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View Full Version : Owning vs Fractional??


pilotkitch
02-07-2011, 12:11 PM
Looking for opinions from people who may have been through this exercise and have the other side of the story which the sales guy does NOT mention.

We have a Part 91 GIV that averages 200 hrs per year, single owner that is 100% leisure travel.

His is considering a 1/16 share (50 hrs) on both a GIV and GV with Netjets and 1/8 share (100 hrs) on a Challenger 300 with Flex.

It appears the package that they have put in front of him is showing a substantial enough savings to be able to get used to different crews, aircraft, etc.

What kind of back-end charges can he expect with the fractionals? The majority of our flying has been domestic with 1.5-2.5 hr legs, with 2-3 Europe trips mixed in per year.

Looking to justify our existence here since the sales guys never bring up the disadvantages with duty times, scheduling, fuel surcharge, etc. He also has 3 large (80-90) dogs that travel with him most of the time that the sales rep says will NOT be an issue. (True/False)

The more feedback the better.......


BoilerUP
02-07-2011, 12:29 PM
FraxPrograms (http://www.aviationresearch.com/FreeData/FraxUtilityMenu/FraxPrograms.aspx)

G-IV:
$2.26M 1/16 share price for the G-IV
$17,096/mo in management fees (5 year contract)
$198,300 in hourly costs ($3966*50) plus surcharges

G-V:
$2.94M 1/16 share price for the G-V
$19,211 in monthly management fees (5 year contract)
$203,000 in hourly costs (4060*50) plus surcharges

CL-30
$2.3M 1/8 share price for the CL300.
$25,490 in monthly management fees (5 year contract)
$465,000 in hourly costs (4650*100) plus surcharges

So...
$7.5M in upfront share acquisition costs
$61,797 of monthly management fees
$866,300 of annual hourly operating costs...before surcharges

Of course the caveats are his charged time in those airplanes is occupied time only (no charge for repo flights), having multiple aircraft available if he needs them (no maintenance downtime), and "writing a check and being done with it".

pilotkitch
02-07-2011, 01:16 PM
FraxPrograms (http://www.aviationresearch.com/FreeData/FraxUtilityMenu/FraxPrograms.aspx)

G-IV:
$2.26M 1/16 share price for the G-IV
$17,096/mo in management fees (5 year contract)
$198,300 in hourly costs ($3966*50) plus surcharges

G-V:
$2.94M 1/16 share price for the G-V
$19,211 in monthly management fees (5 year contract)
$203,000 in hourly costs (4060*50) plus surcharges

CL-30
$2.3M 1/8 share price for the CL300.
$25,490 in monthly management fees (5 year contract)
$465,000 in hourly costs (4650*100) plus surcharges

So...
$7.5M in upfront share acquisition costs
$61,797 of monthly management fees
$866,300 of annual hourly operating costs...before surcharges

Of course the caveats are his charged time in those airplanes is occupied time only (no charge for repo flights), having multiple aircraft available if he needs them (no maintenance downtime), and "writing a check and being done with it".

Yeah those are pretty close numbers to what we have herd. With respect to the surcharges, what could he expect there? Do they nickel and dime like charter companies for crew expenses, high traffic or density airports (IAD, BWI, ASE, etc), fuel, others?


kingairfun
02-27-2011, 11:20 PM
Yeah those are pretty close numbers to what we have herd. With respect to the surcharges, what could he expect there? Do they nickel and dime like charter companies for crew expenses, high traffic or density airports (IAD, BWI, ASE, etc), fuel, others?

As far as I know (Netjets) the fixed monthly management fees take care of crew pay, hotels etc...Your owner would pay for fuel and catering...and probably landing fees, but not positive.... Another good thing about Netjets is your owner doesn't pay for any empty legs.....He will only pay for his/her occupied flight time.

From what I know, fractional ownership is less expensive over the course of five years. And if the fractional gives a guaranteed buyback at any time it could be a great deal givin the depressed market. Netjets, being the largest, gives your owner extremely flexible options for both schedule and a/c type...

We had a minor mechanical crossing the Canadian border which did require us to divert. We landed on the US side and the owner was in a company aircraft within 15 minutes of landing. True story and actrually pretty impressive whenb ya think about it.

Not having the same crew isabout the only real downfall. Not every crew is as friendly, outgoing. All trained exactly the same, but personalities do differ.

sorry for the spelling..Typing in really bad lighting.

geosynchronus
02-28-2011, 02:12 PM
Look at it this way; any "back end charge" that you have while operating your Part 91 GIV will exist with a fractional share. Fuel surcharges, landing fees, customs, catering, de-icing, lav service, NavCanada, etc. will all come back to your owner; possibly under a different guise. Any extras will be passed along to the customer, they do not magically go away.

Also, do not buy in to the "deadheads are free" fallacy. Your owner will only be getting .8 hours of flight time for every hour billed. You will see this when you reconcile your monthly invoicing from the fractional operator. The hourly costs will be higher than advertised.

Is your owner selling the GIV and opting for fractional? If so, and if he/she is only planning to fly 50 to 100 hours per year, charter makes more sense. Get competitive bids for a 100 hour block of charter time on his preferred aircraft from several operators and supplement that information with the fractional proposals.

Fractional makes sense if your owner flies 200-300 hours per year. I would definitely question your fractional salesman on the initial acquisition costs and how these costs compare to the generally soft business jet market prices; i.e. do not pay "MSRP."

geosynchronus
02-28-2011, 03:37 PM
As an addendum to my last post, you mentioned that you are trying to "justify your existence." Been there, doing that.

How do your hourly fully burdened costs (FC + VC) compare to what the fully burdened costs of a fractional share operating the GIV are? Add it all up and consider it with and without depreciation. If you are lean and mean and you operate more than 200 hours per year, you might be able to justify what you do; i.e. flying more hours in your current situation for the same amount of money that may be charged with a 1/8 share of a CL300. A great resource is the Conklin and deDecker Aircraft Cost Evaluator. I highly recommend this program for crunching the numbers and giving your owner accurate financial data.

Also, have you offered to put your aircraft on a 135 certificate to offset your operating costs? Yes, it is a pain, but your owner might appreciate the revenues from charter along with the tax advantages that come when operating under 135.

Good luck with your endeavors, I wish you the best. Give your owner(s) as much unbiased information as you can. You never know, your owner(s) may end up seeing the value that you provide by giving them all of the options, not just the most inexpensive option.

Remember, the fractional salesman, the aircraft management companies, and the charter operators are all looking out for THEIR best interests; you need to look out for your owner's best interests, which filters down to your best interests.

pilotkitch
03-01-2011, 02:09 PM
Thanks for all the information, unfortunately the boss had his first QS flight today and has several "good" offers on the aircraft.

Back to the job hunt......

UCLAbruins
03-02-2011, 03:54 AM
Thanks for all the information, unfortunately the boss had his first QS flight today and has several "good" offers on the aircraft.

Back to the job hunt......

Don't know what to say because I fly that fractional. I feel really bad

May I suggest Executive Jet Management, I see their ads on bizjetjobs all the time.

best of luck

Columbia
03-11-2011, 12:10 PM
Look at it this way; any "back end charge" that you have while operating your Part 91 GIV will exist with a fractional share. Fuel surcharges, landing fees, customs, catering, de-icing, lav service, NavCanada, etc. will all come back to your owner; possibly under a different guise. Any extras will be passed along to the customer, they do not magically go away.

Also, do not buy in to the "deadheads are free" fallacy. Your owner will only be getting .8 hours of flight time for every hour billed. You will see this when you reconcile your monthly invoicing from the fractional operator. The hourly costs will be higher than advertised.

Is your owner selling the GIV and opting for fractional? If so, and if he/she is only planning to fly 50 to 100 hours per year, charter makes more sense. Get competitive bids for a 100 hour block of charter time on his preferred aircraft from several operators and supplement that information with the fractional proposals.

Fractional makes sense if your owner flies 200-300 hours per year. I would definitely question your fractional salesman on the initial acquisition costs and how these costs compare to the generally soft business jet market prices; i.e. do not pay "MSRP."
Man o man, you are pretty far off the mark.
-For starters, every frax right now sells pre-owned shares for significant discounts. I used to manage a corporations frax program, to include billing, and contract compliance/management. We managed a very tight budget and had to justify what we used ever year. I also just spoke to a contract admin contact who is at Flex, for example, and he said that you could get a 2007-2008 CL300, 100-hours for $1.6 Million, not the 2011 version for $2.3MM. I'll almost guarantee a G-IV at netjets could be had for under $1.5MM, same with the G-V. Flight department folks love to quote the most expensive shares. I know, because I often had to prove to the FD guys that what they "heard" was very off the mark. BTW, we had 3 planes and 300-hours w/FX and NJ.
-Also, when you buy a total of 100-hours at netjets, you reduce your total Monthly by 20%, therefore a combined G-IV and G-V is $29,000 vs. $36,000 in your example. FX also throw in quite a few goodies such as additional hours, upgrades at lower AC prices and X number of days/year when we could be guaranteed multiple A/C same day, a big deal for us.
-All catering is included at nj and FX, but not citation shares from what I remember.
-There are no landing fees/handling fees domestically. International fees are all passed thru (I know because often we flew our A/C to the same places and landing/handling fees were identical and in some cases less due to their volume discount.)
-There are no de-ice fees, ever.
-contracts are 2 years minimum, not 5. IOW, you can leave, no penalty at 2.
-re: owner getting .8 hours of flight time for every 1 flown. Once again, BS. There is .2 hours added for EACH LEG, not each hour. If a flight is .8 wheels up - wheels down then the time billed is 1.0. If a flight is 3.5 hours Up/Down, the flight time billed is 3.7 hours.
-The asset depreciation we saw was about 5%/year (needed for tax purposes) and this is the same repurchase value we received when trading in shares for a few tax reasons. This was higher than our own A/C at around 2-3%/year die to higher hours, but we only owned a a fraction so the total "loss" was much less.
- We looked at charter, but the standards are all over the place. the major frax always have 2 typed rated guys with significant experience. We would always audit the crew and often found a relatively low time guy, with low AC experience without a type. Insurance coverage was also much higher (I think $300MM vs. $50 with most charter companies). We tried charter, but we often got substitute A/C from another vendor in a variety of conditions (A/C and pilots).
-The recovery with fraxs was absolutely tremendous. They even recovered for us a few times which made the bosses raise eyebrows about having a flight department.

How did we pore through all the BS about whole vs. charter vs. frax? Simple-we spoke thoroughly with people who have used all in a variety of ways and very quickly separated the truths from the BS. Each company was happy to set us up with current and like kind users. We also addressed our concerns (additional fees, charges, aircraft used, etc) in addendums to the contract which we asked for and were 95% granted to include a proviso to exit with 60-days at any time for 3 or more violations at a set repurchase fee not to exceed below a set amount based on time all as a just in case. 95% because we asked for some wild things like a violation being a single delay longer than 10 minutes.
I also was responsible for our pax feedback/review process to include personal conversations about the frax pilots, FAs, and general experience. Very few bad comments and mostly very, very good comments (interestingly though, they felt the fx guys were especially good guys-maybe it was the challenger 300, however :) ).
Finally, we looked into a whole aircraft managed by fx and the numbers they quoted were in line with conklin dedecker (we could get an immediate delivery a few years ago versus 2 year wait). We felt at 300-hours, their frax solution made more economic sense for us and how we would use the plane.
Sorry for the long email, but there are quite a few significant mistruths out there, especially regarding what the frax "mysteriously" charge and what they don't. Interestingly enough, it's ALL laid out in the contract which should be reviewed by any good aviation attorney. Anything not in there is easily added to assuage any concerns.
Good luck.

kingairfun
03-12-2011, 02:32 PM
Columbia,
I'd love for you to post that in every corporate mag. and fortune etc......Very good in-depth post..

I have no experience in research of these things besides knowing that frac just seems like an overall better deal for ease and support of the traveler. And NJA pilots are generally no better at stick and rudder flying, but I know we had the support of the company on all issues of safety etc. I'm at a 135 place now and feel if you don't just shut up and fly then you get put on the naughty list. And with so few jobs out there (and a family) it is hard to raise any kind of stink about anything. Especially fatigue and maintenance write-ups.

And SOP's at fractionals a more in line with 121 than many charters where SOP's are non-exhistant.

BoilerUP
03-12-2011, 02:44 PM
Is it really surprising that in 2010/2011, when fractional sales are flat, that operators like Flex & NJA would be willing to negotiate terms to remove unsold "core aircraft" from their books while they were completely unwilling to do so during the 2007/2008 boom times?

aafurloughee
03-24-2011, 12:22 PM
EXACTLY!! Boiler. also guys remember neg that severence on your way in.

pilotkitch
04-01-2011, 02:00 PM
EXACTLY!! Boiler. also guys remember neg that severence on your way in.

Although it was not negotiated on the way in the boss was more than generous to us. If one has to lose a job this was the way to do it.... just sayin!

aafurloughee
04-01-2011, 05:04 PM
good to hear!! good luck in your job hunt.