Jet Advisors Blog

Fractional Jet Programs: What to Know About Your Fractional Provider

Posted on Fri, Jun 14,2013

Hawker 800XP Fractional Jet ProgramYou probably have had enough about fractional programs’ aircraft management services agreements, but there are a few more aspects to explore and review. Some are minor, some non-negotiable, but all could cause you to experience unexpected costs.

If needs change relating to your ownership structure, does the agreement provide for assignability to related and unrelated parties? If it does, is it provided as part of the service or are there related fees for the assignment? If you assign your share and have excess hours, do they go with the share or are they forfeit?

What insurance limits are provided and are they high enough to cover potential exposure? Can you buy “add-on” liability coverage? If the provider’s policy premiums increase over the term of your ownership, can they pass that increase on to you, and if the provider or the insurer makes changes to your coverage, are you notified prior to the change?

Catering can be very expensive; is catering included under services provided? What type of catering - is it preset or can you order whatever is available based on your departure point? Are aircraft stocked with snacks and beverages, and is the selection and variety appropriate for the aircraft type you own? Keep in mind that due to aircraft size and galley configuration, catering can be limited to space/storage available. It is no fun to fly with a tray or bag of food in your lap.

Most fractional providers have some form of interchange within the fleet provided there is more than one type of aircraft in the fleet. Some providers allow interchanging to smaller aircraft anytime but interchanging to larger aircraft on an as-available basis. Some allow you to interchange up or down freely (provided aircraft type requested is available). When you interchange in a fractional program, the hours you fly on the larger or smaller aircraft are multiplied by a preset interchange percentage. Is this percentage equitable or almost punitive?

Due to Federal Aviation Administration regulations that apply to fractional jet programs, you may have the option to have your flights flown either in accordance with FAR Part 91 or Part 135. Operationally, you will see little impact on electing to fly under either regulation. Some feel that opting for your flights to be flown in accordance with Part 135 provides more protection from potential liability in the event of an accident.

Each fractional program sets forth the rates they charge either on a monthly or hourly basis; some even have a fee charged on an annual basis. Be familiar with how they escalate, normally on an annual basis on January 1, but sometimes they have an increase built in to take effect at a certain point in an aircraft’s lifecycle.

The last item I want to touch on is aircraft availability. Does your program guarantee you an aircraft even if they have to charter one from a third party provider? If the provider does not guarantee an aircraft, what is your recourse? If they do guarantee an aircraft for all of your trips, what do they consider a “comparable” or better aircraft to the one you own?

 

 

Top Issues When Buying Fractional

Topics: fractional, fractional ownership, private jet, fractional share, private jets, fractional program, fractional jet program, Hawker 800XP

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

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