In the world of biz jets, fractional ownership is the buzzword du jour.
The concept is simple enough. Rather than tying up a few million in a solely owned jet, a company buys a share of a single airplane thats part of a larger fleet. The buy-in entitles the company to a certain amount of yearly fleet usage without the bother and expense of maintaining a flight department.
Evidently, plenty of companies find the fractional ownership numbers to their liking, given the astonishing success of NetJets, a share-a-jet marketing concept developed by Executive Jet Management, a management company based in Columbus, Ohio.
Last year, NetJet had 95 aircraft and has announced plans to buy as many as 160 more. NetJets success has spawned me-too programs by Bombardier, Raytheon and another firm flying a fleet of Pilatus PC-XIIs.
So if it works for jets, why not for pistons? Cessna has proven there’s at least modest demand for sole ownership of new singles. Would a sponsored fractional ownership program stimulate the market even more? An innovative sales program being launched by a couple of Cessna dealers aims to find out.
Like Partners, Sorta
Co-ownership can wear many faces. Often two, three or four pilots with similar goals and experience partner up to buy an airplane. Such partnerships have stood the test of time as one means of sharing the considerable cost of aircraft ownership. But finding compatible partners, never mind holding the deal together over time, is fraught with shortcomings.
Many partnerships are formed by pilots with no ownership experience, thus tricky questions related to financing, usage and cost sharing are often solved on the fly, sometimes favorably, sometimes to the detriment of the partnership.
As general aviation begins to stir from its long depression, several companies are stepping up with plans designed to give potential partners more options, including help with finding the right airplane, advice on financing and so forth.
One such plan has been developed by Lincoln Park Aviation in Lincoln Park, New Jersey, with the intent of selling new Cessnas into arranged partnerships.
We take people in the same locale who don’t know each other and put them together, says Frank Galella, president of Lincoln Park Aviation. The plan is tailored to each individual group; we refer them to an attorney and a finance company and they work out the details that way.
This fractional ownership program, which Galella calls Direct Approach, aims to put four people together to buy a new Cessna 172 or 182. Each partner in a 172 plunks down $3800 and pays $442 per month to cover finance, insurance and fixed costs.
Each partner is then entitled to use the airplane for up to 75 hours per year at $45 per hour wet. That cost includes all fixed expenses plus the 100 hour/annual inspection. Subject to how the partners wish to structure the contract, the hourly includes an engine reserve and airframe maintenance budget, thus when a repair invoice comes due, the co-owners shouldnt expect to pay much, if anything, above their monthly fixed and hourly flying costs.
Presumably, Cessnas nose-to-tail warranty covers any major repairs during the first two years of ownership. Local partnerships can opt to put the new airplane into leaseback with Lincoln Park Aviation, which lowers the cost a bit more.
Lincoln Park Aviations purpose, obviously, is to sell airplanes. The company is the Cessna dealer for New Jersey and parts of New York, Pennsylvania and Connecticut, although Cessna itself has no direct involvement in this program.
The numbers show that the value Direct Approach brings to the co-owners comes in setting up groups of people that otherwise might not meet and referring them to friendly financiers and lawyers.
Few partner-seeking individuals, for example, would send out the 10,000 direct mail pieces that Lincoln Park Aviation did in announcing the program. Usually, finding partners is the result of blind calls, corkboard notices and dumb luck, followed by the search for an appropriate airplane.
A companion program called AirStart has been launched on the West Coast at San Luis Obispo County Airport. Air San Luis, an FBO with 22 years in the business, is the Cessna sales rep for Santa Barbara and San Luis Obispo counties.
The program is identical to Direct Approach, but the buy-in figures are slightly different due to market forces in California. Services provided are essentially identical.
Not Quite the Same
Are these programs a good buying opportunity or just another sales gimmick? First of all, the term fractional ownership applied to these sales efforts is a misnomer, at least when viewed in the context of the NetJet example. Direct Approach and AirStart are really gussied up partner-finding services, with dealer support after the sale.
Depending on the deal and type of airplane, if you buy a share of NetJet, you get a quarter interest in one actual airplane, plus 200 hours of use per year, at a fixed hourly rate. Executive Jet takes care of all the maintenance, management and employment-related issues and provides a qualified crew when youre ready to fly.
The company guarantees access within four to six hours to one of the fleet airplanes and, through cost-sharing arrangements, you can fly on any of the aircraft in the NetJet fleet, ranging from Citations to Hawkers to Gulfstreams.
That means if you schedule a trip say, from Westchester to Atlanta, returning the next day, the airplane and crew wont necessarily wait around until youre ready to fly back. The airplane may dispatch for someone elses trip and return the next day or another crew and airplane might fly your second leg.
So even though you own a share of a specific airplane, you may never fly on it. When you call for travel, a jet is dispatched to pick you up. Nevertheless, the share is an actual company asset and Executive Jet guarantees to buy back your share at market value if your business takes a dive and you want to unload some expenses.
So the major difference, besides power plants, actual dollars required and speed, is that with NetJets fractional ownership-or any of the other jet programs-an airplane is guaranteed within a few hours. Period.
With the piston version of fractional ownership, you have to work out the scheduling with the other partners, just as with any other partnership. If the airplane is otherwise engaged, youre grounded.
Another Way
AirPartner One, yet another fractional ownership plan, is trying to eliminate that inconvenience with a program being launched at Atlantas Peachtree Dekalb Airport.
By offering shares in one of a fleet of identically equipped, late-model A36 Bonanzas, AirPartner One says youre more likely to get an airplane whenever you want it.
AirPartner One is different from the other programs in that the participants are not co-owners, but instead buy a lease on a fleet of airplanes for one to five years. At the end of the lease term, the company will either sell the airplane and replace it with a newer model or offer a reduced lease price, according to John Vickers, one of the programs founders.
AirPartner is unique in that the relatively stiff lease payments include insurance deductibles and all maintenance, scheduled or not. Such an arrangement takes the risk out of expensive ADs, prop strikes, premature engine failure, avionics repair and all the other hassles of ownership, large and small.
Another unusual feature of the program is the fact that AirPartner One makes other airplanes in its fleet available if yours is out with a partner, making it vaguely similar to the NetJet concept, although you do the flying yourself. The company will outfit all of its Bonanzas identically and has worked out a deal with its insurance company so that the lessee of one aircraft will automatically be covered in another. Those provisions make it more likely that an airplane will be available any time one of the shareholders wants to fly, Vickers says.
The company is targeting owners of older Bonanzas who may be lusting after the smell of new leather and the capability of new avionics. Were just trying to offer people something theyve dreamt about but havent been able to afford, Vickers says.
Cost wise, buying a share of AirPartner One falls between purchasing your own aircraft outright and entering into a conventional partnership. At $8300, the buy-in share is a bit cheaper than a loan down payment on a late-model, high performance single.
The monthly lease-which covers all fixed costs, including insurance, hangaring and so forth-is comparable to the loan payment on a new, solely owned Cessna 172. Of course, the new 172 owner would still face additional costs for insurance and hangaring. The hourly operating cost is $47 per hour dry, paid on a per usage basis. You buy your own fuel and oil, bringing the total hourly cost to about $80. Scheduling is done cooperatively and each owner is allowed 10 hours per month. Totaling up all the costs, 120 hours of Bonanza time would cost $9600, plus the monthly lease payments of $15,600 for a total of $25,200.
At $210 per flight hour for a Bonanza, thats hardly what we would call a bargain. In our view, you could beat those numbers with a conventional four-way partnership on a comparable airplane. So the real advantage of the AirPartner One arrangement is that it offers predictable monthly costs and comfortable insulation against the annual from hell or an early engine crump thats every owners nightmare. Further, with several airplanes to pick from, a partner has some options in the event of scheduling conflicts or an AOG maintenance squawk.
On the other hand, the lease deal is long term-three to five years-and there are fairly stiff exit penalties. You can, however, sell the lease to another pilot at whatever the market will bear.
The biggest uncertainty in Vickers view is whether pride of ownership will shine through. Were kind of curious if-being a lease-people are going to feel ownership. That will be important to how we’ll the airplanes hold up, he says. You can beat the paint off a plane pretty quick in bad weather, for example.
What to Do
Putting together a partnership independent of one of these programs isn’t all that difficult, in our view. Finding potential partners, however, isn’t so easy. The Aircraft Owners and Pilots Association publishes a booklet, free to members, called A Guide to Co-Ownership that includes points to consider, answers to the most common questions, and a sample contract.
But it leaves some questions unanswered. Indeed, its often impossible to predict ahead of time how a partnership of two or more people will function. And that may ultimately be the weakness of Direct Approach and AirStart. Strip away the fractional ownership pitch and these are nothing but conventional partnerships put together with some professional help.
Still, they arent a bad deal. A $3800 down payment and $442 a month is likely to be an affordable nut for a quarter of a new airplane; its a fraction of what youd have to pay to own it on your own. And considering the first year depreciation hit on a new Cessna 172, you could walk away from the deal at any time without life-changing financial angst.
Whether a fractional ownership, lease plan, or conventional partnership, what all of these plans have in common is putting together people who want to own but don’t know anyone with compatible plans and wallets.
Newspaper ads and postings at the local FBOs are of some help there, but don’t guarantee success. Internet users can find partnership postings from around the country at several web sites, including www.wingsonline.com and the members section of www.aopa.org. In addition, an internet news group, rec.aviation.marketplace has a limited number of partnership postings. Fair warning: These leads can be of the pig-in-a-poke variety.
In selecting partners, remember that what they do can have profound influence on your investment and on your own financial situation. The partnership agreement is no place to save money. Seek the advice of a lawyer experienced in creating co-ownership agreements that allow for graceful exits and uncontested dissolution. And ask owners who have been in partnerships.
In whatever incarnation, partnerships are far from perfect. They open you up to liability arising from your partners operation of the aircraft.You could be sued if a partner injures someone in a crash or other mishap. Clearly, joint ownership is not something to be taken lightly.
But with careful consideration-and attention to detail-it can open up opportunities that would be impossible on your own.
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-by Ken Ibold
Ken Ibold is a freelance writer and aircraft owner based near Orlando.
