Is There a Private Plane in Your Future?
Published: June 2009
By Stephen Whitlock
It's the ultimate upgrade: Forget about crowded cabins, lines at check-in, and interminable delays on the tarmac. Instead, simply call for a plane whenever you need one, and within a few hours it will be ready to fly wherever you want to go. What sounds like a frequent flier's dream is in fact a perfectly valid option for a growing number of travelers, thanks to a relatively new idea in the world of private jets—fractional ownership.
Fractional plane ownership is often likened to a time-share. You buy a portion of a plane, from one-sixteenth up to a half. In return for the initial purchase price, plus a monthly management fee and a charge for every hour flown, you're guaranteed that the type of plane you've bought into will be available at short notice. The bigger your fraction, the more hours you can fly. Own a sixteenth and you're entitled to 50 hours of flying time per year; a 50 percent stake grants you 400 hours.
The concept was dreamed up in 1986 by Richard Santulli, a former Brooklyn Polytechnic Institute math professor and principal at Goldman Sachs. He'd bought a company called Executive Jet and noticed that many wholly owned private jets were underused. "He saw that owning a jet and flying only a hundred to one hundred fifty hours a year made no financial sense," says Kevin Russell, senior vice president of Executive Jet. Analyzing 20 years' worth of records, Santulli deduced that it was possible to divide ownership of the fleet among many clients and still offer everyone guaranteed availability with as little as four hours' notice. He launched the first (and still the largest) fractional ownership company: NetJets. Between 1996 and 2000, the company spent some $13 billion to snap up more than 40 percent of the world's business planes as they rolled off the production lines.
Although fractional ownership makes private jets more affordable, they still don't come at bargain basement prices. For example, 50 hours of flying time in NetJets' entry-level craft, the Cessna Citation V Ultra (which the company promises to buy back from you at market value if you leave the program) costs $417,500, as well as a monthly management fee of $5,035, and $1,275 for each hour in the air. So that first year will cost you $541,670, the equivalent of approximately 130 first-class round-trip tickets from New York to Los Angeles.
NetJets attracted only four owners in its first year. But by 1999, the total number of owners, spread among NetJets and its competitors, reached about 1,700. These rivals are mostly companies owned by aircraft manufacturers: Flexjet (part of Bombardier, makers of Learjets), TravelAir (part of Raytheon), and Citation Shares, launched by Cessna this year for eastern U.S. service only.
Aside from flexible scheduling, fractional ownership has many advantages over commercial flights. You have access to about 5,000 airports across the country, compared with the 500 served by commercial carriers. More-sophisticated jets can also fly at 50,000 feet or so, high above turbulent weather and the traffic jams of commercial flight-paths. Fractional ownership brings certain tax and depreciation advantages as well. And compared to those who buy planes outright, fractional owners enjoy all the pleasures, without the difficulty (and expense) of arranging insurance, hangaring, catering, and highly qualified flight crews.
NetJets estimates that 80 percent of its customers are public and private companies. The rest are "high net-worth individuals"—people like Tiger Woods and Pete Sampras. Another customer is Warren Buffet, who was so impressed that he sold his own jet, the Indefensible, and in 1998 bought Executive Jet (which owns NetJets) for $725 million.
"So far it seems to be an extremely successful concept," says Stephen Hofer, an aviation attorney with Bailey & Marzano, a law firm located within Santa Monica Airport. Hofer has represented many buyers in fractional ownership deals and sees a shift in the market. "At one time, my clients were people whose names you would know—movie stars, luminaries behind the scenes in Hollywood. Now I'm also representing people who aren't household names but are successful in their industries."
So, assuming you've got a few hundred thousand to spend, is fractional ownership for you?A commonly cited statistic from the National Business Aviation Association suggests that people who fly fewer than 100 hours a year ought to stick with commercial flights or charter aircraft, while those who fly more than 250 hours a year should consider buying. Of course, what you save isn't cash. "If you compare it with the cost of an airline ticket, it's always going to be more expensive," says Steve Phillips, Flexjet's director of marketing. Executive Jet's Russell agrees: "Flying privately is more expensive than flying commercially. But the question is, What's the value of your time?"
|entry-level jet prices|
|CITATION V ULTRA||CITATION II||CJI||LEARJET 31A
|COST TO BUY OUTRIGHT||$7,159,000||no longer in production||$3,716,000||$6,500,000|
|COST OF A 50-HOUR SHARE||$417,500||$197,500||$287,169||$406,000
|TOTAL FOR FIRST YEAR||$541,670||$310,620||$381,607||$536,484