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

NetJets

Posted on Tue, Feb 19,2013

Global 5000NetJets, a wholly owned subsidiary of Berkshire Hathaway, is the oldest and largest fractional program in North America and Europe, with a joint venture in China. NetJets began in 1986, but dates back to the mid-1960s because of its ties to Executive Jet Aviation. With a North American fleet of 366 and a European fleet of 160, NetJets’s position as the largest fractional program would be hard to dispute.

 

The NetJets North American fleet is very diverse when compared to other programs, such as Cessna, Hawker, Gulfstream, Dassault, Embraer and Bombardier. The fleet includes light jets, mid-size jets, super mid-size jets, and large jets. (A more complete list of jets in the fleet is below.) 

 

The programs offered are as follows:

  • Fractional purchase, with a minimum purchase of 50 hours (6.25% share). The fractional purchase can be financed in house by NetJets.

  • Fractional lease, with same minimum as with a purchase. 

  • Jet card in 25-hour increments. The jet card is offered through Marquis Jet, a wholly owned subsidiary.

 

Each option's available aircraft types vary based on age, new entries to the fleet, and the relative demand for a specific type.

 

Fractional purchase (or finance) and fractional lease normally offer 5-year deals with predictable pricing with the option to terminate in 24, 30 or 36 months based on aircraft type. The only exceptions to the predictable pricing are a fluctuating fuel surcharge, which is based on NetJets's actual fuel costs for the applicable month, and - in the case of fractional purchase - an unknown residual value of the asset at termination. With fractional purchase, the client buys the asset at closing and then pays a monthly management fee, per-hour flight charge, and a fluctuating fuel surcharge. The fractional lease is very similar to the fractional purchase, but instead of paying the asset cost upfront, you pay a monthly lease fee.


The Marquis Jet Card offers 25-hour programs (1 year term), 50-hour programs (2 year term), and combo cards which are 25-hour cards split between two aircraft types of the buyer’s choice (1 year term). The 25- and 50-hour card terms can be extended for up to 3 years, but additional restrictions and charges apply during the second and third years. Also with the combo card, depending on aircraft selection, additional restrictions may apply on peak period days. With any of the card options, you pay a flat fee upfront and then each month you fly you pay an additional fuel surcharge based on the number of hours flown.

Cost-wise, the Marquis Jet Cards are the most expensive, followed by the lease program, with the fractional purchase/financed program pulling up as the least expensive. However, the final cost of the fractional purchase/lease program is hard to calculate upfront since a large portion of the cost is driven by market conditions and the value of the aircraft share at time of termination.

 

Jets in the NetJets Fleet

Topics: jet card, fractional, fractional ownership, NetJets