Private aviation consultant, James Butler, advised the readers of Business Jet Traveler about the risks facing the growing number of longtime charter customers who’ve decided to become aircraft owners.
Charter management companies have hit upon a creative way to expand their service capabilities without purchasing additional aircraft – have their customers do it. Citing heavy demand for charter, operators are encouraging clients to purchase aircraft and then put those aircraft on the operator’s charter certificate. As a means of recouping operating costs, operators hold out the promise of, but don’t contractually guarantee, a continuous flow of charter revenue.
Deals like these may seem appealing now (while the charter market is hot), however, there are many reasons to think twice.
- Charter margins are slim and charter revenue is not guaranteed. Thus, the owner’s portion of the charter profits likely will not come close to covering the aircraft’s operating costs.
- The market could turn. If charter goes through a dry spell, or the charter operator goes south, the owner will shoulder the operating costs without much supplemental income.
- Maximizing profits means chartering the aircraft as much as possible, which may result in the owner’s own travel needs taking a back seat.
“I see more people getting out of owning their planes than the other way around,” Butler cautions. “They’ve run the numbers on what it’s costing to own and operate the airplane, and they feel it’s less of a headache to let somebody else take that over.”
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