April 2018 Newsletter

Fractional Programs, Lease or Purchase

When anyone talks about fractional ownership programs they assume you must purchase the aircraft share, however, most fractional aircraft program providers (Providers) offer a lease option.

Different Providers offer essentially the same purchase and lease options, but terms and conditions may vary, and lease options are usually limited to aircraft that are not in high demand for purchased shares (why should a Provider offer a lease if there is a backlog of buyers).

Basic terns for either lease or purchase such as minimum term of holding the share, hourly rate charges, monthly management fees, fuel surcharge and taxes are identical but may change due to age of aircraft being offered (i.e. older aircraft have lost some or all of manufacturer’s warranty benefits, so rates are higher). Service levels from the providers are the same regardless if you have a lease or purchase.

Benefits for the lease of a share are no capital outlay at beginning of the lease (other than a security deposit of approximately two months lease fee and monthly management fee). Also, at end of the lease there is no brokerage or remarketing fee charged by the Provider.

Some negatives on leasing are the monthly lease rate is normally about 1.25% of the market value for the aircraft share and tax benefits of ownership do not apply.

Benefits for share ownership are potential tax benefits from asset depreciation and if share purchasers cost of money is less than what would be charged as a lease rate, there is a benefit to owning.

Negatives of share ownership are the upfront outlay for the share price, expectation at end of term (usually 60-month term) of aircraft residual value of 50% of price paid, brokerage fee due at share turn in (some Providers waive this fee if share goes full term), and concerns on liability of owning the aircraft asset.

If you are looking to join a fractional aircraft program you need to do your homework, speak with your attorney, financial advisor and aviation consultant.