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.

What's a fractional?

Fractional ownership is a unique type of aircraft ownership, distinctive from other forms primarily because of the services included by the program management. Some pilots may be unclear exactly what is meant by "fractional ownership", so let's spell out the differences between fractionals and other ownership schemes:

• Sole ownership. Sole or outright ownership is when a single person, usually the pilot, has the only ownership stake in the aircraft. Sometimes the airplane is registered solely in that person's name, sometimes a spouse or other relative (who may or may not be a pilot) is included in the title, and sometimes the sole owner registers the airplane in a corporation name, whether that corporation has any business other than that of owning and operating the aircraft. A short description of sole ownership is that one person (or corporation) pays all the bills. The sole owner is wholly responsible for aircraft scheduling and maintenance, aircraft storage, insurance, and all other aspects of ownership.
• Co-ownership. If more than one person handles ownership responsibilities and operational expenses the airplane is considered to be in a co-ownership. It may be registered in the names of all who have an ownership stake (two or more), or in a corporation or other legal partnership agreement. It's advantageous for the co-owners to have a signed agreement that spells out each person's responsibilities. Significantly, aviation insurance premiums are usually "rated", or determined, by the experience level of the least experienced pilot. So a co-ownership agreement may dictate a formula for determining the percentage of insurance premium each member is responsible for that takes each pilots' affect on premiums into account-a less-experienced pilot may pay more of the fixed costs of the co-ownership if it would cost the other owners less without him or her.
• Flying clubs. Flying clubs are another form of co-ownership, with some differences. Flying clubs are almost always legally chartered organizations, usually a not-for-profit corporation or LLC operated at break-even prices. Clubs usually have a few to dozens of member-pilots, and often own multiple airplanes. The club may employ its own instructors and/or mechanics. Flying clubs usually have officers or a board of directors to set policies and ensure all ownership, financial and legal requirements are met. Individuals buy membership in the organization and may sell that membership to others; they'll pay an entry fee, a monthly fee, and a per-hour operating fee that is usually attractive compared to renting similar aircraft on the open market.

By contrast a fractional ownership program is one where a for-profit business organization owns an airplane or airplanes, and sells access to those aircraft to a limited number of fractional owners. What the "owner" actually owns varies with (and sometimes, within) a fractional program's organization-members may own:

• The "right to use" of one or more of the program's aircraft; or
• An actual financial interest ("equity") in a specific aircraft within the fractional program. This is where "fractionals" get their name-equity owners legally own a specified "fraction" of the aircraft (e.g., "1/16th interest", "1/8th interest", "1/4th interest", etc.)

Fractional ownership is closer to the flying club model than any other type of ownership, but there are significant differences even between flying clubs and fractionals.

"Fractional ownership actually costs more than ownership, but yet you can be flying a state-of-the-art new airplane for a little bit more money than owning older planes outright." -- Current fractional owner.

A "right to use" ownership generally has strict limits on the number of hours the owner may use the program's airplane(s) annually. These fractional owners are essentially admitted into a small group that has exclusive rights to rent one or more airplanes in the program.

Equity ownership is usually less restrictive. Members can fly the airplane more. In most cases an equity owner buys into an airplane that will be owned for a period of time (typically four years) and then traded for a new airplane. The idea is that owners can continue to enjoy the benefits of flying very late-model equipment within the fractional framework.

One fractional manager responded to ANN's survey of fractional owners with a description of his program's options:

"We offer four unique levels of reservations access (Bronze, Silver, Gold, & Platinum). This flexibility allows each owner to purchase the ownership that is right for them and depends on how many hours per year the pilot wants to fly and their desired advance reservation privileges. Within their privileges, it is a first-come, first-served system (i.e. no owner can bump another one out of their existing reservation). Owners can take the aircraft away for up to 10 days at a time and each owner is permitted one reservation per year outside of their reservation privileges."

It may be telling that, almost without exception, readers who responded to the ANN survey stating they are pleased with fractional ownership live within a five- to 20-minute drive from a fractional location that has multiple identical airplanes... airplanes are available and close by.

Service: what sets fractionals apart

The biggest difference with fractionals, however, is the professional management of the aircraft. For many fractional owners this is the biggest advantage of fractional ownership. Fractional companies employ managers that oversee all aspects of aircraft ownership, so all the pilot has to do is (as one survey respondent wrote) "show up and fly". Most fractionals provide valet-like service to their members-the airplane is sitting in front of the fractional's private FBO when the pilot arrives, cleaned and fueled per the pilot's orders; at the end of the flight the pilot stops in front of the FBO, unloads and leaves, with the fractional company fueling and cleaning the plane and putting it in the hangar. Some fractionals even provide sanitized headsets and chart services, with en route and approach charts for the specific trip arranged in the cockpit based on the pilot's directions. If the fractional owner lives some distance from the program's home base, some fractionals will pick up and deliver to an airport closer to the owner.

In all, it's more like being a premium member of a luxury car rental agency than a traditional piloting experience.

Other common amenities: private FBO lounges with kitchen and restroom facilities, computer-equipped flight planning rooms, on-line scheduling and flight planning, and designated parking spaces in the FBO parking lot.

Coming Wednesday: Fractionals Offer A 'New Perspective' In Several Areas

FMI: Tell Us What You Think!