Business aircraft owners struggling to cover their costs now have an alternative to traditional aircraft management through the new Non-Equity Sharers (NES) program offered by UK-based Jet Connections. The Oxford-based company is offering to find up to three people or companies to share use of an aircraft with the owner by dividing the fixed operating costs and making each owner responsible for his individual flight-hour costs.
NES will be based on an annual contract between the owner and those sharing the aircraft. Aircraft availability and all aspects of managing the legally binding agreements will be handled by Jet Connections for an annual fee of approximately £40,000 ($64,000), which also is split among the participants.
Aircraft will be managed either by the owner’s existing management company, assuming it holds a commercial air operator’s certificate (AOC), or by an AOC holder selected by Jet Connections. Managing director Zaher Deir told AIN that he has provisional agreements with several undisclosed aircraft management companies willing to operate specific aircraft under their AOCs. Eventually, Jet Connections may apply for its own AOC.
The aircraft’s owner would be the main insured party, with the NES participants named as additional insured parties. Users would share the cost of insurance, as well as those for management, maintenance and pilots. Each user would pay direct costs such as fuel, landing fees, en route ATC charges and handling for a specific flight.
No Capital Outlay
According to Deir, NES will make aircraft available to users at “much lower” rates than are available even in today’s severely competitive charter market, despite the fact that they are directly contributing to both fixed and direct operating costs. He said that a typical user would save “tens of thousands” of dollars each year, based on the assumption that each aircraft would fly a total of around 400 hours annually.
For example, Jet Connections estimates that the fixed annual ownership costs for a Bombardier Challenger 604 are about $1 million. On this basis, each of the four users would pay $250,000, plus a quarter share of the Jet Connections management fee at approximately $16,000 for an annual fixed total of approximately $266,000. Spreading this fixed cost over 100 flight hours averages out at $2,660 per hour. According to data released in early April by online charter portal Avinode, the average flight-hour price for a Challenger 604 outside the U.S. is €4,732 ($6,672)–leaving a margin of roughly $4,000 to cover fuel, en route, landing, handling and parking charges plus any additional services (such as catering).
Deir said that Jet Connections gives aircraft owners guaranteed income to cover their fixed costs, noting that this is not assured under the traditional aircraft management model. In fact, some management companies have offered owners guaranteed amounts of charter income but then found these unattainable when demand dipped.
Another claimed benefit of the NES program for owners and shared users alike is that the aircraft will be flown only by a small group of known individuals. Jet Connections manages equal, first-come-first-served access to the aircraft under a pre-agreed policy signed by all parties under a contract prepared by its law firm. The annual contract can be changed or cancelled by the aircraft owner only after a notice period of between 60 and 90 days.
Sharers have access to a specified aircraft without shouldering any capital outlay or depreciation costs. They also enjoy the service consistency of having flights provided by a fixed crew and management company, rather than taking whatever is available on a given day in the charter market. The sharers pay only one quarter of the management fees even if Jet Connections has not yet lined up three parties to share an owner’s aircraft.
Since each aircraft user directly covers his specific flight-hour costs, he pays only for the level of service he requires. This means that users with fairly simple needs are not effectively cross-subsidizing the champagne tastes of fellow users.
Deir, who has been in business aircraft management since 1984, told AIN that he has previously operated a system similar to NES on an unofficial basis. These arrangements, operated under private rules in Saudi Arabia, have involved aircraft including Cessna Citation Excels, Bombardier Challengers, Dassault Falcons and Embraer Legacys. He is originally from Jordan, where he started his career with local operator Arab Wings, and has launched Jet Connections with his son Tariq, operating from a base at Oxford Airport.
After consulting with the UK Civil Aviation Authority and its lawyers, Jet Connections has opted to launch NES under fully commercial rules since money is directly changing hands for use of the aircraft. Deir said he is well aware of widespread concerns about illegal charter activity in which some owners are fudging the rules to make privately operated aircraft available for use in return for payment of one sort or another.
For the time being, Jet Connections is focusing on the European market, but is laying plans to extend NES to clients in the Middle East. From a database of nearly 900 aircraft owners and prospective users, the company has received about a dozen “serious inquiries” in the first couple of weeks of marketing the program. Two aircraft owners have provisionally committed to the program and initial work is being done on the legal documentation.