Should I charter, lease or buy a corporate aircraft?
The options: Private air travel for business
- Air charter is the short-term rental of an entire plane.
- Aircraft leasing is a long-term rental where the lessor retains the plane title.
- Fractional ownership is the purchase of shares of an aircraft and its usage.
- Buying an aircraft grants total ownership of the plane and its use.
Say you own a business based in Chicago and need to get to Tallahassee for a meeting. What should be a relatively short trip starts to look like a full-day affair once you factor in time to get to the airport, check in, pass security and all the intermittent waiting therein — not to mention any potential delays.
Commercial air travel is anything but convenient. While private air travel is more expensive up-front, businesses that require frequent flying may find that aircraft charter, leasing or ownership are more cost-effective options in the long term.
When you’re ready to determine whether an aircraft charter, lease or purchase makes sense for your business, first analyze the variety of factors that contribute to total annual flight costs. Analyzing corporate travel patterns and costs, both in dollars spent and productivity lost due to travel time, can give you a more complete idea of your air travel requirements.
- Number of passengers. Are your business passengers primarily a senior executive or do entire teams need to travel?
- Frequency and distance of travel. Do your business flights consists of several short trips throughout the week, or a few long-haul flights per month? How many are multi-destination trips? Are they typically recurring or one-time flights?
- Departure and destination location. Do you typically require flights to and from major metropolitan locations or do you need access to areas that aren’t served by a major airport? Are the destinations unpredictable or usually the same?
- Urgency of travel. Are business trips usually planned far in advance or decided days — or hours — beforehand?
- Total flight hours per year. Many businesses make their aircraft usage decisions based on this number alone. While an essential part of your calculations, it is only one aspect of costs.
Chartering is the short-term rental of an entire plane, as opposed to one seat on a flight. For companies with annual travel totals of 50 to 100 hours, air charters may be the best option.
While chartering a plane is costlier than purchasing an individual seat, the primary benefit is time saved and flexibility. Rather than being at the mercy of airline schedules, chartering a plane allows you to travel at your own convenience — and in greater comfort and privacy than a commercial flight.
As charter planes are smaller than commercial aircraft and can land on shorter runways, they have access to a wider number of airports, so are able to take more direct flight paths and land closer to isolated destinations.
Like an auto lease, leasing an aircraft is effectively a long-term rental where the lessor retains the plane title. Lessees typically have the option of returning the aircraft at the end of the lease or buying it at fair market value. Aircraft leasing is regulated by the Federal Aviation Administration and can either come with a crew — known as a “wet lease” — or just the aircraft, known as a “dry lease.” As with air charter, leasing is most cost-effective for businesses that fly 50 to 100 hours per year.
Leasing an aircraft is more expensive than chartering, but less costly than ownership as there is no up-front investment to acquire the plane and it remains off your company balance sheet. Furthermore, you avoid paying for depreciation in value and can walk away at the end of the lease. Note that your lease may restrict where and how often you can fly the plane.
Purchasing a share of an aircraft — and thus a share of usage time — is called fractional ownership. Typically, this entails buying into use of a fleet as opposed to a specific plane. For companies that require 100 to 300 hours of annual air travel, fractional ownership may pay off in the long run.
Fractional ownership arrangements are typically five years in length, after which you can sell the share back to the company operating the program. Fractional ownership requires an initial acquisition payment, followed by a monthly maintenance fee that covers costs such as aircraft upkeep, parking, insurance and crew salaries. When using the aircraft, you are charged an hourly fee.
The up-front investment of fractional ownership is less than buying and your business is not bound to owning — and being responsible for — an aircraft.
If your company requires 300 or more hours of air travel per year, buying a corporate aircraft begins to make financial sense. In addition to the reduced cost per passenger, you have full control over the plane’s use.
Unsurprisingly, planes are expensive, and your business will likely need financing to acquire a commercial aircraft. Loan arrangements, conditions and rates will vary widely, so compare lenders to see what options are available to your business.
Remember that acquiring a plane involves more than just the cost of the aircraft. Insurance, maintenance, fuel, parking, crew salaries, taxes and landing fees are just a few of the many expenses associated with ownership. You will most likely want to hire an aircraft management firm to handle these details for you, which will incur additional costs.