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
• Read Part Two Here
• Read Part Three Here

Typical program costs

Entry into fractional programs, as we've seen, comes at several levels. Most members seem to gravitate toward 1/8 equity partnerships. Within that framework, here are some sample costs for the first year of flying in a fractional ownership program:

In subsequent years (after the up-front buy-in cost) the total costs range from $306 per flight hour (@50 hrs/yr) to $194 per flight hour (@150 hrs/yr) for the C182T/SR20, and $369 per flight hour (@50 hrs/yr) to $225 per flight hour (@150 hrs/yr) for the SR22. Or if you prefer to average the buy-in cost over the four-year contract the approximate hourly costs are:

"You have to pay a lot (too much) money for professional management of the aircraft." -- Current fractional owner

Obviously the per-hour flight cost of fractional ownership is far greater than traditional airplane rentals through FBOs. The advantage, of course, is that fractional airplanes are typically much more capable, newer, better equipped, and better maintained than the average rental airplane. Add the services provided by fractional managers and, as long as you're flexible with scheduling, fractional ownership plans may be far more attractive than outright ownership.

"I think a prospective fractional owner needs to very carefully consider the limitations imposed on ownership, and as the organization grows how costs can increase to the point where owning outright will probably outweigh a fractional ownership."  -- Current fractional owner

Getting out

Fractional ownership, especially in equity positions, is a time-based contract. Usually the term is four years. To keep nearly-new airplanes in the program, most plan on selling the equity airplane after four years and replacing it with a similar type. Equity owners share in the proceeds of the sale and can depart the program or enter into a new fractional agreement-either in the same type of airplane being replaced or, if available, moving up to a more capable aircraft.

"At the end of my 4-year term, I renewed for another four years. I am flying a nearly brand new airplane. They are better maintained than the rental planes I have flown. I love the SR22, and my passengers seem to love it as much as I do." -- Current fractional owner

During the term of most program contracts fractional owners can advertise and sell their equity, selling to new owners who pick up the agreement where the seller left off. In fact, some fractional managers will broker the position for the departing member for a percentage of the selling price. In practice a fractional equity position is less like a condominium time-share and more like outright ownership, with individuals able to sell their way out at any time.

Fractional ownership -- The biggest surprise

The biggest surprise for me about fractional ownership is the financial commitment. Before taking an in-depth look at the fractional option, I assumed that fractional ownership was more like expensive renting that lower-cost ownership, similar to flying-club costs albeit a little higher because of newer equipment. But as AirShares states on its website, fractional ownership costs about 1/3 the expense of outright ownership, which is more than the "fraction" of the airplane you own because of your costs for the additional benefits of program management.

As we've heard from many survey respondents, the most commonly cited positive part of the fractional experience is the ability to fly a current-production airplane for less than what it costs outright. But few of those respondents said they could not afford to buy the new airplane outright if they'd wanted to -- it was a matter of getting most of what they wanted for a (large) fraction of the cost, or buying into fractional ownership of a late-model airplane in lieu of outright purchase of something just a little older. Many fractional owners had owned all or part of a high-performance airplane in the past.

In other words, fractional ownership does not make very many airplane owners out of renters; instead, it seems to be a purchase option with additional features like airplane management for financially qualified pilots already in the airplane-buying mode. I found that surprising, contrary to my expectation, but it's fairly obvious if you start plugging buy-in price, monthly fees and hourly operating costs into a spreadsheet. Great bargains though they are for flying a new-production aircraft, fractional ownerships are not a "low cost" way to own an airplane... instead, they're a lower cost way to own a nearly-new airplane.

Coming Saturday: So, Is Fractional Ownership For You?

FMI: Tell Us What YOU Think!