Most expensive fractional?

[Mooneymite]

One data point

I'm in the XL/XLS fleet, and my (part 91) ferry time has steadily decreased over the 2 years I've been with NJA. Due to the size of the fleet, this must be a huge competitive advantage in keeping costs down.

I'm wondering if other NJA guys/fleets are seeing this trend, or if my experience is unique.

I don't know if our schedulers are getting smarter, or if the large XL fleet is the key, but regardless, this is an important competitive edge.

NetJets' efficiency is key to providing value to our customers.

 

[jonjuan]

Perhaps owner can address residual value issues on these same companies. Obviously one of the bigger differences in ownership of the whole aircraft is the usage versus fractional usage and hence one would assume a different valuation of the residual. With any capital asset you only determine your cost at salvage or sale.

Exactly-While his Galaxy is rapidly dropping in valuation, the CL 300 is going straight up, for anyone who has looked at BlueBook valuations. It appears as though he forgot about this "major" point in factoring cost per hour. Can't believe he/she simply looked at size of aircraft and compared price. Like looking at a Taurus versus BMW 5 series and say, "this one's cheaper, it's a better deal."
To publishers point, frax aircrraft put 1,000 hours a year, on average, on the airframes, while a typical managed aircraft has 400-600. Yes, the higher airframe hours negatively affects the fractional residual valuation, however, the additional depreciation due to higher hours is spread across the 16 owners. The offset with buying a whole aircraft is that you paid a much higher cost of capital or finance rate as a result of paying for 16 shares as well as assuming the subsequent risk of owning the whole plane.

 

[NJAowner]

JonJuan - what is the deprecination you speak of. All the money I send NJA is (1) what I paid them for my share, (2) I get a bill every month for my "monthly management fees", and (3) I get a bill for the months I actually fly for "occupied hourly fee". Once a year I get a bill for "insurance". Never have I seen what you speak of. Must be a charge that the other companies charge.

 

[jonjuan]

JonJuan - what is the deprecination you speak of. All the money I send NJA is (1) what I paid them for my share, (2) I get a bill every month for my "monthly management fees", and (3) I get a bill for the months I actually fly for "occupied hourly fee". Once a year I get a bill for "insurance". Never have I seen what you speak of. Must be a charge that the other companies charge.

Depreciation in the price of the aircraft share you paid for. The $2.2 you paid for the asset will be worth $1,650,000 (hopefully) in 5 years. Or do you consider this loss just "noise?"

 

[fischman]

Depreciation in the price of the aircraft share you paid for. The $2.2 you paid for the asset will be worth $1,650,000 (hopefully) in 5 years. Or do you consider this loss just "noise?"

I could be wrong, and I have no way to back this up, but I think NetJets eats those costs.

 

[glasspilot]

No way does NetJets "eat" that cost.

If anything they make money on that cost. If they sell a $1 Million dollar plane say it's worth $600K after 5 years. If the owner leaves the program then the owner get a guaranteed residual value for his share, $600K. NJ then sells that aircraft on the market for more than the guaranteed residual value pocketing the difference.

If the owner signs up for a new aircraft then he is bought out of the old aircraft and buys into the new one. Either way, NetJets makes money on the transactions...

Warren Buffet and all the other fractionals for that matter are in business to MAKE MONEY. Not eat major costs like depreciation.

As a side note...owners can write off the depreciation so on some level the depreciation is a good thing.

 

[gunfyter]

I think at NJ the owners NEVER have to sell their share. If you never sell you never lose the money. I believe some other fracs require you to sell your plane after 5 yrs?

 

[glasspilot]

That may be true. I don't know. However it would seem that there contract must have some sort of longevity or stipulations to cover rising management fees. Either way, the value of the asset depreciates and I would bet dimes to doughnuts that NetJets makes money on that too.

 

[jonjuan]

I think at NJ the owners NEVER have to sell their share. If you never sell you never lose the money. I believe some other fracs require you to sell your plane after 5 yrs?

You better believe that owners have to sell their aircraft. In fact right now, many Ultra owners, for example, are being forced out of their aircraft and the only way to stay in the program is to buy another "newer" Ultra or an Encore. NJA is now keeping aircraft in the fleet for 13 years. Problem is, there is typically very little residual value left on a 13 year old plane with 13,000+ hours.
CS keeps planes in the fleet for 9 years, Flex 7-years, and FLOPs, who knows.

 

[jonjuan]

No way does NetJets "eat" that cost.

If anything they make money on that cost. If they sell a $1 Million dollar plane say it's worth $600K after 5 years. If the owner leaves the program then the owner get a guaranteed residual value for his share, $600K. NJ then sells that aircraft on the market for more than the guaranteed residual value pocketing the difference.

If the owner signs up for a new aircraft then he is bought out of the old aircraft and buys into the new one. Either way, NetJets makes money on the transactions...

Warren Buffet and all the other fractionals for that matter are in business to MAKE MONEY. Not eat major costs like depreciation.

As a side note...owners can write off the depreciation so on some level the depreciation is a good thing.

Yes and no. Depreciation of aircraft values remains the responsibility of the owner. Fracs no longer guarantee residual values. They are generally determined by Blue Book which looks at type, age, equipment on board, and makes deductions for hours, cycles, damage, and general market conditions. Most fracs put in the contract that the valuation can be disputed with an agreed upon (by buyer and seller) value by an independent appraiser if disputed.
Yes, they make money on the sale, however, they also lose money when shares are unsold. Much like a car dealer with unsold inventory, each unsold share is a liability sitting on the books with interest, insurance, etc. When a frac buys back a share from an owner, they pay the owner what it's worth based on the current Blue Book. They have to try to re-sell the share typically at a premium, however, the longer each individual share "sits on the lot" unsold, the quicker the increase in liabilities. In a perfect world, every share of every plane will be owned by someone other than the company. In reality, it's this unsold inventory which is a drain on assets. One risk (big or small, but still a risk) is that something happens which causes a run on repurchases over a very short period of time forcing the company to buy back assets very quickly.