Executive Summary
Below is an article that Michelle Wade first published on Forbes.com titled: Private Flight Options that Don’t Require Purchasing an Entire Plane
Article – Private Flight Options That Don’t Require Purchasing An Entire Plane
If your business travel needs do not require the purchase of an entire private aircraft, you still have many private flight options, ranging from options with no future commitment to options with continuing obligations. There are benefits and costs to each flight option, so ask questions and then decide which option is best for you.
Charter A Private Plane
Charter is a no-commitment way to fly on a private jet. You contact charter companies to schedule needed flights. Your business may obtain wonderful last-minute deals, or you may find that no last-minute charter flights are available if your business trip is on a busy travel day.
With the increase in private flying, there is confusion over terms such as “charter” and “dry lease.” To the FAA a charter flight does not mean reimbursing a friend to use his plane and crew. A charter flight means paying a charter company that has previously obtained authorization from the FAA to provide charter flights to the public. The friend reimbursement flight may be cheaper and easier to arrange, but there are risks. There may not be insurance coverage if an incident occurs and the insurance company determines that the friend reimbursement flight was not in compliance with the FAA regulations or the insurance policy requirements.
Buy A Jet Card
Buying a jet card is a low-commitment way to fly on a private jet. You deposit funds with the jet card company as a prepayment for your business trips. Before purchasing a jet card, business owners should ask questions:
1. Are your common business flight destinations in the jet card company’s primary service area?
2. How many hours do you fly annually, and how many jet card hours will you purchase?
3. Does the jet card company have several aircraft in the program that fit your trip needs?
4. What are the terms of the jet card company’s contract if you need flexibility for last-minute schedule changes?
A larger initial deposit can result in a lower hourly rate, but if the jet card company files for bankruptcy, your business will lose any benefit from the advance payment.
Buy A Fractional Interest
Buying a fractional interest for your business involves more commitment than buying a jet card. Although fractional interests are commonly referred to as “50 hours in a Phenom 300” or “20 days in a Phenom 300,” your business is buying an ownership interest in a specific aircraft when it buys a fractional interest, whereas a jet card is the purchase of a contract right to fly a defined number of hours. When considering the purchase of a fractional interest, business owners should ask these questions in addition to the questions suggested when considering a jet card purchase:
1. Which entity will own the fractional interest, and can it take a tax deduction?
2. What is the length of the term of ownership of the fractional interest and can you terminate the contract prior to the end of that term?
3. What are the peak days in the fractional program and what special rules apply to flights on those days?
Buy An Aircraft With Other Business Owners
When your business buys an aircraft with other business owners, it requires your commitment to continuing to insure and maintain the aircraft. It also requires your commitment to get along with the other owners. Do you and the other potential aircraft owners work well with others and have the financial ability to pay your share of a large, unexpected expense? Making detailed advance plans on how to handle common and difficult situations and then documenting those decisions can save hours of work, cost and heartburn in the future. Even though it feels unnecessary when everyone is excited and in agreement about the aircraft purchase, you’ll appreciate the upfront work in the future. Obtaining tax and regulatory advice from experienced aviation professionals before you purchase the aircraft can benefit everyone involved. Your liability may increase if another owner of the aircraft is not operating the aircraft in compliance with the FAA regulations. Potential aircraft owners should discuss:
1. What taxes will be due?
2. What percentage interest will each business own?
3. What rules apply for scheduling the aircraft and does any owner have priority?
4. Is there a limit on the annual flight hours allocated to each owner?
5. How will the owners pay for repositioning flights when the aircraft flies from one owner’s destination to pick up another owner?
Business owners have more choices than ever before when selecting how to fly on private aircraft. Identify your needs and ask questions to select the best private flight option for your business flights.
Michelle M. Wade is a Partner with the aviation law firm of Jetstream Aviation Law, P.A. and counsel clients on the acquisition, financing and operation of corporate jets operated under Part 91 and Part 135 of the US Federal Aviation Regulations. Jetstream Aviation Law can be found at www.JetstreamLaw.com. Michelle Wade (mwade@jetstreamlaw.com)
The information provided here is not legal advice and does not purport to be a substitute for advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.
