There are benefits - even if it is not always fashionable to state them these days - to having wealth. One of them is that it gives options and a measure of independence. Even in the teeth of regulatory restrictions amid the COVID-19 crisis, users of private jets have been able to tap such assets.
Back when the COVID-19 pandemic started, and hammered the global civil aviation industry, some commentators wondered what the crisis would do to private aviation. After all, private jets have to land somewhere, and where their users go through airports, restrictions imposed on the broad mass of the public must apply to private jet users as well.
Private jets are obvious signifiers of great wealth; it is also worth noting that they’re also business assets rather than just luxury toys. Owning, leasing or using private aviation resources come with a number of challenges (registration, tax, hiring suitable pilots and crew, obtaining air traffic control slots, etc). The health or otherwise of the private jets sector can sometimes be a sign of how well the wider wealth management sector is faring.
In this article, James D Butler, chief executive of Shaircraft Solutions, explores the terrain. His firm works in areas such as fractional ownership of jets, charters and air taxis.
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Wealth managers and family offices are often charged with making possible what, at first blush, seems impossible: arranging air transport for multiple relatives from far-flung locations to a spur-of-the-moment family gathering; or corralling a three-stop business trip into one day of travel in order to get a CEO home in time to see a child’s soccer game; or making certain that a professional football player can fly home on an off day to visit an ailing parent, and return in time to make practice the next day - all while dealing with COVID-19 restrictions, potential weather delays and a bottom line promise made to all clients - “Whatever it takes, we’ll get it done.”
The basic building block for accomplishing all these challenges is private jet travel. Yet, until the last forty years, that meant either owning a jet, a costly proposition that includes not only purchasing a plane, but also managing a flight department, hiring pilots, etc, or chartering someone else’s plane one trip at a time, with no guarantee of availability, safety standards, or cost.
However, the 1990s gave rise to a new air travel model - fractional jet ownership. With new regulatory flexibility from the FAA, business and leisure travelers could purchase a partial interest in an aircraft operated by a jet company as part of its fleet. The fractional model significantly reduced the barriers to entry into the private jet travel arena by eliminating the hassles of full ownership and substantially reducing the purchase price point, while providing access to a single-operator managed fleet.
The fractional provider managed the fleet, providing pilots, maintenance, insurance, catering, and other services and, importantly, promising substantial cost certainty for the customer - a set price to purchase the share, set fees for managing and flying the aircraft with capped cost escalators and, what’s more, in many cases a commitment to buy back the share from the owner at a specified minimum price when the contract expired. Essentially, this service operates as a private, executive airline. With a few hours’ notice, a plane is delivered where you want, when you want it, to take you wherever you want to go.
Over the next few years, however, increases in maintenance, pilot, insurance, and other costs, as well as a down market in pre-owned aircraft values, made it difficult for providers to turn a profit while still guaranteeing relative cost certainty to owners. This reality prompted providers slowly but surely to shift the variable cost risk to owners, by instituting various operating cost surcharges and by eliminating guaranteed repurchase valuations.
As consumers reacted to fractional cost shifting and, with further regulatory flexibility from the FAA, the market responded with a new option, the “jet card.” No longer were customers required to purchase a share of an aircraft. Rather, they would merely purchase a pre-determined number of flight hours. This model eliminated large up front capital investments and the risk of depreciating pre-owned aircraft values - or at least shifted these costs to the provider, who built that risk into the hourly pricing of the cards. In addition, jet cards could be purchased in increments of as little as ten flight hours, whereas most fractional ownership programs required a minimum purchase of 50 flight hours annually and a five-year term. Thus, by significantly reducing the cost commitment, the jet card model greatly expanded the potential market of private jet flyers.
As these options grew, another revolution was ongoing - the rise of the internet and e-commerce. The advent of the internet, combined with an increase in excess capacity, gave rise to forays aimed at reaching an even broader demographic through apps, per-seat sales, and the like. Anyone who has access to aircraft operators who want to monetize excess capacity - for example, aircraft just sitting on the ground - can contract with these operators to fly their flights and then come up with a clever name and a fancy brochure and sell themselves to an unsuspecting public as a private jet “program.”
Flying at 40,000 feet is not like having a Uber drive you home. You can find yourself in trouble if you don’t look behind the slick brochures and cool apps and ask questions: Who’s operating the aircraft? What’s the vintage? What’s the safety equipment? The pilot's experience? Safety must always be the first priority - well-maintained aircraft and experienced pilots are essential. Too often, folk are blinded by a discounted price. As in all things, if it sounds too good to be true, it probably is.
Behind a jet company’s alluring marketing pitches are complex legal arrangements, in which the providers minimized their liability, turn many of their bold brochure promises into no more than half-truths, and offer little more than a mirage of remedies for non-performance. Private flyers, who gained success in their own businesses by paying strict attention to detail, having neither the expertise nor the wherewithal to understand and negotiate these contracts, signed on in reliance upon false sales representatives’ assurances that, “Everyone signs the same contract.” I’ve worked on hundreds of these contracts over the years – they are far from boilerplate. (One company’s twenty-five hour jet card contract ran to more than 100 pages!)