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By: W. Chris Sponenberg, Vice President
Long lines at airports, time-consuming security checks, and frequent luggage searches, make many aspects of air travel inconvenient at best. If only you owned a private jet.
Now you can. There's a new wave of corporate jet setters - no longer just the rich and famous. Businesspeople and even large, frequently vacationing families are finding there's a more convenient, and even less costly, way to travel.
It's called "fractional share ownership" of an airplane and it works like a time share. You make an initial investment in an aircraft, such as one-eighth ownership, plus pay a monthly fee for maintenance and gas expenses. Then whenever you need to fly, you have an airplane at your beck-and-call.
The convenience factor reaches farther than intrusive security checks. For example, smaller business jets used in fractional share transactions land at over 5,000 airports nationwide - compared to only 500 patronized by commercial airlines. Not to mention the perks of direct flights, no lines, and less congested airports.
Running late? The plane won't leave without you. You can even book a flight on short notice; often in as little as hours. And if one of the other fractional owners has booked your aircraft for the same time, many companies will offer you use of another plane in their fleet.
Unlike commercial planes, a personal jet provides seats in which you can stretch out. No climbing over disgruntled passengers to get to your window seat. And many fractional aircraft programs cater to client needs by serving their favorite snacks and meals.
While we often hear of downed small aircraft, most of those accidents involve chartered flights - generally regarded as having less consistent safety records than either fractionals or large commercial airplanes. In fact, the National Business Aviation Association, Inc. claims that, when only turbine-powered corporate/executive operations are considered, business aviation has one of the safest records of all modes of transportation, including airlines.
While time sharing an airplane is a luxury of wealth, it can offer a cost-effective alternative to commercial airline rates. If you're used to paying top dollar, not planning far in advance, and have a large family or entourage, odds are good you can come out ahead with fractional ownership.
Upfront buy-in costs can run anywhere from $300,000 to $47 million. For the sake of comparison, say you purchase a one-eighth share for $1.5 million. If you prorate that cost and add in monthly maintenance and hourly fees of around $1,600, your time share might run about $13,000 per flight time hour. Compare that to about $3,000 for a first-class cross country commercial ticket. Sound pricey? Not if your party includes six people. Six passengers at $3,000 each tips the scale at $18,000 for commercial airfare. If you and your family, friends, or associates fly often enough, fractional ownership rates can curve to your favor.
The typical fractional share contract runs for five years, comprising anywhere from 50 to 400 flying hours a year. After the contract period, you can sell your share and recoup much of the cost - minus depreciation - of your investment. And if you use the airplane for business, you may be able to deduct the depreciation from your income taxes.
With today's busy pace in which time counts as a commodity, the trend towards fractional aircraft purchases has taken off. Small wonder: it sure beats sharing time in crowded airports.
Updated: January 1, 2013
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.
© 2013 Wilmington Trust Corporation.