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Thursday, Feb 2, 2023

Flights of Fancy

For Beverly Hills artist Marjorie Goodson Cagle, flying first class was simply not good enough.

Sure, she loved the leg room and pampering service that first-class travelers have come to expect, but there were downsides: traffic hassles near major airports, heightened security checks and then there were her dogs.

“I have an Australian shepherd, a black mutt and a German shepherd,” Cagle said. “I take them everywhere with me. I’d never dream of putting them in the cargo hold of a commercial jet.”

Her solution was spending $100,000 a year for a kind of credit card from New York-based Marquis Jet Partners Inc. that gives her 25 hours of travel on one of the company’s jets. That’s $4,000 for every hour of flight.

Several times a month, she flies out of Van Nuys or Santa Monica airports to any one of 5,400 small local airports in the U.S. And it allows her to travel with her dogs.

The fractional use, as well as ownership, of private jets is growing fast in the United States amid the recovering economy and a real estate boom that has put more discretionary money in the pockets of individuals and corporations.

Surveys by the National Business Travel Association indicate that 50 percent of its member corporations will likely use private jets this year, up from 30 percent last year. At the same time, the private jet industry is showing a marked turnaround, with over 700 jets expected to be built this year, up from 600 in 2004.

Abundant credit has made buying private jets an easier investment, with the 2004 federal Jobs Creation Act specifically giving businesses a tax incentive for capital investments, including jets.

Until last year, the aviation finance division of New York-based Citigroup Inc.’s Private Bank was handling 20 to 30 private jet purchases or leases every year, according to Mary Schwartz, director of the group. At the current pace, the group is expected to double that number this year and it has opened a West Coast office in Beverly Hills to handle the surge.

“The market is just booming. In the first half of this year, we’ve done more business than in any other year in total,” Schwartz said. “We have a huge number of deals in the pipeline, so that will keep going higher.”

New alternatives

Along with the interest in private jets has been the growth of alternative financing schemes that have made fractional ownership more affordable to wealthy but not mega-wealthy Americans.

Fractional ownership basically a timeshare allowing people or companies to purchase a piece of a private jet have been offered for years by NetJets Inc., a subsidiary of Berkshire Hathaway Inc., and Canadian private jet maker Bombardier Inc.’s FlexJet unit.

Typical costs of fractional ownership have been prohibitive for anyone but the very rich. Private jets, new and used, usually run between $20 and $40 million, with a fractional ownership typically one-eighth of a $25 million plane costing around $3 million annually, not including fuel, management, maintenance and airport fees.

But now fractional companies are selling smaller increments of ownership to keep up with demand from newly enriched customers who are sick of 9/11-related travel restrictions, but don’t want to pay quite as much. At Citigroup, fractional ownership of as little as 1/16 of the jets accounts for 35 percent of the aircraft practice, and it is growing faster than leasing or owning entire jets.

With credit so cheap, businesses like Marquis Jet, which doesn’t own a jet fleet, are buying up big blocks of charter and fractional time and then reselling it at a profit in smaller increments. The company has fractional ownership in some of FlexJets’ 500 planes.

Craig Ross, vice president of entertainment and West Coast sales, said sales of the company’s cards, which are priced at about $100,000 for the minimum 25-hour increment, have been growing since Marquis Jet opened its Santa Monica Airport office in 2002. He noted that the number of new clients doubled in 2004 and will more than double again this year, although he declined to offer specific figures.

Ross attributed the popularity to flexibility, as opposed to savings. “Some of my clients fly 200 or 300 hours a year and they’re billionaires,” he said. “Some of my clients buy cards to use when their own jets aren’t available. People are even giving them as anniversary or Valentine gifts.”

Flight competition

Marquis is not the only company tapping this market.

Cincinnati-based Delta AirElite Business Jets Inc., a unit of Delta Airlines Inc. that owns its own fleet, has recently started selling the cards in 10-hour increments.

David Thorson, chief executive at Thorson Insurance Service Inc. in Westlake Village, is another convert. His company sold its eight-passenger Citation II three years ago because owning the jet was too much of a hassle (it didn’t have the range to fly non-stop to New York, plus there was the $500,000 in annual upkeep).

Thorson and his partners now purchase pre-paid cards from Marquis Jet that allow them to fly on two different types of private jets for 150 hours a year.

“We have to do lots of extremely short notice trips, and the plane would be down for service, and all of a sudden we needed to be somewhere within a day,” Thorson said.

Meanwhile, a new generation of more affordable jets promises to expand ownership. Corporate jets from Albuquerque, N.M.-based Eclipse Aviation Corp. and Adam Aircraft Industries Inc. in Denver are being marketed for as little as $1 million.

The companies are receiving hundreds of orders for the ultra lightweight, fuel-efficient jets that are made using composite materials. Adam has delivered its first models and Eclipse expects its jets to be certified by the Federal Aviation Administration in mid-2006.

“That’s the next big thing. That’s going to make it a lot more affordable for even more people to own jets,” Schwartz said.


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