|Picture courtesy of Paul Bowen|
Beware of the fractional jet proposals laden with incentives
Fractional jet ownership (FJO) with the right manager is a pleasant experience. The service from the major providers is excellent, safe and the customers are very satisfied with their decision to fly in FJO.
The operational costs to run a fractional ownership program are very similar and none of the major fractional jet managers have a distinct cost advantage over the others. So, if the cost to administer an FJO program are very similar, and three out of the four proposals had little or no incentives to offer, but one manager offered incredible incentives … beware of the redemption process.
The redemption process defined in the contracts seems like a fair and objective process, and with the majority of vendors … it is! There is language about the average of three appraisers and so on. Most vendors work hard to maintain the fairness of the redemption process with one glaring exception, one fractional manager whose customers are presented with residual values far below the competition. During our research we discovered two owners from separate FJO companies redeeming very similar aircraft during the same month and one fractional jet manager was offering $1,000,000 less for virtually an identical aircraft.
This astronomical difference in fair market value denotes a different business model all together. We believe this company uses the redemption process to make up for operational loses. These loses were created in part from offering too many incentives to coax prospects to become new owners.
Everyone loves to negotiate the best deal … but in a case where there is no distinct operational cost advantages or large margins to compensate for the incentives … then the owner has to pay for those incentives somewhere and that somewhere is the redemption of their share.
Remember if one vendor has proposed a “much better” deal … Caveat Emptor!