As a retired aviation executive, Arthur Highland understands the value of having a private jet at his disposal.
The Lake Forest resident also realizes the astronomical costs connected to having such a perk. That’s why Highland recently opted to become a part-time jet owner.
“It’s something that makes perfect sense financially,” says Highland, former chairman of Appleton, Wis.-based Butler Aviation and Air Wisconsin. “I now have all the pleasures and none of the headaches of owning my own plane.”
Highland, 72, is one of a rapidly growing number of business people and travelers who are opting for fractional aircraft ownership, a relatively new concept in the aviation industry that is somewhat akin to vacation home time-sharing but with fewer restrictions.
“What we offer is guaranteed availability, 24 hours a day, 365 days a year,” says Kevin Russell of NetJet, which provides part-time ownership.
“As a NetJet client, I can call for an airplane and have it available at any of the 5,000 general aviation airports in the country in as little as a few hours notice,” says Russell, senior vice president of marketing and sales for Executive Jet Aviation, a Montvale, N.J.-based aviation charter, aircraft management and aircraft sales firm that runs NetJet.
The company sells the planes in one-eighth shares. For example, a one-eighth share of a $3 million Cessna Citation S/II costs $330,000 and guarantees an owner 100 occupied hours in the plane each year.
A one-eighth share in the larger, faster Citation Video Ultra or Rayethon Hawker 1000 costs $745,000 or $1.5 million, respectively.
In addition to the share cost, there is a monthly fixed management fee that starts at several thousand dollars and covers costs such as pilots, hangar and insurance. There is also an hourly rate for flight costs that starts at about $1,000.
By opting for part-time ownership, and avoiding costs such as pilot salaries, fuel and maintenance, a client can save as much as 75 percent of their private jet aviation expenses, Russell says. In addition, the ownership interest can be sold to new clients or back to the company at a fair market value after a certain period.
“There are other companies now doing the same thing, but NetJet pioneered this concept of shared ownership and is now the leader in the field,” says Jack Olcott, president of the National Business Aircraft Association, a trade group for companies operating business planes.
“A company can have all the benefits of aviation quickly at a much lower commitment of capital and more predictable costs,” he says. “A company can also use this form of transportation and not obligate themselves to the intricacies of running its own flight department.”
NetJet offers ownership in several types of private jets, including:
– The Cessna Citation S/II, which seats seven (and two pilots), has a range of 1,500 non-stop miles and a cruise speed of 430 miles per hour. It also has a cruise altitude of 37,000 feet. The plane has a private lavatory and a full service refreshment center.
– The Cessna Citation Video Ultra also seats seven, has a non-stop range of nearly 2,000 miles and cruises at 500 m.p.h. It has a cruise altitude of 43,000 feet and a private lavatory and a full-service refreshment center.
– The Rayethon Hawker 1000 has a cabin tall enough for passengers to comfortably walk around in. The cabin features six passenger seats plus a divan that seats three. It has a non-stop range of 3,200 miles, a cruise speed of 515 m.p.h. and flies at an altitude of 41,000 feet.
Key to the NetJet program is a computer scheduling system conceived by company founder Richard Santulli that costs nearly $2 million to develop, Russell says. The system allows NetJet officials to efficiently route its fleet around the country to accommodate its clients.
“Unlike a commercial airline, which has scheduled flights, our system is dynamic,” Russell says.
In addition to computing customers’ requests, the system is also linked to the National Weather Service and factors in weather conditions. It also computes the schedules of NetJet’s 150-plus pilots, who can fly only a certain number of hours each day.
“The system is dynamic enough to realize that it has to not only match owners with planes but be prepared for mechanical delays because of aviation equipment, as well as consider weather delays and pilot scheduling,” Russell says.
The concept of shared ownership seems to be taking off, thanks mostly to word of mouth, he adds.
Launched in 1987 by Santulli, the firm has grown dramatically. “Our revenue growth for the last three years has been 50 percent per year,” Russell says. “We’ve purchased in the last 18 months almost a billion dollars in aircraft equipment.”
Most of NetJet’s 200 or so clients come from public and private companies. “A large percentage of our clients are private companies that are somewhere between $50 million and $700 million and have great growth potential,” Russell says. “And we also service some very, very large public companies, several of which are in the Top 10 of the Fortune 500. In fact, they have significant investments in their own aviation aircraft but use us to supplement their fleets.”
About a third of NetJet’s clients are private individuals such as Highland.
“These are typically entrepreneurs or seniors executives who have just reached that point in their lives when they need to have the ability to get away quickly for personal reasons,” Russell says. “They may put in 70 or 80 hours a week and they want to maximize their personal time. Or they may be a retired chairman of a major corporation and one of the perks they had at one point was a business jet.”
Russell says clients are being lured to NetJet because of the convenience and comfort of traveling by business jet. In addition, they receive the tax writeoff of ownership, which doesn’t happen with the chartering of a plane (each partial owner is registered with the FAA).
“There are about 400 commercial aviation airports and 5,000 general aviation airports in this country but just try to go from New York to Little Rock, Ark., or South Bend or Lexington, Ky.-it’s nearly a full-day trip,” Russell says.
“And good luck if you want to go to two places in the same day and do business in one in the morning and business in the second in the afternoon,” he adds.
“It becomes nearly an impossibility on commercial aviation.”
Adding to business travel problems are reductions in commercial aviation services and a move by American business to outlying areas where the cost of labor is less expensive, Russell says.
“That’s why a business jet makes sense,” he says. “But most people can’t justify the cost of purchasing business jets, especially if you fly it only 100 or 200 or 300 hours a year.”
Highland agreed.
“A private business plane is one of the last luxuries in life,” says Highland, who estimates that he uses the NetJet program 20 to 30 times a year for pleasure and business.
“The convenience factor of flying a private jet can make all the difference in the world to a busy business person. And with partial ownership, you can’t argue about the cost savings.”
For example, Highland sold a Beechcraft 200 jet a couple of years ago that he estimated cost him $2 million to buy and maintain.
He calculates he spends about a tenth of that to be a fractional owner.
In addition, Highland likes the service.
“They do a wonderful job at making you feel like you own an airplane,” he says.
“Plus, there’s these wonderful little touches onboard such as a bottle of white wine for me, peanut butter and jelly sandwiches for our grandkids or a bouquet of flowers for Mother’s Day.”
With a continued emphasis on downsizing and the corporate bottom line, Russell believes growth will continue to be strong for NetJet.
“How many people can afford to purchase a $3 million or $12 million or $24 million business jet?” he asks.
“Yet, for business people who work 80 hours a week, a private jet at their disposal is an invaluable tool. That’s where we see our opportunity.”
