Questions about how Fractionals Work.

[brokeflyer]

Thanks for either the fear-mongering or the well-intended advise; I will take it as the latter. Common sense would tell you what is confidential and what's not. Those were not questions about NJA, its merely about how fractional works; any fractional. Share size, sell-offs, and core fleet is common to all fractional. If it was confidential, and being that NJA is the creator of fractional ownership, then all the other fractional would have been sued due to the unauthorized use of confidential information.

well dont blame me......

 

[gutshotdraw]

Fractional Aircraft companies work like Banks....

Therefore whenever banks are in trouble ... so will Fracs.

Fractional Aircraft Ownership
vs
Fractional Reserve Banking.

You deposit your money in a Bank. The bank counts that money as part of its Reserve and can lend 10 times as much money out.

You "deposit" you airplane in the Frac and the Frac counts it as part of their Fleet. Maybe 10 owner accounts for every one actual airplane in the barn.

Banks count on the fact Everybody does not want to withdraw their funds at the same time (Run on the bank)

Fracs depend on the fact that everyone doesn't want to fly at the same time.

When demand is high the banks borrow money from other banks, principally the Federal Reserve to meet the demand for capital.

Fracs go to the Core Fleet and Charter companies to meet demand in excess of available airplanes during peak periods. Essentially borrowing airplanes similar to banks temporarily borrowing capital.

Does this answer your question?

Remember Fracs were invented by investment banker from Goldman's and funded by Berkshire ....

NJAOwner ... How did I do?

Nicely done Gun. Fisch might even say it...was..awesome.

 

[hilltop101]

I have a few questions about how fractionals operate.

1. How many aircraft are there per owner? If 8 owners buy 8 1/8 shares of a jet, is there only one jet?

2. What happens if all 8 owners want to take their share of the jet to Aspen on Christmas eve? Is there enough aircraft to cover the demand around the holidays? What happens if demand exceeds the number of jets?

1. It really depends. Some may have two owners titled on the aircraft and other aircraft may have 16 owners. Typically there are about 8 to 10 owners titled on one aircraft. In order to be considered a fractional owner, and for the flight to be operated under 91k, the owner must own at least a 1/16th share (6.25%). On a side note, although a fractional owner owns, and is titled, on a specific aircraft they fly on the entire fleet. There's actually a chance that a fractional owner may never fly on the aircraft that they own.

2. As was stated earlier, fractionals have several ways to optimize flight schedules on high demand days. For one, they may require a longer callout period for an owner to be guaranteed an aircraft. For example, an owner's normal callout time may be 6 hours but on high demand days the fractional company may require a 48 hour callout for an owner to be guaranteed an aircraft. This allows the flight operations folks more time to optimize flight and crew schedules.

Second, the fractional company may have a stipulation in the contract that on the specified peak days the owner's flight may be accelerated or delayed.

Third, all fractionals own part of the fleet they operate. This is what is referred to as the "core fleet." In an ideal world the fractional company will own about 10 to 15% of the fleet. This gives the company excess capacity to meet demand during peak periods.

Lastly, the fractional company may use a substitute aircraft to meet demand, i.e. charter an aircraft from an outside provider. This is usually the least preferable option due to the fact it is more costly to the fractional company who already owns a portion of the fleet and employs pilots.

I know our company is fairly forthcoming about the industry and how we do business. I don't feel sharing any of this information in any way violates any confidentiality. Most fractional companies operate quite similarly and none of the above information is specific to one company but rather can be applied to most.

 

[OldCrow]

Great Info

Do not think that Flight Options is ANY thing like the other leading providers (as per the above posts)...They, the other leading providers, seemed to have figured out how to run a fractional airline...Flight Options is still reinventing&rebranding the wheel. However, if you want to know how to keep crews on standby and otherwise, out of the loop, they would be the company to call. FLOPs has crew morale so low, that it might be a trade secret..If you happen to see any of the new snappy dressed Pilots at the FBO, I'm sure they'd help you break the code on it.

 

[QOL_is_great:)]

Confidental? Don't be ridiculous! There's nothing confidental about how a fractional manages to cover requests for same time use. And, all fractionals address the problem in essentially the same way:

1. Reservation time frames are more restrictive for forecast high-use periods.
2. The core fleet should be big enough to handle likely conflicts. 3. Upgrade the owner to a less-used premium fleet for the same price. 3. Offer the owner a downgrade for a break on charged occupied hours and costs.
4. Sell the flight to a charter provider.

You forgot few points: (in no order) have a sound management/employee relationship, listen to your owner(s), trust your employees and don't furlough during hard times. All will lead to a high standards, an employee base which is motivated and with high morale.

 

[fischman]

Nicely done Gun. Fisch might even say it...was..awesome.

I would, but he forgot to mention "The Fischman Factor" which makes owners just want to be around me. Much like Cunningham to The Fonz.

So I'll say it was "mostly awesome", whereas I am "fully, totally, 100%, unequivocally, awesome."

 

[brokeflyer]

dude, give it....you got a long way to go to get up to my level....ill let you handle all my light work though. Good job.

 

[Mike Jenvey]

Give or take a few minor variations, all the fractional operators work to similar guidelines as outlined above. There aren't really any great hidden secrets - buy lots of aircraft (normally at a good discounted price, so effectively the company buys say 5 for the price of 4 = one "core" aircraft) + monthly management fees + direct flight hrs + incidental expenses.

It ain't cheap, but for example, you might want to have yourself a nice shiny Falcon 2000 EASy - call it US $32 million to makes the maths easy! You buy a 1/16th share for $2 million = guarantees you say 50 - 60 flt hrs per year at "x" hr's notice (with some provisos for peak days); you get a residual value at the end of your contract period. Proportionally, you would pay a share of monthly management fees + direct flt hrs. Not cheap - BUT, no capital outlay on the full price + insurance + maintenance + crews + crew training + navigation + etc, etc!!

Minimum hassle (supposedly ) - just make the 'phone call, get confirmation, go fly!! Go from where your choice of departure airport, to where you want (as long as the airports are safe to operate your chosen type), with privacy - you can discuss that mega-$$$ take-over deal without the guy in Seat 3D picking up the credit card 'phone & calling his broker - plus huge time saving benefits.

There are more insights via some of the links here - I won't pick or choose any specific links, to avoid accusations of favouritism!!

 

[NJAowner]

NJAOwner ... How did I do?

GF - you did good! I have never seen the analogy to banking but it is a little bit different. In the fractional aircraft model there is still just 1 plane. In the banking scenario, due to the velocity of money, you have actually created more money - calculated by 1/r where r = the reserve rate. If the reserve rate it 10% $1 turns into $10. While Bershire funds NJ now, it did not in the beginning. I believe a chunk of the seed money came from an internal investment fund at Goldman.

Basically -- all of you have a good knowledge of how it works. Bravo.

A few items of clarity -- at NJ there are only 10 peak days for owners where you need to make reservations 48 hours in advance and you flight may be moved 3 hours +/-. I can say this has only happened to me once. FJ and CS both have different pricing plans -- the more peak days or days you can not fly at all -- the lower the monthly management fees. Also NJ does not offer you a break to fly a smaller aircraft for a "discount" on a peak day (just your regular interchange rate).

You can also own a 1/32nd of a jet, except that you must fly Part 135.

What makes fractional work better for jets than boats, houses or most other items that have copied the idea, is that you only need it for a few hours so you do not have many conflicts. If I am going on vacation over Christmas, I do not need the jet for the whole week -- just a few hours.

Fly safe.

 

[gunfyter]

NJOwner,

I do understand your point regarding the velocity of money... and creating more money.

I think the difference between the banks and the fracs is our money is not backed up by anything but the airplanes are real.

Oh well I studied engineering not economics....

But I really believe NJ was created based on the principles of Fractional Reserve banking.