Deciding between Fractional Aircraft vs Whole Ownership of a Plane

For those that use private jets, the decision to use a charter service in lieu of purchasing a fractional share in a private jet is determined almost entirely by cost. The cost is generally only determined by sticker price and fails to take into account the differing tax benefits for each option. However, the less expensive option is not always the best choice. In the case of private jet ownership, the amount of depreciation can be deducted from your taxes each year. The jet depreciates in value at an accelerated rate for the first five years of ownership, between 10 and 30 percent per year. This amount is later taxed, as recapture of depreciation, when you sell the jet. The benefit lies in the fact that you can gain interest on the amount of depreciation while you own the jet.

Those who fly charter do not gain the benefit of deducting the depreciation amount. However, they can deduct the entire cost of a flight as a business expense, if applicable. For those that fly fewer hours per year, the cost-per-hour of chartering flight is much cheaper than owning a share in a jet.

For example, let’s compare a 1/16 th fractional share in a Hawker 400XP to a 50-hour charter card from Jets International in a Premier Light Jet. Without taking tax benefits into account, the cost-per-hour of flying with Jets International is more than $1,100 less expensive. When the tax benefits are factored into the equation, assuming a 40% corporate tax rate and an accelerated 5-year depreciation on the Hawker 400XP, flying charter is still almost $500 less expensive per hour than owning the fractional share. Furthermore, Jets International offers an 18% discount on round-trip flights, which would make flying charter even more economical.

For those who fly relatively little, charter is clearly the less expensive option. However, certain restrictions make fractional ownership the better option for many clients. As a general rule, charter companies have a two-hour minimum flight time charge. If you frequently take flights that are under the two-hour minimum, it may be better to purchase your own jet.

Another aspect of charter companies that some find undesirable is the lack of consistency in operators. Charter companies allow different operating companies to bid on individual flights and choose the lowest bidder. This keeps costs for the charter customers low, but results in inconsistent operators. If flying with the same operator is a priority, then fractional card companies such as Marquis Jets will provide the same services as a regular charter service, but handle all operations themselves. They are more expensive, but offer benefits such as larger fleets and consistent service that standard charter companies cannot.

Although flying charter is significantly less expensive for the 50-hour card when compared to the 1/16 th share, at what point does ownership make sense? Conventional wisdom dictates that if you fly for a certain number of hours (150, 200, or 250 per year), you should purchase your own jet.

The truth is that the decision is not so simple. Choosing private jet ownership over a charter service depends not on the number of hours of use, but rather the type of use a private jet will get.

For example, when a client of ours researched private jet ownership, they were told that because they were flying 800 hours, they needed a private jet of their own. It turned out that a charter service was actually their best option, due to their planned usage of the jet. This company needed several aircraft on the same day out of 6 different regional offices for 1-2 day missions starting and ending out of those offices. The fact that they needed several aircraft per day quickly eliminated the single private jet ownership solution, as did the decentralized departures. We have found many clients for whom decentralized departures make the ownership of one private jet more expensive than aircraft charter or even fractional ownership.

The type of travel you will use your private jet for is extremely important when choosing to buy a private jet. For example, one of our clients did most of their travel to a destination and stayed for more than a week in each location. If they flew more hours than specified by conventional standards, then they should have bought a private jet . . . right? Not so fast. This client was flying to a destination and staying for 1-3 weeks. The jet and the pilots need somewhere to go during that time. The crew flies home (and back to the departure point) on a commercial airline, and your private jet stay in a hangar, which can be costly.

In short, there are no set rules that can determine whether private jet ownership of fractional ownership is best. Decisions about private jet ownership and fractional ownership must be made in light of each individual’s unique situation.

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