Client Affairs

Private Jets: Making The Impossible Possible

James D Butler November 17, 2020

Private Jets: Making The Impossible Possible

Back when the COVID-19 pandemic started, and hammered the global civil aviation industry, some commentators wondered what the crisis would do to private aviation. After all, private jets have to land somewhere, and where their users go through airports, restrictions imposed on the broad mass of the public must apply to private jet users as well. 

Private jets are obvious signifiers of great wealth; it is also worth noting that they’re also business assets rather than just luxury toys. Owning, leasing or using private aviation resources come with a number of challenges (registration, tax, hiring suitable pilots and crew, obtaining air traffic control slots, etc). The health or otherwise of the private jets sector can sometimes be a sign of how well the wider wealth management sector is faring. 

In this article, James D Butler, chief executive of Shaircraft Solutions, explores the terrain. His firm works in areas such as fractional ownership of jets, charters and air taxis. 

The editors of this news service are pleased to share these views with readers and invite responses. Email and The usual editorial disclaimers apply to comments from outside contributors.

Wealth managers and family offices are often charged with making possible what, at first blush, seems impossible: arranging air transport for multiple relatives from far-flung locations to a spur-of-the-moment family gathering; or corralling a three-stop business trip into one day of travel in order to get a CEO home in time to see a child’s soccer game; or making certain that a professional football player can fly home on an off day to visit an ailing parent, and return in time to make practice the next day - all while dealing with COVID-19 restrictions, potential weather delays and a bottom line promise made to all clients - “Whatever it takes, we’ll get it done.”

The basic building block for accomplishing all these challenges is private jet travel.  Yet, until the last forty years, that meant either owning a jet, a costly proposition that includes not only purchasing a plane, but also managing a flight department, hiring pilots, etc, or chartering someone else’s plane one trip at a time, with no guarantee of availability, safety standards, or cost.

However, the 1990s gave rise to a new air travel model - fractional jet ownership. With new regulatory flexibility from the FAA, business and leisure travelers could purchase a partial interest in an aircraft operated by a jet company as part of its fleet. The fractional model significantly reduced the barriers to entry into the private jet travel arena by eliminating the hassles of full ownership and substantially reducing the purchase price point, while providing access to a single-operator managed fleet.

The fractional provider managed the fleet, providing pilots, maintenance, insurance, catering, and other services and, importantly, promising substantial cost certainty for the customer - a set price to purchase the share, set fees for managing and flying the aircraft with capped cost escalators and, what’s more, in many cases a commitment to buy back the share from the owner at a specified minimum price when the contract expired. Essentially, this service operates as a private, executive airline. With a few hours’ notice, a plane is delivered where you want, when you want it, to take you wherever you want to go. 

Over the next few years, however, increases in maintenance, pilot, insurance, and other costs, as well as a down market in pre-owned aircraft values, made it difficult for providers to turn a profit while still guaranteeing relative cost certainty to owners. This reality prompted providers slowly but surely to shift the variable cost risk to owners, by instituting various operating cost surcharges and by eliminating guaranteed repurchase valuations.

As consumers reacted to fractional cost shifting and, with further regulatory flexibility from the FAA, the market responded with a new option, the “jet card.” No longer were customers required to purchase a share of an aircraft. Rather, they would merely purchase a pre-determined number of flight hours. This model eliminated large up front capital investments and the risk of depreciating pre-owned aircraft values - or at least shifted these costs to the provider, who built that risk into the hourly pricing of the cards. In addition, jet cards could be purchased in increments of as little as ten flight hours, whereas most fractional ownership programs required a minimum purchase of 50 flight hours annually and a five-year term. Thus, by significantly reducing the cost commitment, the jet card model greatly expanded the potential market of private jet flyers.

As these options grew, another revolution was ongoing - the rise of the internet and e-commerce. The advent of the internet, combined with an increase in excess capacity, gave rise to forays aimed at reaching an even broader demographic through apps, per-seat sales, and the like. Anyone who has access to aircraft operators who want to monetize excess capacity - for example, aircraft just sitting on the ground - can contract with these operators to fly their flights and then come up with a clever name and a fancy brochure and sell themselves to an unsuspecting public as a private jet “program.” 

Flying at 40,000 feet is not like having a Uber drive you home. You can find yourself in trouble if you don’t look behind the slick brochures and cool apps and ask questions: Who’s operating the aircraft? What’s the vintage? What’s the safety equipment? The pilot's experience? Safety must always be the first priority - well-maintained aircraft and experienced pilots are essential. Too often, folk are blinded by a discounted price. As in all things, if it sounds too good to be true, it probably is.

Behind a jet company’s alluring marketing pitches are complex legal arrangements, in which the providers minimized their liability, turn many of their bold brochure promises into no more than half-truths, and offer little more than a mirage of remedies for non-performance. Private flyers, who gained success in their own businesses by paying strict attention to detail, having neither the expertise nor the wherewithal to understand and negotiate these contracts, signed on in reliance upon false sales representatives’ assurances that, “Everyone signs the same contract.” I’ve worked on hundreds of these contracts over the years – they are far from boilerplate. (One company’s twenty-five hour jet card contract ran to more than 100 pages!)

Over our 23-year history of advising private flyers, the private aviation industry has boomed, struggled and reinvented itself several times over. The fascinating thing about private air travel though, is that it has survived and flourished even during the most uncertain times. Take, for example, the tragic events of September 11, 2001, which left Americans feeling devastated and extremely vulnerable. Our notion of safety, especially when it comes to traveling, would never be the same. As the stress of traveling skyrocketed, it’s no surprise that consumer complaints about commercial air travel did as well. People who could afford to do so began turning to private aviation as an alternative. 

The industry’s resilience has been tested yet again in the wake of the COVID-19 pandemic, easily the biggest crisis the aviation industry has ever faced. More than half a year later and commercial air travel is still down by roughly 60 per cent. Being stuck in a crowded airport terminal and sharing an airplane cabin with hundreds of strangers is not appealing during the best of times, much less during a pandemic. 

Nevertheless, the demand for private jets has remained steady and, in some cases, grown exponentially. People who may have previously flown first or business class have been turning to private jet travel to lower their risk of contracting COVID-19. Whether or not these people will continue to fly private when things return to normal is to be determined. (However, as I’ve said many times over the years, once you’ve flown on a private jet, it’s really hard to go back to the Delta counter.)

That’s because the experience of private jet travel is nothing less than intoxicating.  It offers independence, luxury, and, undeniably, a sense of power. You fly on your schedule, take off when you want, land at over 5,000 airports in the country (rather than the 500 available to commercial airlines), and avoid the soul-crushing experience of commercial air travel. Also an enormously powerful productivity tool, private flying literally serves as a time machine - turning a five-day vacation into a seven-day vacation, and a three-day business trip into one that gets you home for supper. It’s no wonder, then, that for many, this aspiration is nearly irresistible.

No one can deny the quality of life benefits of private jet travel. But these benefits come at a cost of thousands to millions of dollars. Mistakes are costly and often irreversible. It is essential that both new entrants and experienced private flyers do their due diligence before making an investment of this magnitude. Wealth managers and family offices are often called upon to facilitate and manage these investments. Understandably, however, most lack the aviation or legal expertise required to navigate the options, vet providers and programs, and negotiate private jet deals. 

About the author

James D Butler is an attorney and CEO of Shaircraft Solutions – a Maryland-based consulting firm advising individuals and businesses on investments in private air travel for more than 20 years. For more detail about Shaircraft, click here.

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