“"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?"”
Weighing your options
What's the best way to access business aviation if you don't want to buy your own airplane? We'll help you decide.
Given the amount of money involved, picking the right way to employ business aviation is one of the most critical financial decisions you can face. Unless you’re buying a whole aircraft, the first choice you have to make is what access model would best suit your needs, be it a fractional share, a jet card or traditional charter. Then you need to decide which company or companies to use.
The process can be complex, time consuming and even overwhelming. You have to familiarize yourself with various providers and with the program features that will affect the cost and convenience of your experience—the replenishment policies of jet-card purveyors, the off-peak-pricing plans at fractional-ownership companies and the one-way payment options of charter operators, for example.
A good first step is to consider how many flight hours you use per year. Charter is the de facto solution for anyone flying less than 25 hours annually; 25 to 50 hours is considered jet-card territory; and fractional ownership begins to make sense at more than 50 hours. These rules of thumb reflect the fact that jet cards are typically sold in minimum denominations of 25 hours of flight time, or face values of about $100,000, while the minimum share for fractional ownership is usually 50 hours (a 1/16th share).
But access solutions don’t always move in lockstep with flight-time totals. A jet card may make more sense than a fractional share for some people flying 200 hours per year, for example, and many business jet travelers use two or all three of these access methods, selecting the most appropriate solutions on a mission-by-mission basis.
Another reality to consider: the boundaries between the three business models are blurring. Jet-card and fractional-ownership programs now broker air charter as an ancillary service for their customers, while some charter operators offer jet cards with guaranteed access instead of the simple discounted block-charter rates of yore.
You can find clues to your best long-term solution by defining your needs as closely as possible.You’ll also want to have a firsthand understanding of how business aviation works and be familiar with various aircraft that meet your mission requirements. For that reason, ad hoc charter is a good way to gain initial exposure to business aviation, even if you could afford to buy a jet outright.
If you do use charter to get acquainted with bizav, keep careful records of your flights. Note the travel dates and times of day, who traveled with you, the reasons for each trip, how far in advance you booked flights, how flexible you were about changing flight schedules, the amount of baggage and what you liked and didn’t like about each trip experience. Record information about the aircraft, too: the type, age, quality and cabin configuration. Don’t neglect commenting on the service provider, as well. These records will reveal preferences and patterns that can point toward access models and program features that mesh well with your usage.
Carefully vet any service providers you consider working with. A provider’s financial stability is critical. When cash is short, maintenance budgets may get trimmed, and safety and service can deteriorate.
Last summer’s Avantair bankruptcy illustrates the importance and also the limitations of due diligence. Financial filings indicated diminishing cash on hand and customers experienced service interruptions even as the company assured fractional owners, cardholders and the industry of its viability. Ostensibly the underlying assets—the aircraft themselves—protected shareowners’ investments, but by the time Avantair’s problems became public, many of its Avantis were no longer flyable and were of questionable value, in addition to being encumbered by mechanics’ liens.
Another concern is that jet card deposits generally aren’t protected. Money spent on the cards is typically placed in the provider’s general operating funds, rather than any form of escrow account, with little chance of recovery by the buyers should the company go under.
To vet for safety, check the FAA’s database for accidents or actions involving the operator, and ask the Better Business Bureau and other consumer agencies about complaints against any operator or broker you’re evaluating.
While you can take comfort in knowing that all Part 135 charter operators and fractional and card providers in the U.S. must meet FAA standards (similar requirements apply in many other countries), providers often maintain higher standards established by ARGUS, Wyvern and the Air Charter Safety Foundation. Make sure that at least one of these entities audits any operator you employ. If you’re working with a charter broker, confirm that it mandates these standards for the operators that provide its lift.
Card and fractional programs typically have peak and off-peak dates that may restrict your access. Cancellation policies, service areas, trip or daily-usage minimums and call-out times are among other factors you should be familiar with.
Let’s take a closer look at the three main ways to use business aviation without buying an airplane:
Charter. On-demand air charter is the aerial equivalent of a luxury town-car service. When you need to go somewhere, you call your charter provider, which will supply an airplane that meets whatever requirements you specify for size, age, cabin equipment and so on.
Charter has traditionally been sold at round-trip rates, meaning you’ve paid for both legs even if you’ve traveled only one way. Today, however, one-way rates are common on well-traveled routes. Unlike jet cards and fractional ownership, charter doesn’t typically guarantee availability. Even on short notice, though, you can usually choose from a large selection of aircraft, except during peak periods.
You can book flights via operators (the entity responsible for managing and operating an aircraft) or brokers (agents who arrange travel aboard aircraft that operators manage). The brokers offer the benefit of being able to source airplanes from multiple operators. Operators have traditionally arranged charter only on aircraft in their own fleets, but today many act as brokers as well, to offer lift to charter customers when their own airplanes are unavailable.
Jet cards. Jet cards traditionally provided access to a single model or category of aircraft in hours of flight time (e.g., a 25-hour card) or cash denominations (a $100,000 card). Fractional companies initially popularized the cards to encourage potential customers to sample the ownership experience. As noted earlier, charter companies now also market cards; and some programs provide access to multiple categories of aircraft.
The jet-card pricing model favors fliers who make one-way trips, as no round-trip or repositioning charges apply. However, some programs offer round-trip discounts and off-peak pricing. Make sure you understand the rules that differentiate providers, for they can guide you to the program that works best for your travel—or cause nasty “gotchas” after you sign up.
Fractional ownership. Some observers predicted an end to this access model in the wake of the business aviation decline that began in 2008, but the programs have seen a resurgence, even as major providers such as CitationAir and the bankrupt Avantair have exited the field.
Fractional shares offer many of the advantages of full ownership—including tax benefits—but at a lower price point. Share sizes typically range from 1/16th, guaranteeing you 50 flight hours per year, to one-half, which buys 400 hours of annual flight time. You pay a purchase price proportionate to your ownership stake, and then pay a monthly management fee that covers all fixed costs, plus an hourly fee for actual use of the aircraft. At the end of a specified period, typically three to five years, the fractional company buys back the share at its market value. You can usually exercise exit clauses after 24, 30 or 36 months, with brokerage, transfer fees and early-exit penalties varying. Some programs will allow you to renew your agreement and retain ownership for an additional five years, an option that can greatly lower your costs over the period.
James Wynbrandt is a private pilot and a regular contributor to BJT.
Flight Clubs: A New Option
So-called flight clubs, an evolving and loosely defined amalgam of access models sharing a requirement for membership (and associated fee), are gaining traction in the marketplace. Two primary examples are Wheels Up and Surf Air.
New York City-based Wheels Up, created by Marquis Jet Card founder Kenny Dichter, promises members access to a range of business aircraft, from turboprops to long-range, large-cabin jets, at fixed hourly rates. The company inaugurated operations in November 2013 and currently provides service east of a line that runs approximately from Dallas to Chicago, including the Bahamas and the Caribbean, and in some Western states. Membership costs $15,750 and annual dues are $7,250. The hourly rate for the King Air 350i is $3,950 and, for the Bombardier Global, it’s $15,950. Going forward, the club will offer card and lease products and on-demand charter, Dichter says, but not fractional ownership.
California-based Surf Air charges members a monthly fee that allows them unlimited access to scheduled flights on the company’s three seven-passenger PC-12 single-engine turboprops, operating between the San Francisco Bay Area and Southern California. Membership—currently being limited—costs $500 and monthly rates start at $1,599. [Look for a full report on Surf Air in an upcoming issue.—Ed.]
A similar all-you-can-fly operator, Arrow Flight Club, was slated to commence service between Seattle and San Francisco in 2013 using Piaggio Avanti twin turboprops. Arrow is rethinking its plans but intends to be operational this year, the company says.—J.W.