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AIRCRAFT OWNERSHIP.pptx
- 1. AIRCRAFT OWNERSHIP THE CONCEPT OF AIR-SHARE (A DETAILED ANALYTICAL REPORT FOR FRACTIONAL AIRCRAFT OWNERSHIP FOR BUSINESS PROGRAMS)
- 2. INTRODUCTION Aircraft ownership is a process of organizing aircraft usage according to the buyer need, however today since flying is become more than a choice, high net worth individuals, corporate personnel, Aviation enthusiast and professionals prioritize on their need of flying to keep the business plans intact and on time. Choosing the right aircraft to fit your flight mission program is a whole separate topic due to many factors considered in the aircraft type, maintenance cost, sub-contracting, FBO, scheduling, flight plan, operating cost over revenue generation, investors model, and empty leg concept
- 3. The most important thing in buying an aircraft is that you’ve done your homework and that you’re buying one that is right for your mission – for the use that you need of the aircraft.
- 4. Types of aircraft ownership FULL OR WHOLE JOINT FRACTIONAL INTERCHANGE TIMESHARING Flexible flying hours up to 200-300,while expensive capital investment and operating cost. Liability and regulation compliance apply. Operations cost is shared and reduced taxation, while aircraft schedule depends on base, destination and duration Share holder benefits flying hours as per program, reduced initial investment for fixed period but Non scheduled fleets may lead to delays Similar aircrafts interchanged will benefit the owners while different aircrafts lead to increased operational cost depending on aircraft type Wet leased aircraft including the crew and operations leads to less investment generating business if scheduled horizon
- 5. It pays to plan, use professional assistance, and take your time when evaluating any form of usage.
- 6. AGENDA OPTIMUM UTILISATION OF AIRCRAFT GENERATE REVENUE DURING THE PERIOD OF OWNERSHIP COMPLETE FLIGHT PLAN, FINANCIAL SHEET, STAFFING AND EXECUTION PRIOR TO OPERATION COST ESTIAMTION OVER INVESTMENT PROMOTIONS AND FOLLOW UP FOR INCOME GENERATION CHANGE WHENEVER REQUIRED FOR PROGRESSIVE MANAGEMENT OF PROFITS
- 7. CONCEPT OF FRACTIONAL OWNERSHIP An individual or company to purchase and own A fraction share of an aircraft, usually no less than A 16th share. The fraction size of the aircraft share purchased represents A fixed number of flight hours per year. The purchase of A 16th share may represent anywhere from 50-100 flight hours depending on the aircraft fractional program sold. The program agreement is structured to allow the other owners of the aircraft, as well as other aircraft owners in the entire fractional program for joint use of the aircraft.
- 8. CONTD Access is guaranteed specific to that type of aircraft. Cost generally consists of the upfront aircraft share purchase, a monthly management fee, and a set rate per flight hour used when occupying the airplane. The affiliated program manager acts as the management company and arranges or provides the flight crews, crew training, maintenance, and all other administrative services regarding the lease agreements. At the end of the contract term, typically five years, the program management agreement provisions allow the owner to either sell the aircraft share or renew the service agreement for another term.
- 9. Shared Ownership Feature There's no getting around the fact that general aviation is expensive. but new business models centered on sharing economy ideas are helping spread the costs around, making flying more affordable for more pilots.
- 10. PROS AND CONS ( CASE STUDY ON SMALLER AIRCRAFT) Take, for example, a Cirrus SR22 at a price of around $600,000. Few people can afford the cost of the aircraft in its entirety; however, shared ownership significantly lowers the costs. In one example, a buyer can purchase 1/8th of a Cirrus SR22 for about $40,000, plus a monthly fee of about $900. Additionally, the buyer pays $100 per flight hour in operating costs. Total, the buyer would pay for the aircraft, plus, perhaps, about $25,500 per year. This is a cost savings compared to the purchase, operating and maintenance costs of a brand new Cirrus SR22, which we can estimate at about $600,000 plus at least $20,000/year in operating and maintenance costs
- 11. CONTD……. Another benefit of shared ownership includes the “no-hassle” operations of the plane Scheduling can be restrictive, and the hours a buyer is allotted may only add up to about 75 hours per year on average. With aircraft rental between $200-300 per hour, 75 hours per year would cost about $15,000-22,500- a small fraction of the price of either shared or full ownership. In addition, the location of these shared aircraft may be an inconvenience, as many of the aircraft are based at certain locations, which may or may not be near the buyer.
- 12. Looking ahead, we can see that in 2050 aviation will fly 16 billion passengers and 400 million tones of cargo. We must be able to manage that with sustainable technologies and efficient infrastructure, while pleasing our passengers and rewarding our shareholders. IATA
- 13. FORECASTING Keeping in mind the disadvantage of fractional ownership, forecasting is involved to overcome the issues When an aircraft is fractionally operated sharing an aircraft type, flying hours, maintenance and operational cost, we must keep in mind that the investors Benefit the most out of the initial capital investment( plan the trips according to client requirement) Reduce cost of Empty Leg, Sub Contracting and maintenance by operating efficiently by filling the aircraft in to and fro trips
- 15. CATCHMENT AREA ANALYSIS DETERMINE FREQUNET FLIERS, DATABASE OF HIGH INCOME INDIVIDUALS TO AND FRO FLIGHT PLAN OF CLIENTS CONVINCE THE COST BENEFITS BY DETAILED PRESENTATION ON SHARING AIRCRAFTS GENERATE A RESEARCH REPORT FOR THE CLIENTS PROMTIONS AND OFFERS JET CARDS FOR RENTING FLYING HOURS WITHOUT COMMITMENT
- 16. MILESTONES Purchase an undivided interest in a specific Flight Options private aircraft for up to a 5-year term. The size of the aircraft and share will be directly related to the number of hours you anticipate flying and the distance of your trips. Share sizes range from 50 to 800 hours per year. If you are looking for all the benefits of owning your own aircraft without the burdens of crewing, maintenance and insurance, then Fractional Jet Ownership is the program for you. When purchasing a share, you will pay a Monthly Management Fee, which covers items such as pilot provisions and training, insurance, hanger and administrative costs. Your Occupied Hourly Rate covers the direct costs of operating your aircraft: maintenance, engine reserves, pilot fees, catering, etc. Enjoy low hourly rates for your entire term, with access to the primary and extended area services without ferry fees. As a Fractional Owner, you can book your travel with a 10-hour response time. How Fractional Jet Ownership Works Acquisition asset cost Monthly Management Fee Low Occupied Hourly Rate
- 17. … Lack of profitability is driven by poor industry structure, misguided government intervention and inconsistent strategy choices IATA
- 19. PLAN A FOR EXECUTION A complete team of Business Development Executive, counselors, legal and financial personal work efficiently on day today basis to generate optimum utilization of aircraft Collect database of HNI, HII, frequent flyers, and jet card holders for promotions and offers Periodically updating programs to client in order to ferry the event in offset situations.
- 20. PLAN B( REFERENCE FROM) AIR CARGO CHARTER BROKERAGE CHAPMAN FREEBORN MANAGER MR. ANTON LOMAKIN According to the Mr Lomakin, Air Charter Brokerage is a challenging entity to develop trade for daily functioning of an organization. He had joined the Cahoman group and generated the highest business just by designing a PLAN B on daily basis for his clients The beauty behind his employment and successful progress of brokerage happened only because of Flexibility, Efficiency and Knowledge
- 21. The smallest fraction is typically 1/16th equivalent to 50 flying hours per year. The other common ownership fractions are: 1/8 = 100 hours 1/4 = 200 hours 1/2 = 400 hours
- 22. SUCCESS FORMULA Innovative ideas to handle investors in an offset and busy business dates Think out of the box Can Do Attitude ( Positive Flow) Involve personally with various authorities just to complete the program Develop best communication channel Precisely timely information, advice and tak the stress out in midst of storm in delays and mal functioning of Aircraft As Time is the essence of business, speed response determines whether we win or lose a business (Ethical Team Management comes into Picture)
- 23. SUCCESS STORY OF FEW FRACTIONAL OWNERSHIPS Fractional jet ownership programs are relatively new but are growing at a fast pace among the leading fractional jet ownership programs are Netjets operated by executive jet aviation http.www.netjetscom Flexjet operated by bombardier business jet solutions http.www.aerobombardiercom Raytheon travel air a subsidiary of Raytheon aircraft http.www.raytheoncom Netjets which has the largest market share up to 12 different aircraft types including Cessna citation, Raytheon, gulfstream and Boeing jets INCLUDING zagorin (1999)executive jet aviation revenues were projected at $900 million for 1998 and climbing at an average rate of 35% annually introduced in may 1995 the flexjet program offers Learjet 13A Learjet 60 and challenger aircraft Flexjet has over 350 CLIENTS and its current growth rate is estimated at 100 new fractional owners per year Raytheon travel air program which was started in 1997 and currently serving over 300 fractional owners features three of the aircraft in the Raytheon aircraft product line beech king air B200 beech jet 400A and Hawker 800XP
- 24. FRACTIONAL JET OWNERSHIP OWN UNPRECEDENTED ACCESS TO A PERSONALIZED, PREMIUM EXPERIENCE. Designed for the traveler who flies 50+ hours per year, fractional private jet ownership allows you to purchase equity in a specific aircraft. The number of hours you can fly per year is dependent on how much of the jet you own.
- 25. REFRENCE Strategic Planning in Fractional Aircraft Ownership Programs by Yufeng Yaoa*, Özlem Erguna , Ellis Johnsona , William Schultzb , J. Matthew Singleton Journal of Air Transportation Management http://www.stern.nyu.edu/ (Case Study Managing Operations in the TimeShared Jet Business) http://www.forbescustom.com/AviationPgs https://www.nbaa.org http://mycaba.org/ https://www.nbaa.org http://www.flyingmag.com/ https://www.iata.org http://www.flightoptions.com/ http://www.sherpareport.com/ http://www.boeing.com/
Editor's Notes
- Aircraft Ownership Options There are various forms of aircraft ownership. Although full aircraft ownership provides the greatest flexibility to a company and/or individual, if under-utilized, full ownership can be the most costly choice. Full aircraft ownership allows full control over every aspect of the capital investment, operation, liability, and cost (safety, security, schedule, maintenance, personnel, liability, and regulation compliance). Most owners of complex aircraft choose to employ a full-time flight department or a professional aviation management company to run the day-to-day aircraft operations. Owners of smaller aircraft often choose to manage the aircraft themselves. Although, a management company could provide significant benefits to these smaller operations in providing discounts on pilot services, insurance, fuel, hangar, and maintenance, in addition to the administrative managed aspect. Other factors to consider with aircraft ownership are taxes/depreciation, utilization, capital investment, and full aircraft operation management. Aircraft ownership may provide tax depreciation advantages to those that qualify. Choosing the right aircraft to fit your flight mission profile is a whole separate topic due to the many factors considered in making the aircraft type decision. This is why it is extremely important to choose the right professional aviation management company. The complete management company will provide valuable guidance in this important process. Aircraft Full & Co-ownership Full aircraft ownership means that an individual or a company owns 100% of the aircraft. Again, this level of ownership provides the greatest amount of flexibility and places all the control into your hands. Operations are managed either through an in-house flight department, a professional aviation management company, or by you the owner. The utilization analysis helps determine whether full ownership is the right option. Aircraft under-utilization greatly increases the cost of using and owning an aircraft. As a rule of thumb, aircraft utilization should be between 200 – 300 flight hours per year to justify full ownership. That being said, some may justify full ownership at lower utilization simply due to the flexibility needed for the operation. Sharing aircraft ownership with other individuals or companies in an effort to spread out expenses and increase utilization is another option. This is known as aircraft co-ownership. Each co-owner is responsible to provide a crew and pay for their share of the expense. Co-ownership also reduces the amount of capital investment. There is no Federal Excise Tax (FET) as long as the owners maintain possession, command, and control of the aircraft. While the individual expenses are reduced under co-ownership, the level of schedule flexibility may also be reduced proportionately to the number of co-owners. Although the owners maintain control over the aircraft, most elect to delegate the day-to-day management of aircraft operations to a professional aviation management company. This eliminates the need to have flight crews and other aviation personnel on the owner’s payroll. The liability and regulation compliance responsibility is also shared with the management company. Both full and co-ownership of an aircraft may elect to place the aircraft on charter (discussed later) as an option to increase utilization by producing revenue to help offset ownership cost. Under a co-ownership arrangement, owners are not able to charge each other for usage of the airplane. This can be done on a limited basis through a joint ownership agreement which we will discuss next. Aircraft Joint Ownership Aircraft joint ownership is when two or more companies jointly own and operate an aircraft under mutual agreements. Under a joint ownership arrangement, one of the registered owners may provide the flight crew on their payroll, and each joint owner pay a portion of the expenses detailed in the agreement. This is further defined in 14 CFR 91.501(c) (3) of the Federal Aviation Regulations (FAR). In other words, each owner pays their own direct operating costs but may share certain fixed or indirect ownership costs as allowed in the agreement. Direct costs are defined as the expenses associated when the aircraft is operating. Fixed or indirect costs are defined as the expenses associated whether the aircraft is operating or not operating. All joint owner names must be listed on the registration certificate. To be eligible for joint ownership, the aircraft must meet certain criteria. It must be U.S. registered and qualify to operate under FAR Part 91 Subpart F, and: Have a maximum takeoff weight of over 12,500 pounds, or; Be a multi-engine turbojet aircraft, or; Be a fractional program aircraft. Other aircraft and helicopters may share certain costs if they are operated under the National Business Aircraft Association (NBAA) Small Aircraft Exemption. The exemption is issued and governed by the NBAA for NBAA members. Several options could apply here, including an interchange agreement or a timeshare agreement, both of which are discussed later. Properly organized joint ownership agreements are considered non-commercial travel and not subject to Federal Excise Tax (FET). Although joint ownership lowers each owner’s capital investment, likewise allowed tax depreciation is lowered proportionately to the owned share. Aircraft Fractional Ownership Aircraft fractional ownership is when multiple owners, typically eight, own an equal share of the aircraft, and is operated under Federal Aviation Regulations (FAR), Subpart K Fractional Ownership Operations through an agreement with a fractional management provider. The arrangement generally requires a dry-lease exchange (without crew) documented by the written program management agreement. The support and crew management services are provided under a management service agreement. Familiar operators that have been successful with these programs include names like Net Jets, Citation Air, and Flight Options to name a few. These arrangements allow an individual or company to purchase and own a fraction share of an aircraft, usually no less than a 16th share. The fraction size of the aircraft share purchased represents a fixed number of flight hours per year. The purchase of a 16th share may represent anywhere from 50-100 flight hours depending on the aircraft fractional program sold. The program agreement is structured to allow the other owners of the aircraft, as well as other aircraft owners in the entire fractional program the joint use of the aircraft. Ownership is a fraction share of a certain aircraft within the fraction program fleet, although you may seldom or never actually travel on that particular aircraft. Access is guaranteed specific to that type of aircraft. Cost generally consists of the upfront aircraft share purchase, a monthly management fee, and a set rate per flight hour used when occupying the airplane. The affiliated program manager acts as the management company and arranges or provides the flight crews, crew training, maintenance, and all other administrative services regarding the lease agreements. At the end of the contract term, typically five years, the program management agreement provisions allow the owner to either sell the aircraft share or renew the service agreement for another term. Generally there is a four to eight hour advanced schedule notice before an aircraft may be available. However, more than one aircraft may be available at one time not to exceed the fractional share utilization contractual agreement. Aircraft fractional ownership appeals to users because it allows the purchase of a specific amount of aircraft ownership and contract flight operation management needed. However, the purchase price and cost per flight hour may be significantly higher than other ownership or charter options. Tax depreciation benefits may apply to the specific aircraft share owned when qualified accordingly. Aircraft Interchange Agreements Aircraft full ownership, co-ownership, shared ownership and fractional ownership each have their unique place in the organization of non-commercial aircraft operations. These operations and agreements are governed by Federal Aviation Regulations Part 91, particularly when operating large and turbojet powered multi-engine aircraft. Interchange Agreements allow two owners of two different aircraft to exchange the use of their respective aircraft. This type of agreement falls under 14 CFR Federal Aviation Regulation Part 91.501 (c) (2). The exchange must be made on a flight hour to flight hour valued basis. However, when the aircraft are different in type that may cause an operation cost difference, the additional cost may be charged under Federal Aviation Administration (FAA) limited compensation criterion. Leases under an interchange agreement are also subject to Federal Aviation Regulation Part 91.23 “truth-in-leasing” clause requirement provision in an aircraft lease. Each company or owner may exchange equal aircraft flight time. For example, company A may use company B’s aircraft for 2 flight hours in exchange for company B’s using company A’s aircraft for 2 flight hours. No fees are charged or made, except in an amount not to exceed the difference in operating cost of aircraft type owned. As was the case with joint ownership, only U.S. registered aircraft that can operate under FAR Part 91 Subpart F may use an interchange agreement. The aircraft must also: Have a maximum takeoff weight over 12,500 pounds, or; Be a multi-engine turbojet aircraft, or; Be in a fractional program. This type of arrangement may be beneficial when an aircraft is in for maintenance or otherwise unavailable. Access to another aircraft also helps maintain travel schedules with uninterrupted productivity. Aircraft Time Sharing Agreements Time sharing is defined in general under Federal Aviation Regulation Part 91.501 (c) (1). An aircraft owner may lease their aircraft with flight crew to another person or group for a limited charge. A time sharing agreement allows aircraft owners to wet lease their aircraft. A wet lease is when an aircraft owner leases the aircraft with a flight crew for a limited cost reimbursement allowed under Federal Aviation Regulation Part 91.501 (d). Some of the expenses that may be reimbursed under a wet lease are: Fuel, oil, lubricants, and other additives, Crew travel expenses, Hangar & tie-down away from base operations, Insurance if obtained for the specific flight, Airport landing fees, taxes, etc., Customs, foreign permit fees, etc., Flight catering, Passenger ground transportation, Flight planning and weather services, And an additional charge equal to 100% of the fuel, oil, lubricants, etc… Only U.S. registered aircraft may operate under a time sharing agreement. Other aircraft requirements are: A maximum takeoff weight of over 12,500 pounds, or; Be a multi-engine turbojet aircraft, or; Be in a fractional program. Although this type of agreement is considered a non-commercial operation by the Federal Aviation Administration, the Internal Revenue Service views time sharing as commercial operations and are subject to the Federal Excise Tax (FET), which is currently at a 7.5% tax rate. Aircraft Full, Co or Joint Ownership Arrangements with Charter Sub-Leases The option aircraft owners have in the past either overlooked or at least under-valued is considering aircraft charter opportunities. Though the variables are many, some of the advantages may be: Revenue producing to off-set expenses, Charter utilization could serve as the co-owner shared expense partner, Increase aircraft utilization during the down-turned economy or demand. In today’s economy, many more operators are looking for ways to generate income with an aircraft. Aircraft values have dropped considerably in most markets. Those looking to buy are finding favorable opportunities, and those looking to sell, are realizing that they cannot afford to sell during the downed market value. The charter option is becoming a more viable counter solution.