Jet Advisors Blog

What to Know About Buying a Challenger 604 Share

Posted on Wed, Apr 10,2013

Are you thinking about buying a fractional share on a Challenger 604 through Flexjet? A Hawker 800XP through NetJets? A Phenom 100 from JetSuite? Are you leasing for the first time or want to make sure you've got all your bases covered before you enter a new agreement?

David Beach, former Senior Vice President of Contracts at NetJets and current VP of Administration at Jet Advisors, is beginning a series of blog posts on what you need to know before you agree to a fractional share or lease on any airplane. 

 

Fractional Programs: Know the Terms & Conditions (Part 1)


Challenger 604 fractional share lease private jetWhile at first glance, they appear to be very similar in structure and offerings, not all fractional programs are the same - and I am not referring to just aircraft types offered. The terms and conditions governing the programs vary for each provider as well as the agreements used. Consequently, the terms and conditions as well as the documents should be reviewed and understood before you sign on the dotted line.

The document that accomplishes this is either a fractional interest purchase agreement or lease agreement. In either of these agreements, there are things to be aware of, and in some cases, they can be negotiated away or made more favorable to you.One thing, though, is common to all programs. To become a member or owner (as the fractional programs refer to customers), you must acquire ownership of an interest (also referred to as a share) in an aircraft.  This is accomplished in one of two ways: either an outright purchase (yes, you buy a “piece” of the aircraft) or through a lease. In the purchase scenario, you receive a bill of sale for the share and are registered as a partial owner of the aircraft with the Federal Aviation Administration (FAA).

Does the provider make reasonable efforts to position the aircraft in a "tax-friendly” location at time of delivery?

What is the guaranteed term of ownership or leasehold? Most programs have a 5-year initial term (60 months), and some give you the option to terminate early after a preset minimum term of ownership or leasehold. If you terminate early, are there penalties or fees? Most ownership structures have a brokerage fee due at termination based on your share’s fair market value at the time of termination regardless of whether you go full term or terminate early.

Since the brokerage fee is based on your share’s fair market value, how is that value determined? Do you have the option to dispute it, or is it take-it-or-leave-it? Is the repurchase at termination guaranteed in a certain time frame, or does provider have to find a new buyer before they buy back the share?

Business corporate private jetWhat are your rights if the provider defaults or ceases to do business? For the large providers this is unlikely, but if it did happen, the market would be flooded with aircraft, values would plummet, and you would be holding the bag along with the other owners with shares on the same aircraft.

Another provision to be aware of is assignability. Can you freely assign to an affiliate or to a third party that is unrelated to you or your company? If the share can be assigned, are there fees required for documentation, filings, movement of the aircraft, etc.?

What are your obligations for registering the share with the Cape Town Convention on International Interests in Mobile Equipment (International Registry) when you purchase it and when you sell it back? While not a major expense, signing up to the International Registry and filing or consenting to the purchase and sale back will cost at least $1,000.

 

 

Top Issues When Buying Fractional

Topics: fractional, fractional ownership, private jet, fractional share, jet lease, Flexjet, NetJets, JetSuite, phenom 100, embraer phenom 100, Hawker 800, Hawker 800XP, challenger 604

Flexjet

Posted on Wed, Jan 30,2013

Options in Jet Debit Card, Leasing, & Fractional Ownership
Bombardier Learjet

Flexjet, a wholly owned subsidiary of Bombardier, is considered the number 2 fractional aircraft program in North America. The number 2 ranking is based on fleet size (69 aircraft) and average age of the fleet. Currently, Flexjet has the overall youngest fleet but four less aircraft than the closest competitor (considered the number 3 program) based on fleet size.

The Flexjet fleet, unlike most of the other programs, consists solely of Bombardier and Learjet (a wholly owned subsidiary of Bombardier) products. They have aircraft that will fit almost any business or pleasure flyer’s needs, including the Learjet 40 and 40XR (light), Learjet 45XR (super light), Learjet 60 and 60XR (midsize), Challenger 300 (super midsize) and Challenger 604 and 605 (large). Flexjet will soon be adding the Learjet 70 (light) and Learjet 85 (midsize). These new aircraft will be the latest in design technology and performance in the Learjet stable of offerings. While some competitors have in the past criticized Flexjet for only using Bombardier products, those same competitors are now buying Bombardier products for their own fleets.

Flexjet offers three main products and variants of those products: a jet (debit) card, a lease program and the traditional ownership program. Each of these options has its own pros and cons.

The jet (debit) card is just that: a debit card with a minimum initial deposit of $100,000, which becomes non-refundable only if the cardholder does not cancel it within 14 days of their first flight; any subsequent deposit is refundable. The jet (debit) card guarantees access to the whole Flexjet fleet (except for the Challenger 604 and 605 aircraft) at preset base hourly rates plus a variable fuel adjustment and federal excise tax, and it gives you the option to fly as little or as much as you need. The jet (debit) card offers the most flexibility but the highest costs.

The lease program is less expensive than the jet (debit) card but is locked into a specific aircraft type, a set number of hours per year, a monthly lease and management fee, a preset hourly charge (plus variable fuel adjustment and federal excise tax), and access to the rest of the fleet is on an “as available” basis at a preset interchange rate. The lease (which Flexjet calls the “walk away lease”) gives the lessee the option to terminate at any time with 90 days advance notice.

The least expensive option offered by Flexjet is the traditional ownership model; however, since it is an ownership arrangement, the residual value of the asset (aircraft share) at the end of the term will impact what your true cost per hour to fly will be. The fractional ownership option carries a 5 year term with an early out option - typically after 30 months - with a termination fee. The ownership option requires purchase of the share and – except for a monthly lease fee – locks into the same conditions as the lease program, such as a specific aircraft type, a set number of hours per year, and the same “as available” access to the rest of the fleet.

 

 

Top Issues When Buying Fractional

Topics: jet card, fractional, fractional ownership, Flexjet