SHOULD YOUR CLIENT BUY A PLANE? The question may seem extravagant to all but the wealthiest jetsetters.
But if your client travels extensively for business, the question is worth asking.
Here’s how ownership options break down:
- 50 hours or fewer: charter an aircraft each time
- Between 50 and 200 hours: own a fractional share
- Between 200 and 400 hours: depends on owner preference
- 400+: own the aircraft
Most aircraft owners—fractional or otherwise—use an aircraft management company that provides everything from a crew to periodic fuelling, says Mary Schwartz, head of aircraft finance at Citi Private Bank. She runs a team dedicated to assisting clients during each stage of acquiring and financing a private aircraft.
Outright ownership: Solely owned aircraft, either self-managed or company-managed.
Joint: One or more aircraft are co-owned by multiple partners; costs are split based on usage.
Fractional: A timeshare agreement for aircraft (owner pays a fixed monthly bill for the hourly costs). In the U.S., aircraft are sold in 1/16 shares. (So a $16-million aircraft is sold in $1-million shares, with no maintenance or mishap bills.)>
NEW OR USED The price of an aircraft is negotiated according to extensive analyses by appraisers, who also offer advisory services. Manufacturers don’t usually deviate from the list price with in-demand models, says Schwartz. She warns most manufacturers don’t allow people to sell brand-new planes for more than the manufacturer’s suggested retail price—despite the actions of some opportunistic sellers during strong markets.
For pre-owned aircraft, sellers usually inflate prices by 5%-to-10% to account for negotiation. Before the market crash, high demand jacked up prices. “With many bidders, the [winner would] pay higher than the asking price,” says Schwartz. That’s no longer the case, making now a good time to buy.
Small aircraft: $5-to-$8
million (e.g. Cessna Citation)
Large aircraft: $40-to-$60 million (e.g. Gulfstream G650)
DEPRECIATION Aircraft owners should be aware their investment, in most cases, will depreciate. Newer, larger-cabin aircraft (such as the Bombardier Global Express or Gulfstream G650) maintain their values longer than smaller aircraft, such as the Cessna Citation.
- SMALL AIRCRAFT:
$1,450 – $2,100 per fill
- LARGE AIRCRAFT:
$20,000 – $30,000
- SMALL AIRCRAFT: $25,000 per year
- LARGE AIRCRAFT: $120,000 per year
- SMALL: $182,000 (salary for captain and co-pilot) and $13,500 (annual training per pilot)
- LARGE: $447,000
(salary for two pilots and flight attendant) and $90,000 (annual training for crew)
HULL AND LIABILITY
- SMALL: $20,000/year
- LARGE: $59,000/year
Originally published in Advisor's Edge
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