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5 Benefits Of Fractional Ownership Over Traditional Aircraft Ownership

When most people think of private aircraft ownership, they think of the traditional model where one person owns and operates an entire aircraft. However, a model of private aviation ownership, known as fractional ownership, has gained popularity in recent years. Here are five benefits of fractional ownership over traditional aircraft ownership: 

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    Before we dive into the benefits of fractional aircraft ownership, let’s go over the history of and exactly what fractional ownership is.

    The History Of Fractional Ownership

    The concept of fractional ownership was first implemented in 1986 with the creation of a program that allowed aircraft owners greater freedom in the operation and ownership of their planes. This scheme built on current aircraft acquisition techniques such as shared or joint aircraft ownership and included an option for an airplane management firm to run the operation.

    The program allows aircraft owners who participate to share their planes with others with a shared passion for the same model. In addition, they agreed to lease their airplanes to other participants in the scheme (dry lease exchange system). The aircraft’s management was handled by the common management company, which offered aviation administration services such as maintenance, pilot training, and aircraft leasing administration to the aircraft’s owners.

    During the 1990s, fractional ownership grew in popularity. There was a lot of debate among aviation professionals as these programs expanded in size, complexity, and number. The FAA also had problems with accountability and responsibility for compliance (operational control) on its plate.

    The FAA formed the Fraction Ownership Aviation Rulemaking Committee (FOARC) in October of 1999 to keep up with accountability and compliance. In November 2003, the FAA released Part 91K, which governs fractional ownership programs. According to a rule by the Federal Aviation Administration, “A person who conducted flights before November 17, 2003, under a program that meets the definition of a fractional ownership program in § 91.1001 may not conduct such flights after December 17, 2004, unless it has obtained management specifications under this final rule.”

    Today, fractional ownership is more popular than ever, with providers offering customers a variety of service options and aircraft choices. Fractional ownership has become an essential part of the business aviation industry, providing customers with a cost-effective way to enjoy all the benefits of owning and flying their aircraft.

    What is Fractional Aircraft Ownership?

    Fractional aircraft ownership is a model of aviation ownership where multiple individuals each own a share of an aircraft. Fractional owners can use the aircraft for a set amount of time each year, as specified in their contract.

    There are a few ways fractional ownership can be set up. When you become a fractional owner, you are typically given a percentage of the aircraft, such as 1/2, 1/6, 1/8, or 1/16. This percentage entitles you to a certain number of hours on the plane each year. The cost of your fractional ownership will depend on the company you choose to work with, and the size and type of aircraft you purchase.

    Most fractional programs have a five-year contract with early out and/or extensions that can be obtained at a cost. The typical buy-in is dependent on the number of shares and the value of the aircraft at the time of purchase. With most programs, there is a fixed monthly cost to each owner along with variable costs that are incurred by the person flying. At the end of the contract term, you can sell your portion of your shares at fair market value. This is called residual resale value.

    The book value of your aircraft share, or the residual resale value, is the anticipated sum at the conclusion of the contract. You’ll have to agree on a method of determining resale value at the time of purchase that may or may not consider heavy usage.

    Most people choose fractional ownership programs due to the convenience offered and savings involved in the cost of fractional jet ownership. It is less expensive than owning and operating an entire aircraft if you fly under 150 hours per year. This is attributed to predicted usage and shared costs. When the level of utilization increases over the predicted amount, the expenses associated with ownership go up due to increased hours on the plane.

    Now that we’ve gone over the basics of fractional ownership, let’s look at the 4 benefits of fractional ownership.

    Benefit #1: Increased Flexibility and Convenience

    • Access to a fleet of aircraft
    • Multiple departure locations
    • No repositioning fees

    One of the biggest benefits of fractional ownership is the increased flexibility and convenience it offers. Traditional aircraft ownership can be very inflexible, as you are locked into one type of plane and one flying schedule. This may not work with how you or your business uses the aircraft.

    With fractional ownership, you have access to a variety of different aircraft, which gives you more flexibility. And as an added benefit of fractional ownership, you won’t be responsible for repositioning fees. Instead, you will only pay for the hours you fly.

    Benefit #2: Management Team

    • ☑️ Flight and trip arrangements are taken care of
    • ☑️ Pilot and crew training
    • ☑️ FAA regulations met
    • ☑️ Maintenance complete
    • ☑️ Insured
    • ☑️ Legal management

    Fractional ownership companies are run by professional staff who are experienced in all aspects of private aviation. With a management team, fractional owners do not need to worry about insurance, maintenance, scheduling, trip modifications, pilot and crew training, and the list goes on.

    Why worry about logistics when you can have someone do it for you? And the best part, this is all included in your dues.

    You can relax and enjoy your flight knowing that everything is being taken care of by people who know what they are doing. The only thing you need to worry about is showing up and what to bring.

    Benefit #3: Enjoy All the Luxuries of Owning a Private Jet Without the Large Price Tag

    • Capital investment is a fraction of the cost of independent ownership
    • Costs are shared by all owners
    • Residual resale value at end of the contract term

    The costs of fractional ownership are similar to those associated with whole ownership, but they vary depending on the share amount.

    When it comes to the cost of fractional aircraft ownership, there are a few things to consider. The biggest expense is the initial buy-in, which is typically based on the number of shares and the value of the aircraft. In addition to the buy-in, there is also a monthly fee associated with fractional ownership. This fee covers the cost of maintaining the aircraft and providing services to owners.

    Another cost to consider is the variable cost, which is incurred by the person flying. This includes things like fuel, landing fees, and crew costs. The variable cost will depend on how often you fly and where you fly.

    At the end of the contract term, you can sell your portion of your shares at fair market value. This is called residual resale value. The book value of your aircraft share, or the residual resale value, is the anticipated value of the aircraft at the end of the contract term.

    •  

    Benefit #4: Increased Safety

    • FOARC regulations in place
    • An aircraft is always available if one is in for maintenance
    • Larger responsibilities = increased attention on protection

    When you own an entire aircraft, you are responsible for its safety both on the ground and in the air. With fractional ownership, there is always a backup plan in case something goes wrong with your plane – another plane in the fleet can be used to pick up the slack. In addition, fractional ownership companies typically have higher safety standards than individual aircraft owners.

    Fractional ownership companies typically have higher safety standards than individual aircraft owners because they are accountable to a larger group of people. If an aircraft owned by an individual is involved in an accident, the owner is the only one who suffers the consequences. But if an aircraft owned by a fractional ownership company is involved in an accident, the company’s reputation is at stake. As a result, fractional ownership companies are more likely to invest in safety measures and maintenance than individual aircraft owners.

    Benefit #5: Potential Tax Benefits*

    • Depreciation tax deductions
    • Operation and maintenance deduction

    There are several tax rewards to buying an aircraft. And you can get those benefits through Fractional Ownership, too.

    Private jet ownership allows you to deduct yearly depreciation from your taxes. The value of the plane decreases at a quicker pace during the first five years of ownership, between 10 and 30 percent each year. When you sell the jet, this amount is taxed as depreciation recapture. The benefit comes in the interest you save by being able to write off the depreciation each year.

    Another potential tax benefit of private jet ownership is that you can deduct the cost of operating and maintaining the plane as a business expense. If you use the plane for both business and personal travel, you can only deduct the percentage of time that it’s used for business.

    *This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction.

     

    Time to Jet

    When you own a share in an aircraft, you have access to a variety of different planes which gives you more flexibility when it comes to your travel needs. Fractional ownership companies are run by professional staff who are experienced in all aspects of private aviation- from maintenance to safety- so that you can relax and enjoy your flight knowing that everything is taken care of. In addition, there are potential tax benefits that come with owning a share in an aircraft. When you own a share, you can write off the depreciation of the plane as well as deduct the cost of operating and maintaining it from your taxes.

    Overall, fractional ownership is a fantastic way to have all the luxuries of private aviation without the extreme costs associated with whole ownership. It is also a safe and convenient option for those who want to travel in style. If you’re considering private jet ownership, fractional ownership is worth looking into.

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