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Fractional vs full aircraft ownership
An OVERVIEW and A comparison
Introduced in 1986 as an alternative to buying an airplane or using charter, fractional ownership allows you to share the cost of owning and operating an aircraft with others. Charter and membership services differ from fractional ownership because in both instances you’re paying to fly on someone else’s aircraft, instead of taking ownership of the airplane.
A fractional aircraft management company
sells and manages the fleet
Ownership is divided into shares
The number of shares purchased in a fractional ownership transaction depends on how often you’ll plan to fly. You can purchase as little as one-sixteenth share – which gives you give 50 hours of use per year – or as much as one-half share, which gives you 400 hours. Under a fractional ownership program, you purchase shares of a single aircraft and have access to a particular fleet. If your particular aircraft isn’t available when you request it, the fractional aircraft management company can offer you another one from their fleet.
is joint ownership on a large scale
Availability isn’t always guaranteed. Fractional owners may be subject to blackout dates during periods of peak demand. Also, fractional aircraft users often have to wait to take unplanned trips. It’s difficult and oftentimes impossible to plan day-of trips because providers frequently require a minimum eight hours’ notice to guarantee an aircraft’s availability.
Aircraft management support
Typical owner/operators who have full ownership of their aircraft are responsible for the maintenance, flight crew, insurance, regulation compliance and all other details involved with the care and operation of their aircraft. Aircraft owners have the option of hiring a third party to manage these items for a fee. In fractional ownership, the fractional company provides aircraft management support: hangar space, scheduling, staffing, flight planning, maintenance, catering and insurance. That bundle comes at a higher cost compared to a third-party provider, often making the hourly fees associated with fractional shares more than double the costs.
Advantages of fractional ownership
- Lower introductory costs
- Share cost of ownership with others
- Rapid response
- Ability to use other similar aircraft types per contract
- Entitled to tax and depreciation benefits commensurate with share of ownership
Fractional ownership is considered private transportation in the U.S., but a commercial operation in most parts of the world.
Disadvantages of fractional ownership
- Aircraft and crew differ each flight
- Higher hourly costs
- Blackout dates can limit aircraft availability
- Aircraft show age quickly
- Reduced resale value due to heavy use- 1,200 to 1,500 hours per year
- May be liable for accidents, even when owners are not on board.
- Typically requires a five-year contract with penalties for early termination
- Penalty fees for exceeding allowable hours
- Aircraft availability not guaranteed during short notice (three hours or less)
Know your costs and liability
There are three types of costs involved with fractional ownership: the purchase price, an annual or monthly management fee, and a per-hour rate to use the aircraft. At the end of a contract period, fractional owners may also be subject to a remarketing fee at sale, typically 7 percent of the aircraft’s value at purchase. Financing is available for the purchase price, although it comes with stringent requirements. As with full ownership, a subsidiary, affiliated corporation or special-purpose entity can own the aircraft.
Average fractional ownership costs
Conklin & de Decker 2015
With full ownership, you have the flexibility to trade, sell or upgrade your aircraft at any time. A fractional agreement typically lasts five years, at which time you can renew or sell your share for fair market value. If your travel needs change before the contract ends, you may incur heavy penalties for early termination.