“"How many leaders actively seek out and encourage views alien and at odds with their own? All too few...Who in your organization serves as your Challenger In Chief? Interrogating the choices you are considering making? Making you consider the uncontemplated, the unimaginable and that which contradicts or refutes your position? And also challenging you?"”
If you're new to the world of fractional shares, you may well be confused about how these deals work and about the terminology you're hearing. Here are the answers to some frequently asked questions.
How did the fractional-share concept get started?
Richard Santulli, a former math teacher and investment banker, introduced it in 1986 when he founded the company now known as NetJets. By treating aircraft almost like timeshare condos, Santulli increased efficiency-a jet didn't have to sit unused when the owner didn't need it-and dramatically lowered the cost of having an airplane always available.
Are fractional airplanes really always available?
Well, not exactly. All the fractional providers need some advance notice-typically eight to 24 hours-to provide you with an airplane. And all of them publish lists of peak travel days, when they require even more notice. (See Inside Fractionals in the February/March 2010 BJT.)
How much do I need to fly for a fractional share to make sense for me?
They're generally not a good solution if you fly fewer than about 50 hours a year or more than about 300; if you expect your flying needs to vary significantly over the next several years; or if you often travel on or around holidays or outside the provider's prime service area. Stay away, too, if you make lots of under-60-minute flights unless
you can negotiate a short-leg waiver.
What the heck is a short-leg waiver?
Fractional-program rules typically mandate that you will be charged a minimum of one hour for each flight. A short-leg waiver means you will be charged actual flight time for shorter trips.
Are there any other reasons to avoid fractional shares?
If you frequently need different sized aircraft, a share might not be right for you. However, most programs allow you to use a larger or smaller model than the one in which you own a share, if it's available. (You'll be charged more or less than 60 minutes for each hour of flying, depending on whether you upgrade or downgrade.) Another option is to consider shares in two or more models.
What does it really mean to buy a certain fraction of an aircraft?
For the sake of calculating things like depreciation and resale value, you do own that fraction of a particular airplane. But when it comes to your flying, you're really buying hours, not a portion of an airplane. A one-sixteenth share generally equals 50 hours, for example, while a one-eighth share equals 100 hours and so on. And in fact, you may never even see the aircraft in which you own a share. You'll fly on aircraft of the same model in the provider's fleet-whatever ones happen to be available.
So if I buy a one-sixteenth share, I can fly 50 hours a year?
Actually a bit less. As noted earlier, providers generally charge a minimum of 60 minutes per flight. So if all your flights last 30 minutes each, a 50-hour share will net you just 25 hours of flying time. Moreover, what the providers call "flying time" typically includes 12 minutes per flight for taxiing during takeoff and landing. So 90 minutes in the air will really cost you at least 102 minutes of your allotted time.
Why does acquiring a share involve so much paperwork?
Fractional providers may tell you that they're simply selling you a share of an airplane, but in fact, this is a highly complex transaction. In addition to a purchase agreement for the share, you need a master dry lease exchange agreement that establishes the relationships between all fractional owners in the program; a management agreement that states when and how much you can fly and what additional costs you'll pay for doing so; and at least three other contracts. You'd be well advised to avoid signing any of them without getting professional help.
You mentioned additional costs beyond the price of the share. What are they?
You'll also owe a monthly management fee, which can range from a few thousand dollars to six figures, depending on the size of the share and the aircraft. Then there's an hourly operational fee-typically about $1,500 to $2,500. And there are smaller charges, such as for catering. Finally, you may have to pay surcharges for short trips, as noted above, or for fuel stops.
When and to whom can I sell my share?
Most fractional contracts end after five years, at which point you can usually sell your share back to the provider. However, contracts typically require providers to repurchase shares sooner (usually after two or three years) and owners have been selling unused portions of shares on their own.
How much will I get when I sell?
That's one of the most important questions you can ask because so much money is at stake. Unfortunately, the answer can be hard to pin down.
One variable is the depreciation rate of the model you own. Another is the fractional provider's method of calculating fair market value, which can result in a payment that's considerably less than you'd get on the open market.
I keep hearing about the "Big Four" providers. Who are they?
In addition to the afore mentioned NetJets, which has been a division of Berkshire Hathaway since 1998, the so-called Big Four include CitationAir (formerly CitationShares), a unit of Textron's Cessna Aircraft; Flexjet, which Bombardier Aerospace owns; and Flight Options, which is privately held.
Are these four companies my only options for buying a share?
No. Avantair and PlaneSense, both of which feature turboprops, also have substantial albeit significantly smaller operations. And there are an increasing number of more modestly sized providers, including OurPlane and-for the helicopter market-HeliFlite Shares and Sikorsky Shares.
Which program is best?
That's unanswerable. Each program has introduced so many special features that apples-to-apples comparisons are impossible. Also, every business jet traveler has different needs. In addition to weighing overall costs and looking at what aircraft models each operator provides, therefore, you need to consider how well a provider's special features match up with your flying requirements. No one program is best for all fractional customers.