OK, you’ve had a lifestyle change and no longer need your private jet, or you need fewer hours than you did when you purchased the fractional share. What do you do? More importantly, what can you do (i.e. what are your options)?
Hopefully you are in a program with well-defined procedures for an easy and somewhat painless exit. The first step is sending written notice to your fractional provider. This step is critical since it starts the “clock” for timing your exit. Normally the full term of your commitment is five (5) years, but with an out after a minimum term is reached. These minimum terms range from 24 to 36 months. You do not have to wait until the minimum term expires and can give your written notice prior to expiration (usually 90 days prior).
Not only does the written termination notice start the clock, but it gives your fractional provider the ability to provide you with the agreements necessary to exit and their view of the market value for your fractional asset. Now what? Review the agreements to make sure they match the terms in the document package signed when you entered the program. Then look at the market value offered compared to what your fractional provider is reselling like shares for. How close are these values? You have to expect some variation but not huge differences. If in doubt, there are resources to call upon, such as ASA certified appraisers who are very knowledgeable in the aviation marketplace. For a relatively small fee, they could save you large amounts of money or at least give you peace of mind that the deal you are offered is fair and equitable.
In addition, having the share appraised helps in your discussion with the fractional provider but may lead to the provider hiring an appraiser and further still to an appraiser arbitration process. Keep in mind – aircraft values are very sensitive to the economy, probably more so than any other asset you possess. We saw a Hawker 400 depreciate 87% in less than 10 years for one of our clients. Almost all programs have some form of brokerage fee deduction on repurchase; some vary by aircraft type and some vary by the length of your ownership. If you have exceeded the hours allotted for the period you owned your share, the fractional provider will reconcile your account and bill additional charges for any excess hours. Unfortunately, if you have under flown the contract, the majority of providers do not issue you a credit or payment for those unused hours.
Once the market value of your fractional share is agreed upon and the termination agreements have been executed, it is time to close the exit. Make sure the location for the transaction (the sale back of your share to the provider) is in a tax-free jurisdiction or your fractional provider issues you a tax exempt form since the provider is purchasing your share for resale.