Is It The Right Option For You?

By ANN Contributor Thomas P. Turner

Fractional ownership. This aircraft ownership option has seemingly sprouted almost from nowhere in the last few years. Although fractional ownership of professionally flown turbine aircraft appeared a few years earlier, the rise of owner-flown fractional ownerships began concurrently with the introduction of what we now call Technically Advanced Aircraft (TAA)--airplanes with moving-map GPS and autopilot technology, more and more frequently with "glass cockpit" Primary Flight Display (PFD)/Multifunction Display (MFD) panels.

Does fractional ownership make sense to pilots who fly piston-powered airplanes? What are the deciding points on buying into a fractional? What are the unique benefits of fractionals that offset some of the costs? When are you ahead of the game to bypass fractionals and buy an airplane outright? What might you consider to decide whether fractional ownership makes sense for you?

To answer these questions ANN has spent several months researching fractional ownership of owner-flown, piston-powered airplanes. We've surveyed readers like you who are fractional owners, who are currently considering buying into a fractional program, or have been fractional owners but have left the program for one reason or another. We've also polled managers of fractionals. With this cross-section, we got a sense of each perspective toward fractional ownership of owner-flown piston airplanes-you'll see quotes from several ANN readers' responses as you read this report.

• Read Part One Here

A new perspective

The service provided by fractional programs seems well-suited to a new type of airplane owner -- one with little time or inclination to be personally involved in the upkeep of the aircraft. An airplane, to these pilots, exists to save time... not take extra time out of their busy lives with scheduling inspections or changing the oil or even pulling the airplane out of the hangar and cleaning the windshield before a flight.

"I show up at the airport, preflight the plane and go. After the flight, I turn over the keys and they handle the rest." -- Current fractional owner

Cirrus, in particular, has been very successful in marketing to low- to no-time pilots who want or need high-speed, on-demand personal air transportation and who want to do the flying themselves. Perhaps not coincidentally, fractional programs to date have been populated largely with Cirrus aircraft. This introduces a new perspective for airplane owners who have little or no expectations of what "traditional" pilots accept as part of airplane ownership, all the extra things that demand time and effort on the ground. Customer service-intensive fractional ownership programs are positioning themselves perfectly for the very busy professional who wants to fly but who does not have the time for the rest of ownership's duties.

As quoted on ANN, Erik Lindbergh, founder of Columbia 350-flying iFly calls fractional ownership "a wonderful 'hands off' experience-hands off registration, maintenance, tie-downs, repairs etc." Lindbergh (below) calls it "the ultimate turn-key experience" for aircraft ownership -- "you reserve the plane, you turn the key, and fly!"

 "The advantage of fractional ownership: No worries or responsibility for the aircraft and I'm able to fly aircraft I couldn't afford to own by myself." -- Current fractional owner

If you like to tinker with or custom-outfit the airplane, leave your things in the aircraft where they'll always be where you want them, are the type to do owner-assisted annual inspections and oil changes, or just like to putter around the hangar on a Sunday afternoon, then fractional ownership probably isn't for you. But if you like the convenience of having the airplane prepared for you when you arrive and dropping it off "at the curb" when you return, then being part of a fractional is better (and probably safer) for you than any other type of ownership.

Just because the management puts your airplane right outside the door, however, don't get tempted to jump in, fire up and take off without complete trip planning and a thorough preflight inspection-these tasks are always part of personal aviation.

Training requirements

One of the big advantages of most fractional ownership programs is that they allow owners to fly Technologically Advanced Aircraft (TAA) like the Cirrus, the Columbia or the Raytheon G36. With flying TAA comes the need for proficient pilots. This leads to one of the side-benefits of being part of a fractional ownership plan-pilot training.

Getting your foot in the cockpit door of such capable airplanes means you'll need some experience. AirShares Elite is typical of most fractionals flying TAAs, requiring for program pilots to "have the skill set of a 350-hour, instrument rated pilot." Although AirShares says "there are no absolute minimum hours required, you need to be a proficient, current and meticulous pilot with the maturity and judgment skills to handle a high-performance aircraft." To that end AirShares, like other fractional managers, has a pilot transition and recurrent training program that is an absolute requirement for all pilots in the program. Training includes completing a thorough ground and flight training syllabus and a mandatory program orientation. Additionally, all program participants are required to complete refresher training "at least annually" with an AirShares authorized instructor. The expectation is that "even the most experienced pilots" will "accomplish 10-15 hours of dual instruction annually." As one fractional manager put it, "our owners are typically more current and more safe than most other pilots."

"No hassle, great airplanes, a great training program" -- Current fractional owner

Insurance

Taking care of one of those pesky details of airplane ownership, insurance, is part of the service provided by fractional managers. Insurance cost is determined by the underwriters' evaluation of what is called the "risk"-the combination of pilot, aircraft type (and cost), and operating environment (commercial vs. personal business use, airport at which the aircraft is based, etc.). Fractional plans' entry-level requirements for pilots, and mandatory initial and recurrent training, help prospective TAA owners become "insurable" at experience levels where they may not be able to get a policy on their own. Most importantly, the fractional managers take care of the details of insurance-all the individual pilot needs to do is to complete required training, be legal under Federal Air Regulations (FARs) to operate as pilot-in-command, fly the airplane as intended (no commercial operations or unapproved instructional flying, for instance), and of course pay his/her fees to be in good standing with the fractional program, and insurance is taken care of at no additional cost.

Liability insurance

Most fractional plans advertise $1 million "smooth" liability coverage. This means that, in an incident covered by insurance, the policy will pay $1 million to any claimant who successfully sues the owner(s) for a loss experienced as a result of operation of the airplane-for example, an injury, death, or identifiable (to the court) financial losses like loss of future income, companionship, or business. The liability coverage also pays in cases where such a suit is settled out of court. "Smooth" coverage means that there is no smaller cap on coverage for payments to persons who were passengers in the aircraft at the time they experienced loss-a common limitation on aircraft insurance, especially for owners new to an aircraft type.

Two potential "gotchas" of the typical $1 million liability policy in fractionals:

• In many cases pilots with the financial capability to participate in fractional ownership are worth significantly more than $1 million. There is nothing that limits the amount a person may sue the pilot over a loss; the limitation is on what the insurance company is obligated pay. If a judgment against the pilot exceeds $1 million he or she is personally liable for the additional amount. It's rare to find "umbrella" policies (additional liability insurance to cover amounts over that paid by "primary" insurance) that do not exclude general aviation, so a $1 million policy offered through the fractional program may not be sufficient to protect a wealthy fractional owner.
• The $1 million liability limit is also a cap on the total insurance will pay all parties sued as a result of operation of the aircraft. Fractional owners, especially those with equity ownership of specific airplanes, may be sued even if it's one of the other pilots who caused the loss. This is especially true if an accident can be traced to maintenance or a failure of the airplane (for instance, an engine failure in flight). Four owners each owning ¼ equity in an airplane may all four be sued if one pilot has a mishap-and given the $1 million liability cap on the policy, each owner therefore has effectively only $250,000 liability insurance to protect against the suit. Liability covers defense costs in addition to this amount, but if the owners are found liable individuals may be responsible for much more of the settlement or award. Again, individuals in fractional programs may want to investigate umbrella policies that provide additional protection in the event of a loss.

Physical damage insurance

Most fractional plans include 100% coverage against physical damage to the airplane itself. This is often called "hull" coverage, evidence of the aviation industry's nautical roots. Usually there is a deductible, or portion of the policy an owner must pay before insurance kicks in; in this class of airplane the deductible is typically between $1000 and $10,000. Under fractional contracts owners are usually responsible for paying the deductible if they cause damage to the airplane, although if the plane is damaged through no owner's fault (for example, in a hangar fire) the individual equity owners may have the deductible waived by the program managers.

Aspects of liability and physical damage coverage may differ among fractional plans, and exclusions and conditions may apply even for different scenarios within a fractional program. It's best to review in great detail the insurance aspects of fractional ownership before committing to a program, and carefully read the policy each year when it is renewed to look for any changes that may affect how you'll be liable in the unfortunate event you or one of your program partners experience or cause a loss.

Coming Thursday: Maintenance And Scheduling Pros... And Cons

FMI: Tell Us What You Think!