Want to Fly Fractional Without the Commitment? Consider Sharing a Share.

In the current economic climate, many private fliers are cutting back on travel— whether for business or for pleasure. This is especially costly if you’re a fractional owner because you continue to pay monthly management fees whether or not you fly and, if you underfly your allocated hours over the life of your contract, those paid for hours may simply be lost—dramatically increasing the real cost per hour of this investment.

Sound like you? We’ve come up with a solution that may ease your pain. On occasion, we have high net worth clients who prefer to fly on a fractional fleet but don’t want the long term commitment of owning a fractional share. We’ve been able to match these clients with other clients looking to lay off some flight time and recoup some of their management fees. The flyer pays all charges for his flight and a portion of the owner’s monthly management fee. As in all good deals, this arrangement is a win/win for both parties.

Any such arrangement must be worked out carefully to protect both parties and to make sure that it does not run afoul of FAA regulations. Utilizing our legal expertise, we’ve crafted time sharing agreements that do just. If such an arrangement may be of interest to you, from either side of the equation, give us a call. In the meantime, check out this related success story:



As a successful financial advisor, Dave Schrader knows a thing or two about smart investments. So when a client came to him, frustrated with the cost of sustaining a fractional investment that he wasn’t much using but didn’t want to sell, Dave turned to Shaircraft for advice. Thinking outside the box and utilizing our industry contacts, we identified another private flier who wanted the benefits of fractional, without the long term commitment, and so was well suited to sharing use of this fractional share. We brought the parties together and drafted and negotiated a time sharing agreement that met both their needs.

Residual Value of Fractional Investments - Part Two

In my last post, I discussed that an essential, but oft overlooked, aspect of the all-in cost of a fractional share is the residual value you receive when you sell your share back to the fractional jet company. In many cases, by disregarding contract provisions, manipulating the valuation methodology and taking advantage of owners who understandably lack in depth knowledge of the jet market and expertise in appraising aircraft, fractional companies get away with offering less than fair value for these shares—often substantially less. Shaircraft challenges these low ball offers and gets our clients fair value for their shares.

A recent case stands out, however, because the fractional company simply refused to buyback a fractional share even though its contract clearly obligated it to do so. Here’s a thumbnail of what happened.

- The owner notified the fractional company that he wanted to sell. Although obligated to provide the owner with a valuation of the share and a repurchase contract within 10 days, the fractional company did virtually nothing for two months.

- Two months later, the fractional company notified the owner that it would not abide by the valuation method provided in the contract. Instead, the company unilaterally decided that the owner could either (i) hold onto his share for another 6-12 months, or (ii) sell based on a wholesale price for the aircraft. Both options clearly breached the terms of the owner’s contract, which required a 90 day closing and a valuation of the share based on the fair market retail value of the underlying aircraft.

- Shaircraft became involved shortly thereafter and we were able to get the process back on track. Ultimately, the fractional company was willing to do almost anything to keep from having to buy back the share, and so offered free flight time and other credits and incentives to the owner.

Unfortunately, this sort of blatant disregard for the clear and unequivocal repurchase terms of its contracts is, in our experience, more the rule than the exception, with this fractional company. Although perhaps not as blatantly, other fractional companies often try to short change their owners in valuing shares to be repurchased.

Residual Value of Fractional Investments - Part One

The Achilles heel of the fractional jet business model is the residual value that an owner receives at the end of his investment (generally 5 years). I’ve commented on this for many years. Most fractional owners consider the cost of this investment considering the buy in cost for the share and the operating costs (monthly management fees, hourly flying costs, fuel and other surcharges, etc.), but in crunching these numbers they forget to figure in what they’ll get back when they sell the asset. The providers have done everything possible to make sure a secondary market hasn’t developed. Thus, there’s really only one market for these shares—the fractional companies themselves.

Because of this blind spot and an understandable lack of knowledge and experience with the way these contracts work, most prospective fractional owners fail to negotiate the buyback provisions of their contract so that the process yields a fair result.

In addition, when fractional companies offer buy out prices, supposedly based on the value of the underlying aircraft, most owners lack the knowledge and expertise to challenge them.

Thus, in many if not most cases, the fractional provider is able to buy back the share at a significant discount to its fair market value. It is only then, at the end of the deal, that the owner can really determine what it has cost per hour to fly fractionally (the sum of the buy in cost and the operating costs over the life of the investment, less the residual value, divided by the actual time in the air.)

At Shaircraft, we have attacked this problem on behalf of fractional owners for many years—both in negotiating their contracts up front, and in bringing to bear our knowledge and expertise in challenging the low ball residual share values offered by the fractional companies. In one recent case, our efforts increased the valuation of a fractional aircraft by more than $2 million.

It’s no secret that the value of preowned private jets has decreased generally due to the recession. This down market has adversely affected the residual values of fractional shares; but frankly, faced with many more redemptions than new sales, some providers are using the recession as an excuse to low ball their customers. In our next post, we’ll look at a specific case in which a fractional company essentially refused to buyback its owner’s share, despite a clear obligation under its contract to do so.

Welcome to Inside Private Air Travel

Welcome to Inside Private Air Travel, a blog devoted to providing information, insight and commentary on issues of interest to private air travelers. My company, Shaircraft Solutions, represents and advocates for private flyers, providing a unique blend of legal and aviation expertise. We specialize in so-called “shared use investments” like fractional ownership, jet card programs and charters.

As the CEO of Shaircraft, I have been an industry commentator for some time--authoring the award-winning “Inside Fractionals” column for Business Jet Traveler magazine, as well as providing insight and analysis for several other media outlets—print, online and broadcast. In doing so, I’ve learned that many media outlets are somewhat limited in their ability to provide inside and timely information to private air travelers. Some are in large part beholden to the jet companies that advertise and sponsor them. Others publish infrequently, so developments in today’s rapidly changing industry environment are stale by the time they go to press.

Thus, we at Shaircraft have decided to offer this blog as a means of providing unvarnished and timely industry information to the private flying community. We are not compensated by the private jet companies; so we’ll bring the same candor and insight to this blog that we deliver everyday to our clients.

We will investigate and comment on a wide range of industry issues. We’ll also provide timely information on the latest developments with the jet companies and other industry players. In short, Inside Private Air Travel will be a one stop destination where you can learn how to get the most out of your private air travel investment, and avoid costly mistakes.

We welcome your feedback. If you have suggestions for topics that we should cover, or a comment on any of our blog posts, please email us directly at info[at]shaircraft.com. This blog is here for you and there’s nothing more valuable to us than your input.