The case for a managed aircraft relationship
At some point, you’ve likely considered whether to charter out your aircraft when you’re not using it. And unless you already use your aircraft more than 200 to 300 hours a year, there likely is room to do so.
With the high fixed costs of aircraft ownership, such as capital costs, crew, hangar, insurance and regularly scheduled maintenance, spreading these costs over a greater number of hours reduces your own effective hourly cost. Many of today’s newer generation of business aircraft are designed for higher levels of use. Given these two factors, plus the higher demand for charter aircraft in the “sharing economy,” it may make sense to place your aircraft on a charter certificate.
But is charter right for you? Two factors largely will inform your decision: can you share, and will you save?
CAN YOU SHARE?
First, ask yourself:
1. Do I want somebody else on my aircraft?
If the idea of someone else sitting in your seat bothers you, charter is not for you.
2. How often do I want/need my airplane?
The question is more one of days available, rather than hours. The more frequently you can make the aircraft available, the more charter it can generate.
3. How predictable is my schedule?
Do you know your schedule weeks ahead, or do you have frequent pop-up trips? The more set your schedule, the more revenue your operator can generate.
4. Am I willing to give up my airplane during popular travel time?
Fractional and charter operators have defined “peak days,” restricting access to meet all demand. If you’ll definitely want your aircraft at holidays and the same time everyone else does, you will forgo revenue.
5. Are you going to restrict use?
Long flights only, daily minimums, no rock bands, and other restrictions will reduce potential revenue.
WILL YOU SAVE?
To operate for compensation or hire in the U.S., your aircraft must be on a Part 135 commercial operating certificate (Part 135 of the Federal Aviation Regulations governs most business aircraft for hire). As the certificate holding entity, the operator must comply with numerous FAA requirements for flight operations, maintenance, training, and the administrative infrastructure to oversee all these activities, making it impractical for an individual owner to set up his or her own certificate for just one aircraft. So if you want to charter out your aircraft, you’ll use an existing certificate holder: a charter operator or management company.
Part 135 can offer two main sources of savings:
1. State taxes. Many states require state sales or use tax to be collected from an aircraft acquisition, and a multimillion dollar purchase creates a significant tax liability. However, most states offer relief or an exemption if the aircraft is operated in commercial use. In high-tax states, this alone may be enough to justify chartering your aircraft. Compliance with these regulations and eligibility for this exemption vary from state to state, so do contact a tax advisor to ensure the transaction is as tax efficient as possible.
2. Charter Revenue. When you’re not using the aircraft, others will pay you (via the operator) for its use. In today’s charter market, the operator should be able to generate enough revenue to make a significant contribution to the direct costs of your own flying. The revenue could make a dent in your fixed or capital costs. However, even in today’s low interest environment, it is highly unlikely that the aircraft will ever generate enough revenue to cover the fully burdened cost of owning and operating an aircraft.
The decision to place your aircraft for charter is not simple, and should not be made quickly. Consider whether the potential benefits will benefit you.
Cameron Gowans is the Vice President of Sales & Marketing for JetSuite, Inc. He has more than 25 years in sales, marketing, and executive experience with OEMs, fractional providers, and charter/management organizations.
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