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.

 

[NJAowner]

JonJuan -- first -- thanks for not taking the "bait" an dgiving me a lecture on depreciation. I am quite familiar with many very intricate facets of depreciation.

As a fractional owner, I believe the analysis is a combination of depreciation and new share acquisition costs - that is the total cost to be in, or stay in the program. As far as NJA goes, as long as they are running your fleet you never have to sell your share to stay in the program. And because it is a fractional program and I do not always fly "my plane" at 7 years, for example, I am flying the same planes but do not need to pony up any more $$ to do so. Flex (Bombardier) is in the business of selling planes. For many years, the program was you had to sell back your old share and buy a new one in 5 years. They have gotten more liberal -- for a medium sized cash payment, at the 5 year mark you may extend for an additional 2 years. At that point you must buy a new share.

This also impacts "cash flow". Cash flow is as impoortant to a large business or wealthy indiividual as it as some one without much $$. Would you rather get paid $52k/year in 52 weekly installments or get paid $54k in one lump sum at the end of 52 weeks. It is the same way with Flex (I am not conceding the depreciaton point, but assuming the depreciation is less), you need to come out of pocket major $$ to stay in the program at the end of 7 years.

In my opinion Flex's program is like this -- I buy a 2005 car and for 3 years drive a 2004, 2005, 2006, 2007 car. In 2008, I need to sell my depreciated 2005, pay the new list price for a 2008, but still get to mainly fly the 2004s-2007s. I know from other fractional owners, this is a major, major negative in the Flex program. It is only lately they have added the additional 2 year extension.

Also, as another point, Flex does not guarantee more than a handful (read less than 5) of downgrades per year. For me, that is a huge cost. I "extend" my hours by downgrading often when feasible. 3 or 4 of us going to Florida do not need the G200 so we fly an Excel (and end up getting 33% more hours). When it is just one of us we use an Ultra/400XP (and end up getting 50%) more hours. At the end of the year, I usually end up getting 25-30% extra hours on the year. Not everyone uses downgrades. This has been a tremendous cost savings for me.

Just my 2 cents. But as youmay see from reading my prior posts, no one program is "best" - it is a matter of what best suits your needs.

Fly safe.

 

[nomore]

Question for NJA owner

Sir if I may pose a question. Did you ever even consider flight Options?
thanks

N

 

[glasspilot]

Why would you pretend to not know what depreciation is? Why would you intentionally misspell it? What are you talking about when you say, "thanks for not taking the bait..."?

From your previous posts I assumed you are infact a NetJet owner...but I now don't understand the point of "kidding" on your last post.

 

[gunfyter]

I thought he said, "what depreciation cost?"...

because he does not experience it due to the fact NJ does not force you to sell your share...

..therefore you never realize the loss...

 

[NJAowner]

GlassPilot -- not to be mean, but it was late and was looking to see where it could go. Many times on this board pilots go off for pages purporting to be experts on topics they barely know anything about. It sounded like that was where JonJuan's initial comment was going. Of course I firgured in depreciation of the asset. I am not that oblivious to things. I probably know as much about depreciation of assets as many of you know about flying -- depreciation is a key part of my businesses.

Nomore -- have I ever considered FlightOptions -- No. Why -- a good friend of mine has had multiple shares for 10 years and can't get rid of them fast enough. Why -- there is not enough space on this board. But many times when our families travel together NJA pays for a handler (and access to a wonderful air conditioned FBO terminal) in the Caribbean and he sits on the hot tarmac at the commercial aviation terminal. When it is a holiday time, but not a peak day, he routinely sits and waits, in the regular terminal, for his jet which has weather delays but the whole Eastern seaboard is clear and sunny. I am home about the time he gets to take off. His experience has turned into a complete disaster in the past 10 years.

To me, one of the biggest advantages of flying privately is convenience. When the operator takes that away and makes we wait hours, I can get that at Continental for a fraction of the price.

Maybe things are about to change. I hope so -- I am an investor in the HIG Capital fund which has bought FLOPS. So I have a very real economic benefit in its success.

Fly safe.