Fractional air travel company Volato launched during the height of the pandemic as travelers, concerned about virus-related safety and disruptions on commercial flights, began flocking to private aviation. Volato sought to differentiate itself from other fractional programs by offering a unique investment structure professing to share operating revenue, including third-party charter revenue, with its fractional owners.
As prospective Volato customers began reaching out for guidance, Shaircraft CEO, James Butler, examined the fine print in their contracts for potential pitfalls. In an article for Private Jet Card Comparisons, Butler cautions, “Having worked on several Volato agreements, I’ve identified a basic component of its contract structure that may pose serious problems for potential customers: Individual owners do not have a direct contractual relationship, in legalese, called ‘privity,’ with Volato.”
Traditionally, fractional owners contract directly with the program operator so that if the operator fails to perform its obligations, the owner has recourse against the operator as outlined in the contract documents. However, Volato owners are members of a separate limited liability company that, in turn, contracts with Volato. “Under this structure,” says Butler, “an individual owner must secure the approval of a majority or, in some cases, even a supermajority of the other owners to make a claim under the contract.”
Another red flag is that owners are not protected from the defaults of other owners/members of their limited liability company. So, if one member defaults on its contract, the other owners could potentially have to make up any shortfall.
The bottom line, according to Butler, “While Volato’s reimagined fractional model is an interesting entry into the fractional jet space, significant concerns raised by its contract structure counsel a caveat emptor approach when considering a potential investment.”
Read the full article here.