Lets say ACME Manufacturing owns 3 airplanes but they need to get 5 executives to 5 different cities. A fractional share makes for a handy option when a traditional corporate flight department can't cover all the trips, broken airplane, etc.

2. A corporation has activist stockholders who whine about the "Royal Barge" and the costs incurred to the company. Much easier to bury a fractional share in a "travel budget" somewhere in the corporate ledger thereby keeping the know-nothing anti-corporate activists off the CEO's back.

3. A high net-worth individual usually likes things uncomplicated. If you have your own airplane, you have to worry about your crew, broken airplanes tubing trips, upcoming inspections, aircraft upgrades, huge personal property tax bills from states like California, etc. Many rich folk are willing to pay a premium to make one phone call and write one check. Add to that the availability of dozens of aircraft nearby in the event of an AOG and you can see why it's popular.

4. My personal favorite: Some fractional owners could never keep a full-time flight crew because of their bizarre behavior, unreasonable demands, off the wall schedule habits, etc. A fractional crew usually has to put up with these folks only a couple times a year.

Bottom line of all four: convenience and flexibility.

As for callout times, they vary depending on whether you hold a share or a flight card but generally a shareholder can get an airplane (domestically) within about 4 hours of the first phone call. During high use periods, the companies require much longer lead times.

The market is obviously there and service is the bottom line.

One caveat: Although frax owners are willing to pay a premium, there is a limit to that willingness. If their monthly service charge or occupied hourly cost goes beyond what they see as reasonable, they will look for alternatives.

Thus endeth today's lesson.

 

[psysicx]

I was looking at the Netjet jet card. For 25 hours in an Ultra it came out to 4,000 an hour. Plus there are additional fees correct?

 

[gutshotdraw]

There are some surcharges under the Marquis program. Most notably for fuel. Not sure about any additional fees.

On a per hour basis, Marquis is even more expensive than a fractional share. You do get to keep a couple million in up front money in your pocket, however.

 

[psysicx]

Is having a jet managed that big of a deal?

 

[guido411]

I might sound like a salesperson here but. . .

The frax have a safety record that is unparalled. Even though we go through the same training as most 135 operators, we have the continuity that the mom and pop shops don't. Most frax Captains are 5+ years with their company, past the point of caring about pleasing passesngers by making an on time trip but sacrificing safety. No offense to run-of-the-mill 135 operators, but you don't always get that with pilots in their first jet looking to make the D.O. or C.P. happy.

 

[gunfyter]

Back of an envelope calculations:

QuarterShare $20 million Jet. 200 hrs per year.

$5 million vs $20 million. Aquisistion cost.


Monthly management fees $400, 000 per yr

Hourly usage charges $2000/hr.
==========================================================

What does the cost of each hour flown cost?

Prorate management Fees per hour
$400,000 / 200 hrs = $2000/ hr


hourly charges + MMF/hr $2000 + $2000 = $4000/hr

But cash laid out in aquisition is $15M less in Fractional than outright ownership

Cost of capital... lets say 6%. on $15M is

$900,000 per yr.

Prorated per hr flown is $900,000 / 200 hrs = $4500 per hr.

Cost per hr to fly is $4000 minus the savings of cost of capital


$4000 - $4500 = minus $500 relative cost

Fractional ownership

It doesn't cost IT PAYS! Compared to full ownership
===================================================
This is before the FULL Owner pays one dollar in Pilot slaries, training costs, maintenance, etc..

This is just the savings on theCost Of Capital. Not to mention he still has $15M in an offshore account somewhere instead of in Raytheon, Cessna, Gulfstream, or Dassault's balance sheets.

 

[psysicx]

So gunfyter your saying that Netjets is cheaper then owning your own plane? Does anybody know how much it cost to have your plane managed?

 

[gutshotdraw]

Gunfyter,

Like most folks, you forgot about the back end of the deal. At the end of five years, you don't get that $5 million back. If you're very lucky, you might get back $3 million. You have to add in that $2 million before you divide by the 1000 hours the quarter share got you.

A full ownership operator may have had to front the whole $20 million. But he also got to depreciate the whole $20 million and at the end of five years, he still owns an airplane with only 1000 hours on it (assuming same flight needs) instead of a quarter of a worn out jalopy with 6000 hours on it (1200 hrs per year x 5 years using frax industry assumption of 20% ferry time per year).

Then throw in fuel surcharges, international handling surcharges, remarketing fees, yada yada yada. Whole ownership or block charter is ALWAYS a better FINANCIAL move than fractional ownership.

The sales pitch should be convenience and flexibility, not money.

 

[psysicx]

There has to be some reputable Pt 135 operators. And they are way cheaper.

 

[gunfyter]

Gutshot,

I did not forget about the back end of the deal. The Whole airplane owner will take 100% of the reduced value of the airplane instead of 1/4 the reduction in value. He'll lose at least $2M on his whole airplane... diveded by the same hours ... that is a wash at best.

And the example I gave did not include the costs of hiring and maintaining pilots etc for the whole airplane owner. The savings was just on the cost of capital.

There is simply no way based on economics that whole airplane ownership is better than fractional ownership for a certain range of usage.

+++as long as you get the service desired.+++

Listen: WB said " We've had dumb competitors in the past and they bleed. We've got more blood than they have."

Our competitors believe they are in the aviation business. they are run by Aircraft manufacturers...

We are not in that business.

We are a BANK. We are run by Wall Street bankers... MONEY SCIENTISTS. The currency is flight time. The ATM's are produced by the OEM's aircraft manufacturers.

The MONEY SCIENTISTS calculate the cashflow in the same way using the same mathematical tools as an Electrical Engineer does current and impedance using Complex Variables and Differential Equations.

 

[Ultra Grump]

There has to be some reputable Pt 135 operators. And they are way cheaper.

Why do you post so many stupid questions on every forum on flightinfo? Don't you have P.E. or study hall or something you should be doing?

 

[psysicx]

There is no such thing as PE or study hall in college.

 

[kilroy]

There are alot of reputable charter companies out there that will save you about 1000$ an hour for an Bravo. But at the same time there are alot of sh!tty companies too. if you had good 135 operator and built a good ongoing relationship with them you could save about 50 grand a year on 50 hours on a bravo.

There has to be some reputable Pt 135 operators. And they are way cheaper.

 

[gunfyter]

What about the cost of dead head repo time?

 

[miles otoole]

And a 12 hour call out time,

And use of 2,3,4 planes in a day,

And much more in insurance coverage,

And having BOTH pilots Typed (not to mention, no pilot who's a CFI trying to build time,

And a fixed, predictable fees over 5 years.