Jet Advisors Blog

How to Exit a Fractional Program

Posted on Thu, Jun 06,2013

fractional programOK, 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.

Fractional ProgramIn 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.

 

 

Top 5 Issues Selling a Fractional Share

Topics: fractional, fractional ownership, Hawker 400XP, private jet, fractional share, private jets, fractional program, ASA certified appraisers, hawker 400

The Need-to-Knows of a Hawker 400XP Fractional Share

Posted on Fri, Apr 26,2013

This is the second in a series of blog posts by David Beach on what questions to ask (and find the answers to) before signing a lease or fractional share/fractional ownership contract on any airplane. Read our first installment of this series here: What to Know About Buying a Challenger 604 Share.

David Beach is the former Senior Vice President of Contracts at NetJets and the current VP of Administration at Jet Advisors.

 

Fractional Programs, Know the Terms & Conditions (Part 2)


Hawker 400XP, private jet, fractional shareAnother common facet to all fractional programs is the aircraft management services agreement. Regardless if the aircraft is a light jet like the Hawker 400XP or a large cabin like the Challenger 604, this is the most important of the numerous agreements that make up the contract package for program providers.

This agreement sets forth the ins & outs of the owner’s or lessee’s duties & payments and the services rendered by the providers along with their duties & responsibilities. Things to pay attention to and understand involve areas of operation, legal requirements (Federal Aviation Administration (FAA) and IRS), term, defaults, additional fees, and use restrictions to name just a few. There are more clauses to be aware of and those will be covered in subsequent blogs.

Operation

Is the provider you are considering worldwide, North American, or regional? If not worldwide, does the provider’s primary service area cover your needs? What are the requirements or limitations if you need to travel outside of the primary service area (additional charges, ferry fees, increased hourly charges and/or increased notice periods)?

Does the provider cover your flight with one of its aircraft, or are you subcontracted to an unrelated third party (and are you advised of this upfront)?

Legal Requirements

Legal requirements can be confusing, especially in the aviation field. Who is considered to be the operator of the aircraft? Does that extend to making sure the maintenance is in accordance with FAA requirements? Who communicates with the FAA if there are issues? Are pilots properly trained and licensed? Who acquires insurance coverage and determines the limits of that coverage? Are there fees to pay to fly the aircraft, then to land the aircraft, and taxes on the fuel you use, or on other fees associated with the management of the aircraft?

Challenger 604, private jets, fractional ownership Term

The term of the agreement can have a big impact on future aircraft value if you purchase the share. A too-short term can restrict your options without the ability to extend it or renew it. Does the term automatically renew/extend, and for what period? Do you have the option to terminate instead of extending?

Defaults

What actions can you take or not take to be declared in default? What actions or inactions put the provider in default? If a default occurs, are there cures, and how long do you have to cure? What are your rights if the provider defaults?

Additional Fees

If the provider has to modify the aircraft to comply with regulations or upgrades, or refurbishes the aircraft, who pays for it? If the provider increases crew salaries, is that cost passed on to you? Domestic or international landing fees, segment fees, airspace fees, communication fees, and concierge fees - are they bundled into the hourly flight charge and/or the monthly management fee, or passed on to you as incurred? If they are passed on as incurred, are they passed through at cost or with an administrative fee tacked on?

Use Restrictions

Use restrictions are not limited to the provider’s primary service area; most providers have certain limitations on high-demand days, which are usually called peak period days. On peak period days, your cost per hour may increase, you will have a longer notice period, and the likelihood of a delay or acceleration to your requested departure time increases. Some programs, depending on your contract, may further restrict your use on these peak period days.

These are a few of the areas you need to know about, but there are more to come…

 

Top Issues When Buying Fractional

Topics: fractional, fractional ownership, charter flights, Hawker 400XP, private jet, fractional share, private jets

XOJET: Challenger 300, Cessna Citation X, Hawker 850XP

Posted on Thu, Mar 21,2013

Bombardier Challenger 300 Private JetXOJET was founded in 2006, and their headquarters are located in Brisbane, California. The base aviation service model XOJET uses is charter; however, in addition to one-off charter booking, they offer four distinct programs. These programs are:

  • XOJET Preferred Access Program, which allows customer to gain preference over customers and control pricing based on their flight needs,

  • XOJET Coast2Coast Program, which allows customers to access customized coast-to-coast charters,

  • XOJET Elite Access Program, which provides guaranteed access to the XOJET fleet with pay-as-you-fly pricing, and

  • XOJET Membership Program, which allows the customer to pay only for charters taken.

Each program has its own unique terms and conditions. XOJET Preferred Access Program has a $200,000 upfront refundable deposit that is drawn down as you fly. The XOJET Coast2Coast Program is sold in 25-hour increments with a prepayment upfront for those hours. The XOJET Elite Access Program has a $100,000 refundable deposit, and flight hours are billed as they are incurred. The XOJET Membership Program has a nonrefundable one-time membership fee and an annual fee (annual fee is refundable in some cases). These fees are determined based on anticipated annual usage. Other terms and conditions apply, and the details can be found on their website at XOJET.com.

Hawker 850XP Private Jet

The current wholly owned or wholly leased fleet operated by XOJET consists of 16 Bombardier Challenger 300 aircraft and 29 Cessna Citation X aircraft. With Aircell GoGo BizAv technology in every Cessna Citation X and Bombardier Challenger 300, XOJET’s fleet was the first fleet (2010) to be fully equipped with in-flight Wi-Fi Internet connectivity. While a fleet of 45 aircraft is impressive by itself, XOJET has a strategic alliance with Travel Management Company, LTD (TMC) that broadens XOJET customers’ aircraft selection by providing access to 30 Hawker 800/850XP aircraft and 23 Hawker 400XP aircraft operated by TMC. The TMC Hawker 800/850XP fleet also provides GoGo BizAv Wi-Fi technology.

With one of the youngest fleets, XOJET also focuses on safety. XOJet pilots have an average of 7,800 flight hours of experience, and they go through an initial 300-hour customized training program at CAE/SimuFlight and a 150-hour training program in subsequent years. Not only are the pilots trained above FAA standards, XOJET has developed a comprehensive safety and quality management system called XOPS which encompasses flight crews, flight operations, and maintenance.

XOJET Concierge Access offers their customers exclusive access through a dedicated concierge for travel on their fleet to a variety of special events, leading hotels and resort properties, and unique destination experiences. Just a few of XOJET’s travel partners are Virgin Galactic, Art Platform LA, Jazz Aspen Snowmass Festival and The Armory Show NYC.

  

See how Challenger 300 compares to other jets!                  See how the Citation X compares to other jets!

Topics: Hawker 400XP, Hawker 800, XOJET, Citation X, Challenger 300, Hawker 850XP, Travel Management Company