With frequent international travel being fundamental in modern business high flyers and Fortune 500 companies, more and more are investing in owning a private aircraft. Navigating jet ownership is a complex business. Few people know the ins and outs of buying and selling jets better than Jahid Fazal-Karim, Owner and Chairman of the Board of Jetcraft, a global leader in business aircraft sales, marketing and ownership strategies. We talk to Jahid to grab some top tips for first-time plane buyers and discover more about private jet ownership.
What are the primary benefits of buying a private jet?
Firstly, consistency – by owning your own aircraft, you can enjoy the comfort and efficiency of a consistent experience every time you fly. From cabin layout to onboard amenities, you know the ins and outs of the plane you will travel on and can take full advantage of its offerings. As an owner, you can also choose to hire a consistent crew that you know and trust, and that know you and your preferences.
Secondly, personalisation—just like owning a home, owning an aircraft allows you to configure it exactly to your personal taste and needs. It also offers the ability to tailor the flight experience to meet the specific trip requirements.
Finally, control – The only way to be in full control of your private-flying experience is to purchase your own aircraft. Owners have the freedom to make changes or extensions to a trip at the last minute without having to ask if a charter company can accommodate. Ownership also provides you the autonomy over your aircraft maintenance and crew training, ensuring everything meets your level of specifications.
Should you purchase new or pre-owned?
Second hand and previously owned in most other industries has some negative connotations, but that doesn’t apply here. Almost all aircraft are meticulously looked after by their owners; this is like a live-in art piece.
Buying a new aircraft does bring a tremendous amount of choices into play. The interior – what it will look like, and including selecting who will complete it for you, (as not only the manufacturers finish the interiors in today’s private jet market) are both important decisions. Not simply because you have to pay for and live with it, but because resale values will be directly linked to the decisions you make at this point. Some clients are fortunate not to have to worry about that hugely, but most do. I’ve seen some – let’s just call them rather ‘individual’ choices of interiors – that have then stayed on the resale market for not just months, but even longer in some cases.
What about depreciation and running costs?
Regarding depreciation, the average period of ownership is one decade, and typical depreciation in aircraft value drops about 10-15 percent in the first year with a further 10 percent each subsequent year. However, due to low inventory and high demand for pre-owned aircrafts, the 2019 Jetcraft Market Forecast predicts depreciation rates will improve over the next 5 years.
With regards to running costs, this would depend on the size of the aircraft. On average, the transactions we broker at Jetcraft fall around the $20 million mark. From there, costs are divided down into the fixed and variable figures. Fixed, including parking, storage, pilots and maintenance, costs on average $1-1.5 million, depending on the size of the aircraft. The variable costs, notably fuel, can cost $3000-6000 per hour to fly the aircraft.
Are they a sound investment?
Our clients are all after the same thing; saving time and maximising convenience. Buying may well be worth it in terms of time saving, comfort, safety and convenience for those that determine that their life/work needs it. In terms of investment, for the frequent flyer airborne for at least 150-200 hours a year, buying a jet can be a smart decision. If it’s the right plane and properly managed, it can make more sense than chartering or part ownership.
What are the key trends you’re seeing?
The trend for larger, more expensive aircraft continues to rise. In our recent Market Forecast, we predict that the next decade will see the Large Jet category, comprising Super Large, Ultra Long Range and Converted Airliner segments, constitute 32% of total units sold, and 64% of total revenue. With this, product offerings will completely change, as Bombardier, Dassault and Gulfstream each introduce new models to cope with demand.
While the industry is benefiting from the rise in UHNWI buyers and the growth of family offices, there are challenges with corporate buyers in the near term. Fortune 500 companies have yet to return to historical aircraft purchase levels due to focusing on other financial priorities, such as share buybacks and paying down debt. They are, therefore, unlikely to jump back into purchasing aircraft for another few years.
On the other hand, UHNWIs have benefited from the current economic situation. It’s predicted that by 2022, over 3.6 million individuals worldwide will have a net worth in excess of $5 million. This wealth creation is spurring growth in family offices who have expanded their service portfolio to include concierge and lifestyle services, with specialist tasks such as buying or leasing private aircraft.
Overall, private aviation continues to grow and become more accessible. Our forecast predicts a continued growth in the overall global fleet of aircraft by over 30% in the next decade.
What can you tell us about the future of the private aviation industry?
The growing interest in fractional, charter and block programmes is only adding to the overall accessibility of the industry.
Advances in technology, particularly cabin connectivity, are becoming an important factor that may present residual value challenges for pre-owned aircraft that aren’t upgraded to the most modern standards. We expect advances in this technology to continue rapidly throughout the next ten years.
Finally, with the market now stable enough to predict aircraft values, we are seeing aircraft trades becoming more common again. Companies like Jetcraft, who have the financial resources to do so, are buying customers’ current aircraft to make the transition to a larger model more seamless. This type of trade-in transaction is proving to be very beneficial in today’s market and I expect we’ll see even more trades throughout 2019 and beyond.
To discover more about Jetcraft, visit: www.jetcraft.com
By Mark Captain