Understanding Your Business Aviation Options

Buyers' Guide - China Edition » 2014
Business jet owners have the options of purchasing, chartering, or owning shares. (Photo: David McIntosh)
Business jet owners have the options of purchasing, chartering, or owning shares. (Photo: David McIntosh)
Wednesday, April 9, 2014 - 11:15am

中文内容请参看下面的PDF文件 

You don’t have to own a jet to fly as if you do.

Owning a business jet gives you the ultimate in flexibility and luxury, but it also involves heavy responsibilities and a price tag that could be out of your reach. Fortunately, you can fly privately with less obligation—and for far less money—thanks to air charter, jet cards and fractional-ownership programs. 

Savvy business jet travelers often use more than one of these options. They may own a fractional share in an aircraft for their primary travel needs, have a jet card that allows access to additional models and use charter when it offers a price advantage. With all three access modes, you can come and go on your schedule, usually from an uncrowded private terminal; and as soon as you’re on board the airplane, it can take off for destinations no airline services, if that’s your wish.

Charter, jet cards and fractional-ownership programs, all of which are popular in the U.S. and Europe, are in their infancy here in China. It was only last year that Deer Jet introduced the country’s first fractional-ownership program. Meanwhile, a reluctance of jet owners to put their aircraft out for charter has constrained that business. But these offerings are sure to proliferate along with the overall growth of business aviation in China. 

Air Charter 

Flexibility and economy, one flight at a time

Charter is like a limousine service of the sky. You tell the charter company where and when you want to go and how many people you’re traveling with and it transports you to your destination in a luxury vehicle.

Flying charter has several benefits. For each flight, you can match the aircraft to the mission, without any long-term commitment to the service provider. Rates are typically based on a roundtrip: you pay for the flight to your destination and for the return trip to the aircraft’s base, whether you’re onboard or not. In more mature markets, one-way pricing has evolved, but regardless of how fees are calculated, charter usually costs less on a per-flight basis than jet cards or fractional ownership. In fact, it represents one of business aviation’s best bargains. And it offers an opportunity to become familiar with aircraft models and service providers so you can make informed decisions about purchasing jet cards or a share of an aircraft, should the need arise. 

You can book charter flights with companies that manage and control the airplane or via brokers, which arrange flights with operators. Dealing with an operator puts you directly in touch with the entity in charge of the aircraft, which can make it easier to amend plans; brokers, on the other hand, can offer a wider selection of aircraft and options, as they work with multiple operators. (Note that operators also often act as brokers when they don’t have an aircraft in their own fleet available to meet a charter request.) 

Jet Cards

Ongoing access without asset ownership 

Jet cards are good for a specified number of flight hours or for a certain amount of money that can be applied to the cost of flights. Time-denominated cards usually provide access to a single model or category of aircraft for a set number of hours (for example, a 25-hour card for a midsize jet). Cards sold in cash denominations (such as a 1.5 million RMB card) usually provide access to a fleet of various categories of business jets that you can choose on a flight-by-flight basis. Hour cards generally best suit travelers who use one size of aircraft, while cash denominations make more sense for flyers who regularly need access to more than one category of jet. As you use the aircraft, the provider deducts the hours flown or cost of the flight from the prepaid credit the card represents. 

In contrast with charter’s round-trip-pricing model, jet cards charge only for the time you’re on board the aircraft, but all program members share concomitant repositioning costs, which the hourly rates reflect. Thus, jet-card pricing favors flyers who make long one-way trips, though some cards offer roundtrip and off-peak discounts. Jet cards also provide guaranteed access, which can be important when you’re traveling during ­holidays or other times when charter aircraft may be unavailable.

Fractional Ownership

The benefits of ownership without the hassles

Fractional shares offer nearly all the benefits of owning an aircraft outright while eliminating the responsibilities and reducing the costs that come with it. Owners pay a proportion of the total purchase price based on the size of their stake in the aircraft. The division of shares is usually predicated on 800 occupied hours of flight time per year, with a 1/16th share—representing 50 flight hours annually—the minimum position. (Deer Jet’s program, an exception to the rule, is based on 600 flight hours annually, divided among a maximum of five owners.) Each owner also pays a monthly management fee that covers all fixed costs, plus an hourly fee for use of the aircraft. 

This is hassle-free ownership. The fractional program provides the flight crew, arranges maintenance and—if “your” airplane is unavailable—supplies an identical or better aircraft. (In fact, you may rarely if ever fly on the jet you own an interest in, as fleet movements are scheduled for maximum efficiency.) Depending on the program, fractional owners may also be able to access an entire fleet of aircraft, allowing them (for payment of an “exchange fee”) to select the jet that best suits each mission and to use more than one aircraft at a time. Another plus for fractional programs is that they usually offer the youngest fleets and feature new aircraft models before they’re available for charter or jet-card customers. 

Fractional-ownership contracts vary but often specify five-year terms, with exit clauses allowing you to get out early for a fee. At the end of the contract, the fractional provider buys the share back at market value. Some programs let you renew your agreement and retain ownership for an identical contract period, an option that can greatly lower your total cost.

The residual value of the aircraft at the end of the ownership period is the largest financial concern for fractional owners. Fractional programs have traditionally estimated residual value at 75 to 80 percent of purchase price, but in recent years values have been in the 60-percent range. It’s imperative that you consider residual value when weighing purchase of a share, as the drop in worth could represent the greatest cost of ownership. To avoid surprises, you should have the value of your share independently audited annually.

While all charter, jet-card and fractional programs share a few basic principles, the rules and details vary in ways that can have a huge impact on your experience and costs. Variations in cancellation policies at charter providers can spell the difference between losing your deposit for a flight and being able to apply it to another mission. Policies on peak travel days at jet-card and fractional-ownership companies may mean the “guaranteed” access you were counting on doesn’t apply when you want to travel. Arbitration rules for disputing aircraft valuation may make a difference worth a huge sum when you exit a fractional-share program. Additionally, aircraft exchange fees in jet-card and fractional programs, and fuel surcharges or other added costs in charter, can leave you feeling victimized by bait-and-switch sales tactics unless you carefully check all the nuances of an access program or charter flight before signing on the dotted line. 

Whether you’re a fractional owner, jet-card holder or charter customer, keep in mind that your flights in China will require authorizations. Providers in the region say approvals for flights to civil airports take one to two working days, flights to military/civil airports require three days’ notice and flights to military-controlled airports necessitate five to seven days’ notice. International flight plans can take three to seven days for approval. 

The People’s Liberation Army recently relinquished control over general aviation flights to the Civil Aviation Administration of China, so operators no longer need to apply to the Army for permits for every flight, but the new application procedure has yet to be defined, so the impact on flight planning is still unknown. 

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