When your business or lifestyle outgrows commercial air travel, what’s next? Owning an aircraft can be an ultimate status symbol, but it involves significant ongoing administrative costs and headaches, and it may not be cost-effective for your specific operational needs. Another option for securing private flights is to buy shares in an aircraft instead. Fractional ownership gives you the right to fly as much as you can while outsourcing most management and compliance duties.

Is fractional ownership right for you? And once you own the shares, what’s the outlook and process for resale?

Fractional Ownership: How It Works

Fractional ownership is not quite the same as an aircraft partnership—a single aircraft held in common with persons or entities you know. Instead, fractional owners buy shares from a management company with a fleet of aircraft. The fractional owner purchases shares in a particular aircraft, but in practice, they may never ride in it. The company makes the closest plane available for them when and where they need to fly.

Aircraft fractionals are generally sold in increments of 1/16 of an aircraft. Each 1/16 share entitles the owner to a certain amount of flight time—for example, 50 hours. Thus, in this example, a 1/8 share carries 100 hours of flight time, a 1/4 share carries 200 hours, and so on. Some companies use increments of days flown rather than hours used.

Fractional owners share ongoing costs for the aircraft. They pay a fixed management fee for administration, maintenance, regulatory compliance, and other concerns. They also pay fees for the flight hours they use, covering fuel, labor, and other expenses for the travel.

The cost of the shares will vary with the aircraft and its location, but as of this writing, shares in modest piston aircraft can be less than $150,000. Shares in larger, faster, or more comfortable aircraft will start closer to $400,000 and range through the millions of dollars—it all depends on the buyer’s needs. The monthly management and hourly usage fees may be in the thousands of dollars, depending on the aircraft and the share size.

Each company has a primary service area (PSA) based on its headquarters and the size of its fleet, and owners may have limited options outside of that PSA. To make a smart purchase, the buyer needs to examine the company, reviewing its fleet capacity and history to ensure that it can provide what they need.

The Purchase Process

The buyer must make a deposit and sign several documents with the company, including a commitment letter, purchase agreement, owners agreement and additional terms agreement. Generally, the fractional aircraft company requires the buyer to hold the shares for at least five years, although there may be an earlier exit option in the contract.

The buyer will also sign:

  • A master dry lease exchange agreement, allowing them to share operating costs and flight usage with the other owners in the fleet
  • A management agreement outlining the costs of usage and the monthly management fees

Sales of Fractional Ownership

At the end of the purchase agreement’s term, the company may offer to repurchase the shares at fair market value (FMV). The FMV will depend not only on the aircraft’s depreciation but on wider market trends. A shareowner can face a loss at the end of the term, especially with extra fees and costs in the transaction (although tax write-offs can be available for some losses).

An owner may also be able to sell the shares privately, subject to their contract terms. Some companies retain the right of first refusal on share sales, set resale fees, and use other tactics to discourage third-party transfers. It’s crucial to review the agreement’s provisions for every eventuality. Your leverage for negotiation will depend on your share size, as well as the company’s situation and the broader state of the market.

Is Fractional Ownership for You?

This type of ownership has many advantages:

  • Guaranteed usage of an aircraft in the fleet—no need to worry about maintenance or fuel in your particular plane
  • No management responsibilities for you or your business—the company handles the fleet providing professional management and maintenance
  • Possible tax advantages (deductions for depreciation, etc.)
  • The chance to recoup or even profit on the investment in shares
  • Lower up-front capital investment
  • Typically no costs or charges for deadheading or repositioning
  • Anonymity

But it may not be the right choice for you at this time. Consider—

  • Is there a company with a PSA in the area you need to fly in?
  • Can you or your organization handle the ongoing maintenance fees and hourly costs?
  • Is the management company reliable and stable enough for your investment?
  • Do their rules and requirements for aircraft usage line up with your needs?
  • Will you use the flight hours you purchased?

If it’s unclear whether the investment is for you, you may consider leasing, chartering, or jet or flight cards—membership programs that offer many of the perks of fractional ownership at a lower cost.

Your One-Stop Aviation Transaction Stop

Our experienced transactional aviation attorneys will be glad to talk to you about your options—fractional ownership, leasing, or purchase. Contact our office today at (954) 400-4643 to schedule a free consultation.