Deciding Between Fractional Ownership or Leasing?

James Butler Advises Buyers on the Financial Considerations of Both

Bethesda, Maryland • October 2017

Jet providers are notorious for over-simplifying program options. Most are more concerned with meeting sales quotas than making sure you're outfitted with an option that truly works best for your lifestyle and budget. However, when it comes to making an investment where both your money and your safety are at stake, nuances matter. Having an independent advisor provide an unbiased assessment of your needs and carefully analyze the details of jet programs/contracts is critical.

For an independent opinion on the financial considerations of deciding between fractional ownership and leasing, SherpaReport turned to Shaircraft CEO, James Butler.  Butler advises you to consider the following:

Out-of-pocket capital cost.  “With a lease, there is no upfront investment, whereas, with fractional ownership, you have a large upfront share purchase,” says Butler.  Therefore, you lose the immediate use of that capital with a fractional contract, although you can expect to get some portion of that back at the end of the contract term.

Depreciating values are an essential part of the fractional calculus. Fractional shares typically are repurchased by the provider at the end of the contract term. At that time, you’ll receive back a portion of your initial outlay. However, there are no guaranteed minimums, and so any return is completely tied to the market value of your aircraft. “You may get much less back than you expected,” Butler says. With a lease, however, the market risk is shifted to the provider, a variable that certainly is factored into the lease cost, but which also cabins your financial uncertainty. 

Personal financial goals.  While some clients fancy the idea of ownership in a plane and so don't mind front-loading the investment, others simply care about having access to a jet when they need it. Butler concludes, “If you want to do more with your capital in the immediate future, leasing is a better option. If not, fractional may be a good choice for you.”

Corporate considerations. In corporate settings, leases can be preferable to fractional ownership as they may be better received by shareholders and in public reports. Butler says, “Many shareholders may find travel expenses (i.e. through leasing) more agreeable than an asset (i.e. fractional ownership). It can sometimes be the less controversial option.”

Bottom line?  Butler sees the same mistakes being made in both fractional ownership and leasing: purchasing too many or too few hours, choosing the wrong aircraft for your needs, and failing to take the financial pros and cons into account.  He emphasizes the importance of understanding your financial and flight needs before making a decision on any jet program and recommends using a professional consultant. He says, “Unless you have a lot of experience in the field, using a consultant can save you thousands of dollars. The consultant fee pays for itself many times over by making sure your investment is tied to ALL of your needs.”

Please Share