““It’s not so much a frenzy as it was before, but in the long term it’s going in the right direction.” ”
Another take on a fractional concept
Perhaps you like everything about fractional ownership except the ownership part. You want to be able to count on having the same model aircraft for every flight and the idea of sharing expenses with others appeals to you. But maybe you can't come up with the cash to purchase a fractional share or can't use the tax benefits that accompany ownership.
If that sounds like you, you're in luck if you live in Europe–or if a business being launched there catches on and the concept spreads to your neck of the woods. That business offers an alternative to traditional aircraft management and to fractional ownership.
The program, called Non-Equity Shares (NES), is being touted by Oxford, England-based Jet Connections, which is offering to find up to three people or companies to share use of an aircraft with the owner by dividing fixed-operating costs and making each party responsible for its own flight-hour expenses.
NES will be based on an annual contract between the owner and those sharing the aircraft. Jet Connections will handle aircraft scheduling and the legal agreements for an annual fee of approximately £40,000 ($66,000), which will also be split among the participants.
Aircraft will be managed either by the owner's existing management company, assuming it holds a commercial air operator's certificate (AOC) or by an AOC holder selected by Jet Connections. Managing director Zaher Deir told BJT that he has provisional agreements with several undisclosed aircraft management companies willing to operate specific aircraft under their AOCs. Eventually, Jet Connections may apply for its own AOC.
The aircraft's owner would be the main insurance holder, with the NES participants being named as additional insured parties. Users would share the cost of insurance, as well as the costs of management, maintenance and pilots. Users would pay their own fuel costs, landing and handling fees, en route air-traffic-control charges and other direct flight expenses.
According to Deir, NES will make aircraft available to users at "much lower" rates than they could find even in today's very competitive charter market, despite the fact that they will directly contribute to both fixed and direct operating costs. He said that a typical user would save "tens of thousands" of dollars each year, based on the assumption that each aircraft would fly around 400 hours annually.
For example, Jet Connections estimates fixed annual ownership costs for a Bombardier Challenger 604 at about $1 million. On this basis, each of the four users would pay $250,000, plus about $16,000 for a quarter of the Jet Connections management fee for an annual fixed total of around $266,000. Spreading this fixed cost between 100 flight hours averages out to $2,660 per hour. As noted above, users would also have to cover their own direct flight expenses, but even so, it does appear that the total hourly cost would be less than the average charter price for the same model, which was $6,672 outside the U.S. as of early April, according to online charter portal Avinode.
For aircraft owners, Deir said, Jet Connections will mean guaranteed income to cover fixed costs. He argued that this is not assured under the traditional aircraft management model. In fact, some management companies have offered owners guaranteed amounts of charter income but then found these guarantees unviable when demand dipped.
Another claimed benefit of the NES program for both owners and sharers is that the aircraft will be flown only by a small group of known individuals. Jet Connections manages equal, first-come-first-served access to the aircraft under a pre-agreed policy signed by all parties under a contract prepared by its law firm. The annual contract can be changed or cancelled only by the aircraft owner after a notice period of between 60 and 90 days.
Sharers have access to a specified aircraft without shouldering any capital outlay or depreciation costs. They also have the service consistency of having flights provided by a fixed crew and management company, rather than taking whatever is available on a given day in the charter market. The sharers pay only one quarter of the management fees even if Jet Connections has not yet lined up three parties to share an owner's aircraft.
Since aircraft users directly cover their own flight-hours costs, they pay only for the level of service they require. This means that those with relatively simple needs are not effectively subsidizing the champagne tastes of fellow users.
Deir, who has been in business-aircraft management since 1984, said that he has previously run a similar system to NES on an unofficial basis. These arrangements, operated under private rules in Saudi Arabia, have involved aircraft including Cessna Citation Excels, Bombardier Challengers, Dassault Falcons and Embraer Legacys. Deir is originally from Jordan, where he started his career with local operator Arab Wings. He launched Jet Connections with his son Tariq, operating from a base at Oxford Airport.
After consulting with the UK Civil Aviation Authority and its lawyers, Jet Connections has opted to operate NES under fully commercial rules, since money directly changes hands for use of the aircraft. Deir said he is well aware of widespread concerns over illegal charter activity in which some owners are fudging the rules to make privately operated aircraft available in return for payment of one sort or another.
For the time being, Jet Connections is focusing on the European market, but the company is laying plans to extend NES to the Middle East. From a database of nearly 900 aircraft owners and prospective users, Deir has received about a dozen "serious inquiries" in the first couple of weeks of marketing the program. He said two aircraft owners have provisionally committed to the program and that initial work is being done on the legal documentation.