When is the Right Time to Move from Fractional and/or Charter to Whole Aircraft Ownership?
Both corporate and individual clients often contact Aviation Management Systems (AMS) asking that we work with them to review and analyze whether their increased utilization of business or private aircraft has reached a point where they should consider transitioning from a fractional and or charter to a wholly owned aircraft. In other cases AMS is asked to look at the opposite scenario, when reduced travel requirements might support a transition out of a wholly owned aircraft and into fractional and or charter programs. In either case, having the most up to date information and data on the market for the various alternatives being considered is critical in assisting our clients so that they can make the best decision to meet their travel requirements.
As with many multifaceted matters, the answers are driven by several factors; some are quantitative capital and operational costs and some are qualitative such as understanding the needs, requirements, desires and expectations of the primary travelers.
In many cases, an analysis of cost and travel requirements may point to using more than one alternative, accessing custom features specifically designed to meet corporate or private aircraft travel requirements.
- Capital, i.e. financing or leasing costs
- A projection of on-going operational costs
The capital, financing or leasing cost analysis initially entails a review of the aviation market for the various models of aircraft being considered. Depending upon the purchaser’s requirements, the number of candidate aircraft can usually be reduced to a smaller group. The range of purchase prices can then be discussed with lenders to establish the aircraft acquisition and financing costs for a purchase or lease structure.
With the benefit of experience, an analysis projecting operational costs can be relatively predictable:
- Aircraft enrolled in hourly engine, airframe and avionics maintenance programs will have more predictable operating costs due to the coverage these programs provide during a majority of the maintenance events.
- Aircraft not enrolled in hourly programs require a higher level of analysis to project the operating costs associated with each aircraft. The age of the aircraft and a review of its unique maintenance status will need to be completed in order to more accurately project the future operating costs.
A final component of the analysis is to estimate any necessary upgrades to equipment and apply cost reserves associated with refurbishment of the aircraft’s interior and exterior.
A general rule of thumb within the aviation industry has been when flying over two hundred hours per year, whole aircraft ownership should be considered.
An analysis will indicate that overall hourly operating costs for a wholly owned aircraft will decrease as the annual utilization increases until such time that additional fixed costs (additional crew) are required. Short of very unique circumstances of the owner’s travel profile, a two pilot crew could support up to four hundred flight hours per year or more. Certain travel profiles may not be as conducive to a wholly owned aircraft such as trips that do not conform to a particular aircraft’s performance capabilities or frequent requirements to accommodate multiple flights at the same time to different locations.
The operational side of the analysis considers:
- The owner’s projected travel schedule
- Flight locations
- Personal preferences
Other intangible factors can also influence which alternatives provide the best solution in meeting the defined travel requirements. Travel schedules that entail a majority of one way flights, greater number of passengers and a wide variation in flight distance requirements can present significant challenges for the wholly owned aircraft option.
Another industry rule of thumb when considering whole aircraft ownership is seeing if 80% of the projected travel requirements can be effectively met by the one aircraft?
Factors for the remaining 20% of travel may include fuel stops, determining how to meet the need to carry additional passengers or luggage etc., which can be evaluated and serviced by other available aircraft arrangements or still be completed with the selected aircraft type but certain operational limitations will be required.
Accomplishing both the cost and operational analysis provides valuable data that are factors in the development of a comprehensive business or private aircraft aviation plan. In many cases, it is common to apply the cost and or operational benefits of more than one aviation asset to best meet the overall travel requirements of the client.Article by H. Lee Rohde, III For more insights from Lee Rohde in the Robb Report Private Aviation Forum http://robbreport.com/PrivateAviationForum/Advisor/H-Lee-Rohde-III