The Private Jet - Invaluable Asset or Corporate Bauble?
Private jet travel gets a bad rap. It is often cited as a symbol of corporate extravagance run amuck. Yet for many companies, private jet ownership has become an essential part of their corporate toolbox. Combine the ability to land at thousands of airports not served by commercial service with literally the fastest way to get from one point to the next, and you have a real market advantage. Add to this that airlines have long been a favorite target of terrorists. This may be a sensitive subject, but it is a real concern and despite continuous efforts to harden airports and airlines as targets, the threat remains. Lastly, in an age where anonymity is impossible, there are real risks that high profile executives face flying commercial service, where corporate policy and personal views can clash in a very public and nasty way. Private jet travel is arguably one of the safest modes of transportation.
Corporate Safety
There are also other safety concerns concerning senior leadership travel, especially when traveling abroad. This does not just apply to the hyper-visible celebrity CEO. Business travelers, even from the most low-profile companies, are facing an increasing risk of corporate kidnapping. Not only is private jet travel a competitive advantage, it makes a lot of sense from a security standpoint. Consider its value also as a recruiting tool of top talent.
Making an Impossible Schedule Possible
Today’s incredibly demanding corporate schedules often interfere with efforts to achieve some semblance of work life balance. The ever-expanding array of commitments to family, business and charitable efforts all require time and frequently the presence of your senior leadership. Private jet travel creates tremendous time-savings and makes otherwise impossible schedules achievable.
Jet Cards, On-Demand Private Jet Charter, and Aircraft Ownership - What are the Benefits and Differences Between These Three Private Air Charter Travel Solutions?
Jet cards, on-demand private jet charter, or outright aircraft ownership. Those are the three primary private aviation solutions offered in the marketplace, and all of them have strengths and weaknesses. While there are several “ride-share” programs whereby essentially commercial airline scheduled service is disguised as private jet travel, the savings comes at the sacrifice of privacy, flexibility, choice and convenience – the very reasons that your team flies private for in the first place.
A jet card program is great for knowing exactly what your private jet charter flying spend will be, yet it comes with restrictions. Pricing can be quite competitive on some routings (especially one-ways), but peak-period blackouts and inconsistent quality due to the large vendor pools required to support jet card programs are common complaints. On-demand charter is exactly what it sounds like; going out to the market whenever you need to book a private jet and determining what the market pricing is for a given trip. Unless you are very savvy with this process, we recommend utilizing an air charter broker to navigate the market. This will ensure that any options presented to you will meet the mission requirements, quality expectations, and independent third-party safety and operating standards. Not all aircraft or operators are equal.
What About Aircraft Ownership?
Truth be told, private jet aircraft along with their associated maintenance costs are expensive assets. A pre-owned late model light or mid-sized pre-owned jet costs between $2-5M. At first blush, the cost puts ownership out of reach for many companies. Why spend millions of dollars when your annual spend to charter a private jet when you need it is a fraction of that cost? What this conclusion ignores is the ability to depreciate and defray the cost of the asset over a relatively short period of time, resulting in a total out-of-pocket cost that is similar to or less than that of both jet card programs and on-demand private jet charter. For many businesses, ownership is indeed a valid approach to fulfilling their private jet travel needs.
Let’s do the Math on Private Jet Ownership
Say for example you are in the market for a 9-passenger jet with at least six hours of range, enclosed lavatory, and plenty of headroom. A “super mid” jet would meet all these parameters nicely. Assuming you finance the aircraft, after factoring in charter revenue from sales (the aircraft is utilized in the commercial Part 135 business jet market when you are not using it), depreciation, and costs associated with operating the aircraft (such as fuel, crews, maintenance, insurance), your charter spend for 100 hours of use annually would be in the neighborhood of $320,000. That’s $3,200 per hour.
Consider that the market rate per hour for this same aircraft is around $4,500, and you can see that there is a compelling case for ownership. You would save over $100,000 per year owning your own aircraft versus chartering a private jet. The savings may be (but not always) less pronounced compared to some jet card programs depending on your private jet charter travel patterns, but in return you are saying goodbye to blackout dates, inconsistent service, and dealing with different air carriers and aircraft from one trip to the next. Selecting your own aircraft, an interior that suits your needs, crews that work for you, and owning the schedule are all great examples of the control that comes with ownership.
The Trade-Off
Life is all about compromise. Essentially aircraft owners are accepting the higher financial risk of asset ownership in return for a lower overall spend, along with the benefits of full ownership. A primary risk lies in the ability of the aircraft to generate revenue to defray ownership costs. While in the present private jet charter market demand is robust, like all markets, things change. Owners need to be prepared to shoulder the additional cost should the presently red-hot charter market cool, as all markets eventually do. There can also be unforeseen maintenance costs. Like owning a second home that you sometimes rent to offset ownership, at the end of the day, you own the asset along with the costs associated with maintaining it. That said, like all asset ownership, risk can be mitigated via a careful and strategic approach during the purchase phase as well as placing the aircraft with a solid business jet operator.
Private Ownership Versus Commercial Use Hybrid
Some companies, especially very large corporations, own their own private jet fleets whereby the aircraft are not placed in commercial service to defray costs. These aircraft are operated under private use (Part 91) standards. Recently several blue-chip companies have pared back, or outright eliminated their fleets due to the high costs associated with a purely private use model.
Other corporations will employ a hybrid approach. Under this type of scenario, the aircraft will be placed on a commercial air carrier (Part 135) certificate, enabling the aircraft to be utilized by other parties for hire when the company is not utilizing it. While the private use only model affords 24/7 unfettered access, a hybrid approach that takes advantage of offsetting revenue from commercial air charter operations will significantly reduce the cost of ownership. For companies that have a fairly regular travel schedule, putting the aircraft to work in the business jet market can make a lot of sense, with the occasional schedule conflict mitigated by supplementing with booking a private jet in the on-demand market. On the other hand, businesses with unpredictable travel patterns may be better served via the private ownership / not for hire approach.
Is Ownership Right for Every Business?
Aircraft ownership makes financial sense for many companies if leadership is willing to accept the associated costs. This is a calculated risk. Commerce and risk have always been intertwined. The key is to know what those risks are beforehand, and reduce them as much as possible, while still ultimately accepting that in the worst-case scenario, you can manage it regardless of which way the private jet market is headed. For closely-held companies, the advantages of aircraft ownership can often be enjoyed by the shareholder group for personal travel. We caution however that this needs careful scrutiny from accounting and tax experts.
Walk before you run. If you are do not charter private jets for 75-100 hours per year, you would be better served booking private flights on-demand. This is a good way to sample different aircraft and determine what would best fit your needs. Jet card programs are also a viable alternative depending on your private jet travel profile. Be honest with yourself and your leadership team. Let’s face it; private jets are a sublime travel experience. They were built to be enjoyed. With that comes possible conflicts between fiduciary responsibility to shareholders and the necessity of a owning a private jet. All businesses are different, as are the goals and desires of shareholders. Just make sure to consider everyone’s best interests before making a private jet aircraft purchase.
Want to learn more about ownership, on-demand private jet charter, or jet card programs?
Drop us an email or call us to discuss your private aviation needs. Since 1999 we have been helping people to make better buying decisions with a no pressure and a fully transparent approach. Your success is our success.
Comments