“If you fly 200 hours a year, you will save 20 business days a year. And that’s not including productivity on the plane. ”
Chartering out your jet
Perhaps you own a business jet and have been thinking about making it available for charter. That’s not always a great idea (see below) but if it makes sense for you, it can offer a rather painless way to recoup some operating costs. Here’s how to proceed.
First, find a few quality operators who have demand for the model or category of aircraft you own. You can locate such operators through AirCharterGuide.com. Ideally, you’ll turn up ones near your aircraft’s base, so both you and the operator that you ultimately select can maintain easy access to the jet. But a few charter/management companies will operate an aircraft from wherever it’s based. These companies “have a strong [charter management] structure in place, and you essentially have your own flight department that acts as a remote operation,” said Mike Nichols, a vice president at the National Business Aviation Association. “It’s like having an independent franchise.”
Data analysis can help you determine where your jet is most needed for charter. Avinode, an aviation data company primarily serving charter brokers and operators, can also provide a customized data analysis for individual owners. “If you own a Challenger 300 that you want to float for charter and you say, ‘What’s the best place to be in January? Where should I be in February?,’ we can do that kind of analysis,” said Magnus Henriksson of Avinode. Such reports cost $1,000 to $2,000. Data services Airplanemanager.com and ARGUS International can also provide customized reports to help owners identify their best charter revenue opportunities.
Check the safety record and history of all companies you consider working with, find out about their charter sales teams and visit their bases to get to know the people and operation firsthand. “I think a lot of [business jet owners] spend more time at their Mercedes dealer than at their aviation management company,” said Robert Seidel, CEO of JetFlight International in New York City.
Get details on each company’s operating experience and charter activity levels with your category and model of aircraft. Ask to speak to owners of similar airplanes in the fleet about their experiences with the operator. Be aware that if your jet is the first of its model or category on the company’s charter rolls, “they’re going to incur a lot of marketing expense and marketing time to build up hours on that aircraft,” Seidel noted.
Determine how many hours of charter revenue you want and the access you’re willing to give up to get them. “The key factor is the availability of the aircraft,” said Bob Marinace, president and CEO of Oxford, Conn.-based Key Air, which offers charter revenue guarantees for selected aircraft. “We’re looking for uninterrupted blocks of time.” The blocks of availability needed to reach your revenue targets will vary from operator to operator. At Key Air, “an uninterrupted block of ten days is significant,” Marinace said.
“That’s something we can really work with.”
Simply modifying the standard agreement that mandates owner preapproval for every charter flight “to give the charter company some flexibility in setting the rate within certain guidelines and allowing them to accept a trip” can help make your jet more available, said Dave Weil, CEO and founder of aviation consultancy Flight Department Solutions in Burlingame, Calif. “If I’m serious [about generating charter revenue] I would want to make [approvals] easier.”
Charter revenue policies vary. Some operators negotiate rates on a trip-by-trip basis, with the owner typically receiving about 85 percent (from which all trip expenses must be paid) while other operators pay owners a set hourly rate for use of the aircraft. There’s negotiating room in all these deals, but if you squeeze the operator hard, it will have less incentive to charter out your aircraft than a similar one in the fleet that gives the company a better return.
Don’t focus solely on flight time. “There are a number of profit pockets that owners should be aware of,” said Stewart Lapayowker, an aviation attorney in Fort Lauderdale, Fla. For example, charter customers may be charged minimum hours for having the aircraft on a day it sits idle. “Many times you can negotiate receiving a portion of that,” said Lapayowker. You may also be able to negotiate a lower management fee that is part of any standard charter/management agreement.
Revenue guarantees are another possibility, but charter providers offering them typically want aircraft that are no more than 10 years old and preferably Wi-fi equipped. (TWC Aviation, Xojet and charter broker Sentient are among the providers that have recently instituted revenue-guarantee programs.) Moreover, revenue guarantees often come with fine print that makes them virtually unenforceable. More important is to work with a trustworthy company that provides realistic charter-revenue forecasts.
“We have customers coming to us who are talking to other [charter management companies] and are being made offers” for guaranteed revenue, said Gary Dempsey, president of Jet Aviation Flight Services–The Americas. “We try to explain that anybody can say anything to get business. When customers say, ‘I need 300 hours [of guaranteed charter revenue annually], we explain that in the current market, that’s not really going to be reasonable.”
Keep in mind that charter revenue is just one aspect of the financial equation in a charter/management agreement. Savings that a management company can offer on fuel, hangaring, insurance, crew training and other operating costs may be more significant. Given the complexity and the sums at stake, you’d be wise to enlist the services of a consultant before reaching your final decision.
Four reasons to think twice
1. While charter revenue can help offset operating expenses for your jet, margins are slim. You can’t expect profits to come anywhere close to covering all the costs of ownership.
2. The more charter income you receive now, the lower the hull value and the higher the maintenance costs going forward, due to increased time on the airframe and engines.
3. You likely own a business jet because you want or need unfettered 24/7 access to air transportation, but maximizing charter revenue depends on having your jet available to others as close as possible to 24/7.
4. You may simply be uncomfortable with opening the door to strangers. “Sometimes clients go into [charter] to maximize revenue and then realize that they really don’t like the idea of other people being on their airplanes,” said Stewart Lapayowker, an aviation attorney in Fort Lauderdale, Fla.