Outsourcing Aircraft Management
While tens of thousands of companies and individuals have recognized the value of and need for a business aircraft, for many who are new to aircraft ownership, the demands, resources and infrastructure needed seem considerable. Where do I hangar it? Who maintains it? Where do I find qualified crews? These and a host of other questions covering regulatory, insurance and tax issues demand answers. That’s a complex task, especially for new buyers. “So why divert precious internal resources or detract from a company’s main focus when owner requirements can be outsourced to highly experienced specialist firms?” asks JetDirect Aviation President and Chief Executive Officer Jake Cartwright. Lacking the experience, resources or inclination to sustain an in-house flight operation, a new generation of owners is turning to top-quality professional management firms.
Now one of the largest aircraft management companies in the U.S., JetDirect Aviation is an amalgam of several top-notch firms with an unsurpassed reputation for safety and professionalism. With more than 300 aircraft covering the spectrum from small-cabin to ultra-long-range jets, the company has a unique management approach that establishes custom operations for larger aircraft at an owner’s most desired location, while smaller aircraft are grouped at convenient centralized bases across the nation. Some 200 custom flight operations at more than 50 U.S. airports are tailored specifically to the owners’ needs and include an exclusively assigned operations manager, flight and maintenance crews. The owner gains a virtual in-house flight department in addition to access to JetDirect Aviation’s extensive worldwide resources, global operations experience and around-the-clock support, including meteorologists, flight dispatchers and maintenance experts.
Professional Management Means Savings and Value
“A company like JetDirect Aviation will have a much lower cost of purchasing fuel, because it manages hundreds of aircraft,” says GE Capital Solution’s Kioussis. “It will have a much lower cost of training, and its safety record allows it to have some of the lowest insurance costs in the industry. It passes all that benefit on to the operator, so while the owner pays a management fee, that fee could be offset by the savings it generates.” Additionally, Moore points out that owners are able to generate revenue by having the aircraft chartered when not in use, and this can offset a portion of ownership costs.
New programs like Flight Options’ Fractional Interchange Management allow whole aircraft owners to enjoy all the added benefits of fractional ownership, including anytime, anywhere access to multiple planes at the same time and the ability to upgrade or downgrade by placing their plane in the fractional fleet. Unlike fractional ownership, when your plane is in use in the Flight Options fleet, it will be earning revenue. Flight Options also offers a traditional aircraft management service for whole aircraft owners who want exclusive use and prefer not to place their plane in revenue-generating operations.
With 50 Piaggio Avantis, Avantair is the world’s largest and most experienced operator of this avant-garde turboprop and offers management services to whole Avanti aircraft owners through its extensive service network.
Gain More for Less
Fractional ownership, conceived by Richard Santulli when he launched NetJets some 22 years ago, has proven to be an amazingly practical way to gain business and private aircraft benefits. Santulli reasoned that if you don’t need an aircraft but do need the benefits it provides, why buy a whole plane when you can purchase just the time you need?
At a fraction of the cost, the financial leverage is considerable, and you gain all the advantages plus guaranteed availability. So although that $13 million midsize jet might strain the budget, if you’re only planning to fly 100 hours per year, it will cost you merely $1.6 million — that’s an 88% discount. In addition, unlike buying outright, fractional ownership presents some other unique benefits such as the simultaneous use of multiple airplanes. “You may need a larger aircraft some of the time, and at other times a smaller plane may be more suitable,” says NetJets’ Colucci. In fact, you can exchange hours for a larger or smaller aircraft at any time based on individual trip needs. “That means the Gulfstream owner can use a Citation Excel to fly to Washington on Monday and the fast Citation X to go to Los Angeles on Wednesday, and then fly to Moscow in his Gulfstream next week,” Colucci says.
Phone and Go
Another significant advantage of fractional ownership is that aircraft management is part of the package. This lets you focus on time in the air, not maintenance on the ground. “[The plane] is there when I want it, and I don’t even think about it when it’s not there,” says Steve Shepard, managing director of M Benefit Solutions and Avantair fractional owner. Fractional ownership companies take care of all the management and maintenance responsibilities, so all you do is call for your plane and go.
Although the price might be right, many are concerned about the long-term investment. “I think there’s a misconception out there that once you buy a fractional share, you’re locked in for five years,” says CitationShares’ Hunt. “The only thing that’s really locked in for five years is your price, which is a good thing. What people don’t realize is that, at least with our products, after one year you can sell [your share] back to us and exit the program, or you can buy something else.”
While the economy is having its impact on whole and fractional ownership sales, most providers are also noting a slowdown in the way current owners are flying. Flight Options’ Silvestro notes that owners are being more judicious in the trips they take or the frequency of those trips. To accommodate, many fractional programs are exemplifying the new industry-wide focus on flexibility while providing more for less. At Flight Options, for example, unused time can be banked and carried over to future years. “We are very sensitive to the ebb and flow of owners’ travel patterns,” says Silvestro. “We have programs that allow them to be flexible and fly the hours they need to.” Its Fractional First program, for example, allows owners the opportunity to fly between 80% and 120% of their total hours over the five-year contract period and pay management fees only on the hours flown. In today’s market, that kind of flexibility is critical.
Flight Options is also reframing its business model by offering shares in high-quality, pre-owned aircraft at lower price points and introducing new, highly efficient aircraft such as the Embraer Phenom 300. This small-cabin jet, expected to take to the skies in 2010, will offer unsurpassed amenities and operating economies for an aircraft of its size.
Jet Cards: Flexibility Without Commitment
Santulli’s NetJets truly changed the landscape for acquiring the services a business jet offers. Today, the concept has even greater validity than he originally imagined. Jet cards take the idea to a higher level by providing aircraft choice and flexibility without the large capital outlay and long-term investment.
“[Jet cards] are more expensive on a per-hour basis than fractional ownership, but for people who only need 25 hours of flight time a year, or those who are new to flying privately and want to give it a shot before they make a commitment, we think that gives them the opportunity,” comments Steve Santo, chief executive officer of Avantair. He has seen more than 25% of Avantair Edge Card owners convert to fractional shares in the short period that his company’s new jet card has been available.
Though one pays an hourly premium, charter and jet cards still offer the lowest levels of commitment and cost of entry for gaining business aircraft benefits. You simply pay for what you use and then walk away. Jet cards, which combine the flexibility of charter with the consistency, safety and reliability of fractional ownership, come in two varieties: some programs are aligned with the major fractional fleets and others are tied to top charter providers. But either way, you aren’t responsible for the positioning or empty-leg charges that traditional charter customers encounter.
Test the Theory
For many frequent fliers, jet cards are the perfect try-before-you-buy solution. “If you’ve never flown privately before, then jumping right into fractional ownership is a steep proposition,” concedes NetJets Europe’s Dranitzke. “I’ll often tell customers, ‘While you’re considering your options with fractional ownership, why don’t you start flying now with the card. Then next week, if you’re ready to go into fractional ownership, we’ll slip you into the fractional program,’” he explains, adding that often before they have even finished their first jet card, customers have upgraded to fractional ownership.
“The jet card is a terrific tool for evaluating the fractional ownership operator,” contends CitationShares fractional owner Stuart Harelik, who got his start with the company by purchasing a Vector JetCard. “You have no long-term commitment, no contractual obligation, you pay for it up-front and it is just like a debit card.” The Vector JetCard was designed for people who plan for only about 25 hours of annual flight time. After the first year, any unused balance is refundable, and many, like Harelik, discover it’s the perfect way to confirm that fractional ownership in a specific aircraft model is the best choice.
Many jet card owners are using multiple jet cards in a year and flying far more than fifty hours annually. While they acknowledge that it costs more per hour, they value the no-commitment convenience and ease that a jet card provides.
“These business aircraft really are giving companies of all sizes a competitive advantage …
people realize they can be more competitive and operate their businesses more efficiently with these airplanes. Even smaller companies are truly seeing the benefit, and it’s really picking up the pace.”
Jim Schuster, Chief Executive Officer, Hawker Beechcraft
Despite a wavering global economy, one fact is very clear. “People [who have been flying privately] aren’t going to go back to flying the airlines,” observes Avantair’s Santo, “but they do want to maximize [the benefits they receive for] what they are spending.” Avantair’s Piaggio Avanti, which boasts the cabin of a midsize jet, the speed of a small jet and the price of a turboprop combined with particularly low operating costs, continues to generate considerable interest. “Owners love the cabin size, but the fuel savings is a major factor that’s driving strong interest,” says Avantair’s Matt Doyle. “You’ve got to work harder and more efficiently in today’s economy, so there are business and personal users who will always need air travel. As the economy starts to tighten, they look for the best value.”
Over at Flight Options, Ricci has noticed a similar desire for increased travel value. “We have seen a slowing of fractional growth, but it’s been offset by growth in jet cards. I think the answer is that people still want to travel, they still want to travel privately, and in uncertain times, the market is willing to pay a modest premium to avoid any long-term commitment or risk.”
CitationShares’ Hunt agrees. “What we see is a small shift to the CitationShares Vector JetCard [versus fractional share acquisition]. We think that as people try to understand what the economy is doing and get a feel for the next year or two, the Vector JetCard is a pretty low-risk place to be without making a large commitment.”
Hunt also points out that a CitationShares program called Citelines has variable flight-hour pricing for fractional share owners based on number of peak travel days required and offers increased economy for both flexible travelers and executives who don’t need to travel during major holiday periods. The Vector JetCard’s flexible options also enable card owners to reduce their hourly costs by flying at non-peak times, or by selecting a plan called Impromptu that offers normally empty reposition legs, which correspond with a desired travel time and itinerary, at considerable discounts. Flight Options’ Departure Options also offers non-peak hour pricing reductions.
Reducing costs is one thing, but controlling them is another. Avantair simplified the budgeting process by blending all hourly and monthly management charges into a single figure for the year that is payable on a monthly basis. It means that no matter how much you fly one month compared to the next, your bill remains the same.
CitationShares’ Citelines program similarly eliminates cash flow concerns. Citelines blends operating, management tax and fuel costs into a single annual bill. “We’ve taken the simplicity of the Vector JetCard and transferred it to the fractional model,” says Hunt.
“There’s no question that with globalization, the need to travel greater distances in less time
is clearly driving the international demand for long-range business aircraft.”
Dan Tyburski, Managing Director, Wachovia Equipment Finance
Most people don’t consider it, but when you begin the process of buying an airplane, you should already be thinking about the day you are going to sell it,” says Banc of America’s Tenore. At some point, the plane you just purchased is going to be back on the market, so you need to consider how best to obtain an optimum return on your investment.
By taking into account the remarketability of your plane before you even purchase it, you’ll save time and trouble when it’s time to move on, adds Tenore. Kioussis remarks that a well-maintained aircraft operated by a professional management organization will retain its value better in the long run. Wachovia’s Tyburski agrees, adding, “From the lender’s or lessor’s perspective, [guaranteed maintenance programs] are very much a positive in terms of maintaining the value of the aircraft; and from the buyer’s perspective, they absolutely protect them against the ongoing maintenance requirements and the surprises that could come up. They benefit everyone,” he says.
“If we know that the engine is maintained under a professional engine and airframe maintenance program, we will take a more aggressive residual position,” says Tenore. “That benefits the client because the higher the residual we take, the lower the rental payments.”
With fractional ownership contracts typically lasting five years, the exit strategy is built in. The fractional ownership firm agrees to buy back your share at fair market value at the end of the contract. Some firms charge a remarketing fee and others don’t. While the idea of a five-year commitment, particularly in challenging economic times, might be viewed as a burden, many providers are offering exit opportunities after one to three years. Hunt points out that at CitationShares, “We’ll buy the aircraft share back from you at fair market value, and there is no early termination penalty. If the market does change and you need to make a change, there’s a lot of flexibility there.”
“So much business communication today is done through e-mail or conference calls
that the high-touch capability of inviting somebody to come on a plane with you and being able
to sit there face-to-face ends up creating a much more effective personal relationship.”
Sean Leder, Chief Executive Officer, Florida-Based Real Estate Investment Firm
From on-demand charter to low-commitment jet cards to fractional and outright ownership, there have never been so many choices for gaining access to business aircraft and the many advantages they offer. There also have never been more ways to use these strategic tools to create significant revenue-generating opportunities.
“So much business communication today is done through e-mail or conference calls that the high-touch capability of inviting somebody to come on a plane with you and being able to sit there face-to-face ends up creating a much more effective personal relationship,” says Marquis Jet Card holder Sean Leder, chief executive officer of a Boca Raton, Fla.-based real estate investment firm. He frequently uses his plane to take clients, lawyers and lenders along to visit new properties. “I have found that to be a big benefit that I hadn’t even thought about before [I had the plane].”
Immeasurable Value, Measurable Returns
Today, tens of thousands of businesses and individuals have already discovered the immeasurable value that comes with access to a business aircraft. But now more than ever, private travelers are also realizing that in addition to offering greater comfort, convenience and security, business aircraft really generate a significant, measurable return on their investment. “If you took the money I’ve spent [on the plane] versus the revenues that we have been able to accrue as a result, it pays for itself many times over,” says insurance broker Mike Shanahan. “It has been a major benefit for me, for my family and for our business.”
“I feel very fortunate to be able to use the plane for my business. It really gives us a competitive edge,” echoes an electronics distributor based in the Southeast, who raves about the many benefits of business aviation. “The advantages are very clear,” he says.
With careful consideration, attention to detail and an advisor you can trust, your company, too, can take advantage of the amazing benefits a business aircraft has to offer. So don’t waste another minute. It’s time to start seeing the world from a whole new perspective.
“More people are getting a taste of [the private flying experience] and realizing
the increased success they can achieve by getting to more meetings,
getting more done during the day and still tucking their kids in at night.”
Robert Dranitzke, Director of Marketing, NetJets Europe
Written and Produced by Mark Patiky
Associate Writer: Shawna Gale
Principal Photography: Paul Bowen
Editor: Allison Lurker
Designer: Jon Prinsky