Understanding Business Aviation

The Merkur Air team understands business aviation. For more than 30 years, we have been providing outstanding safety and security, unmatched levels of personalized service, access to airports that commercial aircraft do not serve in Greece and the Mediterranean, and an entire spectrum of bespoke services. No matter which service you contact us for, we aim to identify the best business aviation solution to suit your needs.

 

Experiencing Business Aviation

From a customer perspective, there are six major ways to experience business aviation. They range from low to high investments, various levels of commitment and different ranges of operational control:

• Full Ownership
• Fractional Ownership
• Block Fractional/Fractional Cards
• Block Charter/Charter Cards
• On-Demand Charter
• Air Taxi

There are unique features and benefits to each of these types of service, and your preferred solution may involve a blended approach.

Full Ownership

Full ownership involves the acquisition or lease of a 100 percent interest in a business aircraft. You may operate and maintain your aircraft within your own corporate flight department or through a professional aircraft management company. You will incur all benefits and costs in owning, operating, and disposing of the aircraft.

When the aircraft is not used, you may elect to make it available for charter, providing an incremental source of revenue to you. If your aircraft is undergoing scheduled or unscheduled maintenance, if it is not cost-effective to position to serve your needs, or if it does not have the performance or capacity required to complete a desired mission, you may supplement your ownership with any of the following option.

Fractional Ownership

Fractional ownership involves the acquisition of a partial interest in an aircraft from a fractional operator, who acquires, operates, and manages fleets of similarly configured aircraft on behalf of multiple owners. In exchange for a one-time capital investment and monthly management and hourly operational fees, you will have access with as little as 6 hours of notice (“call out” time) to your aircraft or one like it for a pre-determined number of hours per year.

Fractions are typically sold in shares of 1/1 6th or greater, providing multiples of 50 flight hours per year for five or more years. You will only be charged for “occupied hours,” not for the costs of aircraft positioning. You will be able to fly on multiple aircraft and different types within the fractional fleet at agreed-to “interchange ratios.” At the end of the ownership period, the fractional operator has the right to purchase back your share at fair market value less an aircraft remarketing fee.

Block Fractional /Fractional Cards

Block Fractional and Fractional Cards offer access to business aircraft with less commitment than fractional ownership. You will pay up-front for a year’s usage (typically beginning at 20-25 hours but may be as low as 10 hours per year) from a block fractional company, who acquires, repackages and sub-leases fractional shares to customers. As a customer, you will have access to a fractional fleet of aircraft with the quality and service consistency that fractional owners enjoy. You will pay only for occupied flight hours and not for positioning the aircraft before or after your flight. You will not hold title to the aircraft, and you are likely to encounter some restrictions in operating flexibility relative to fractional ownership (which may include longer required notification times, more limited geographic coverage without additional fees, etc.)

Block Charter / Charter Cards

Block charter typically enables you to purchase a block of hours at a pre-determined cost from a company acting as a charter broker or consolidator. You will typically be able to purchase time in charter aircraft in increments of 25, 50, or 100 hours. Your account will be debited as hours are flown based on the type of aircraft used, flight hours consumed, and any miscellaneous costs. You will have guaranteed access to a fleet of charter aircraft within a call out period (typically 4-12 hours), and only pay for occupied hours.

On-Demand Charter

These services are essentially a “pay-as-you-go” service provided by a third party charter operator. You will have no need to make an up-front investment, and you will hold no title in any aircraft. Pricing will be market-based and variable. Quality of service will also be variable, and is dependent on which charter company is called upon to perform the service. The charter operator may or may not own the aircraft and employ the crews. You will have no guarantee of access to an aircraft, nor will you know for certain which type of aircraft you will fly in until booking is completed and a deposit is paid. You will be expected to pay for positioning the aircraft before or after your trip, and you will be charged for any incremental costs associated with the trip.

Air Taxi

Air taxi services are typically operated on a “pay-as-you-go” basis on a network of pre-determined routes or within a geographic region. Services may be on a per-seat or per-aircraft basis. On the per-seat basis, you as a passenger have limited control over who else is on the aircraft. New air taxi business models are emerging, combining Internet-based booking systems, advanced scheduling optimization software, and low-cost very light jets (VLJs), but these remain unproven at this time.

Key Criteria for Assessing Your Business Aviation Needs

There are so many choices in business aviation today. How can you best evaluate what makes most sense for you? The following framework is provided to help you understand the issues, organize your thoughts, and ask the right questions as you consider your needs.

Utilization Rate, defined as the hours you might expect to fly in a given year, is one of the most fundamental considerations in your decision-making. Generally speaking, customers with the highest utilization rates will tend to gravitate towards full ownership. Although individual circumstances can vary widely, the following information may be helpful as a guideline:

• Full ownership tends to be most cost-effective for customers who fly 300+ hours per year, although some fly as little as 125-150 hours a year.
• Fractional ownership may be the most cost-effective solution for customers who fly 50-300 hours per year.
• All other options are typically considered for customers who fly up to 50 hours per year.

Safety and security is increasingly recognized as one of the key benefits of flying in a business aircraft. As a business aviation customer, you will come to expect privacy, individualized customer service, and travel on your own terms. All operators strive to deliver peace of mind and a sense of safety and security that meet your expectations, while the best go well beyond mandated regulatory requirements and invest heavily in systems, people and procedures to differentiate themselves in the field. If you are considering flying in a business aircraft managed and operated by someone else, make sure they deserve your business by asking:

• How long has the company been operating? What evidence is there to indicate that the company has a safety culture?
• How much experience does the company have with this type of aircraft?
• What criteria are used to recruit, select, and train flight and maintenance personnel?
• What minimum flight hour experience is required for newly recruited pilots? More importantly, what are the actual flight hour experience levels of their pilots?
• Who trains the flight and maintenance crews? How often are they trained? Are crews trained on equipment identical to the aircraft they operate? Does training go beyond mandated requirements to include advanced training in cockpit resource management and emergency procedures?
• What is the average age of the company’s aircraft? How are the aircraft maintained? Has the company been recognized for consistently superior maintenance procedures?
• What on-board safety and navigational equipment does the company use?
• What processes are in place to ensure quality, consistency, and safety of flight operations? Have these processes been audited by an independent third party? If so, what are the results of recent audits?
• What is the company’s safety track record, both in general and with the specific type of aircraft? How many accidents or incidents have occurred over time? What changes were mandated and/or implemented following these accidents and incidents?
• Is the company willing to allow you to speak to their existing customers about the above?

 

Complexity and commitment may be an important consideration for you as a customer. At one end of the spectrum, owning and operating a business aircraft in your own flight department requires a significant up-front investment in aircraft, facilities, equipment, spares, people, training, and procedures to meet regulatory requirements. On the other hand, chartering a few hours in someone else’s aircraft can be arranged with a simple phone call. Here are some questions to ask yourself:

• Do you consider your business aviation needs to be short term (i.e. this year only) or longer term? If longer term, what investment of time and resources are you willing to make?
• Do you want to establish, control, and manage this operation yourself, or contract with someone else to do it for you?
• What contract term are you willing to commit to? What are the contract renewal provisions? What are the exit provisions? What damages are incurred for early contract termination? What recourse do you have for contract non-performance?

 

Consistency and control is a major consideration in a decision to use business aviation. Business aircraft operators strive to deliver a consistent product each day, but you will have to decide which is good enough to deserve your business. Some questions to ask yourself and the operators you may be considering:

• Do you need/want complete control of the aircraft (equipment, interior specification and design, optional features, maintenance procedures) and crew (pilot selection, training, performance management, flight planning, dispatch, and scheduling)?
• Are you more interested in business aviation as a personalized travel service? Are you willing to cede control and share access to your aircraft with others?
• What contract term are you willing to commit to? What are the contract renewal provisions? What are the exit provisions? What damages are incurred for early contract termination? What recourse do you have for contract non-performance?

 

If you are open to allowing someone else to operate the aircraft:

• What is the operator’s dispatch reliability and on-time performance?
• What is the operator’s customer satisfaction?
• How efficient and cost-effective is the operation?
• What percentage of time does the operator fly “deadhead” (empty legs for positioning)?
• What percentage of time does the operator charter-in services from a 3rd party? How are these charter operators selected?
• For all of the above, what are the historical trends? Have these measures improved over time?

 

Schedule flexibility considers your ability to schedule or change your travel plans with minimal notice, or otherwise use the aircraft when you want, without constraints. You should consider the following:

• With full ownership, your travel schedule must dovetail with required “down-time” for scheduled and unscheduled aircraft maintenance, mandatory crew rest, and even crew training.
• With fractional ownership, fractional cards, and charter cards, you will be required to provide advance notice, and aircraft availability is subject to a contract clause. Fractional and charter operators generally introduce special procedures on high-demand (peak) days, and special rules may apply to trip cancellation.
• With on-demand charter and air taxi, little or no advance notice is required. Charter services provide considerable schedule flexibility, but at premium prices for the service, and subject to both crew and aircraft availability. There is no guarantee that you will have access to an aircraft, particularly during high-demand periods.

 

Mission flexibility encompasses the degree to which you can match a particular aircraft to your trip requirements. Full ownership provides you with exclusive, virtually anytime access to your own aircraft, but the question remains: is it the right aircraft for the mission?

If your trip missions vary considerably, you may want to consider acquiring an aircraft with competitive performance along several key parameters (especially payload, range, runway requirements, and speed). This will provide you with flexibility in scheduling missions into smaller, distant airports closer to your destination. An added benefit is that aircraft with solid, balanced performance and comfortable cabins, when built by reputable manufacturers, tend to sell well in the marketplace and maintain their residual value.

What if your needs and trip missions vary widely? What happens if you are doing business in Athens while your family is in Paris, and you all need to get to Rome to celebrate Christmas? With fractional ownership and fractional cards, you have access to multiple aircraft at short notice, with a level of quality and consistency that you will come to appreciate. You can also upgrade or downgrade to an aircraft that best meets your needs, giving you superior flexibility in matching aircraft to your missions. Given that the fractional fleet is constantly repositioning to meet the needs of owners like you, you can be assured that an aircraft is nearby to take you and your family to your destination.

If your travel needs occasionally require you to travel to exotic or very distant locations, you may want to consider on-demand charter operators or, of course, commercial air travel. The key point to consider is that you have many travel alternatives, each of which may be your best choice depending on your particular mission that day.

Cost/Value is a fundamental consideration for a business aviation customer, whether the need is for business or personal travel. If you are interested in owning an aircraft or a fraction of one, your considerations should include:

• Capital costs, including acquisition and depreciation
• Overhead costs, including aircraft management fees, aircraft positioning and chartering-in charges, crew training, and travel, etc.
• Operating costs, including fuel, aircraft maintenance, parts, and navigational/landing fees
• One-time costs, including aircraft upgrade, refurbishment, and disposition

 

In your consideration of fractional and carter card programs, on-demand charter, and air taxi, these costs will typically be consolidated in the price you will be asked to pay.

Value is to many a subjective factor in a purchase or lease decision. You may have a strong preference to own an asset, based on prior positive experience or your desire to control the end-to-end quality. On the other hand, you may have previously owned an aircraft, and come to appreciate the complexity, hassles, and time commitment that were involved. It may be important to you to delegate this responsibility to someone who manages aircraft for a living. If you have an appetite to own an asset (or a fractional share), an important point to note is that business aircraft have historically maintained strong residual values with long useful service lives. These values are best protected when the aircraft is flown, maintained, and upgraded by reputable professionals.

In summary, your personal needs assessment should include an evaluation of each of these criteria. Take the time to ask the right questions and seek complete answers, and assign a level of importance to the criteria that makes best sense for you.

Fractional Ownership 101

Fractional ownership offers customers the ability to enjoy many aircraft ownership benefits at an overall cost lower than full ownership. This is made possible by dividing the aircraft into smaller shares (fractions), giving you the option to buy the number of flight hours that best fits your needs.

Share	Typical Annual Hours
1/16th	50
1/8th	100
1/4th	200
Half	400

Some fractional programs offer both new and used aircraft. The programs range from small, regional programs to large nationwide networks. Network economies afforded by a fleet of similar (or even identical) aircraft, always available to all the owners, make the “anytime, from anywhere to anywhere” concept achievable.

Four key agreements are required:

• Purchase Agreement governs the share acquisition (or lease).
• Management Agreement establishes the procedures under which the fractional operator manages your share of your aircraft. Services provided include providing pilots, arranging for maintenance, catering, weather reporting, reservations, and scheduling.
• Dry Lease Exchange Agreement, also known as a master interchange agreement, allows aircraft to be shared amongst fractional owners. This document serves as a contract: between all owners of an individual serial-numbered aircraft; and
  between all owners of one aircraft and all owners of other aircraft in the Fractional Ownership program. This contract allows an owner of one specific aircraft to use an aircraft owned by another group of individuals.
• Joint Ownership Agreement establishes the framework for providing each fractional owner with access to both an undivided interest in their aircraft and a share of allocated hours as established in the Purchase Agreement.

 

Your costs will fall into three categories:

• Share Acquisition Cost (up front, one-time)
• Aircraft Management Fee (charged monthly)
• Occupied Hourly Rate (charged hourly as you use your aircraft)

 

The Share Acquisition Cost reflects the shareowner’s portion of the “sticker price” of the aircraft. Fractional operators typically have the right to repurchase your share at the end of the contract term for “fair market value” less a remarketing fee. You assume the risk or reward if the value of the aircraft changes during the ownership period.

The Aircraft Management Fee is specific to the type of aircraft and size of share owned. The fee covers the fixed costs of establishing and maintaining the fractional program, including pilot salaries and expenses, insurance, aircraft scheduling, overhead, and other costs. Contract terms are typically for 5 or more years, and include escalation clauses based on the Consumer Price Index (CPI) or other indices.

The Occupied Hourly Rate is also specific to the type of aircraft and size of share owned, reflecting the costs of operating the aircraft, including fuel and maintenance. Hours are calculated from takeoff to landing, with most programs adding 1/10th of an hour on either end of the flight for taxi time on the ground. Most programs establish one hour as the minimum flight time charged, although some offer the flexibility of “short leg waivers.” Occupied hourly rates are escalated based on the CPI or other indices, with a separate adjustment to account for the highly variable fuel component.

As a fractional owner, you will not be specifically charged for positioning flights to move aircraft to where they are needed to serve owners or to go in for maintenance. Expenses associated with these flights are blended into the program rates and spread across all shareowners, providing better cost predictability for you.

 

Choosing a Fractional Operator

Before selecting a fractional operator, investigate each alternative and perform your due diligence. As with any important business relationship, ask yourself:

• Who are they? Who is behind them? How long have they been in business?
• Is their business model successful and sustainable? Are they profitable? Do they have a growth plan?
• How delighted are their customers? How does the fractional operator identify, prioritize, and resolve customer issues? How many customers are referring their friends to join their program? How many owners are exiting their program?
• How delighted are their employees? How stable is the management team? Are there issues with unionization of flight and maintenance personnel that you should know about?
• How effective, efficient, and customer-centric are their processes? Have these processes been audited by independent 3rd parties? If so, what are the results?
• How does the company perform operationally? Are operations efficient? How much unproductive flying (deadhead positioning and chartering to back up the fractional fleet) does the company perform?
• Do they offer a service guarantee (for example, limiting the amount of charter flying you will be exposed to, or offering money-back guarantees if you are not completely satisfied)?
• How well does the company recover from operational setbacks? How do they assure customer service quality when things do not go as planned?

By all means, don’t assume that big is necessarily better. Give your business to the company that demonstrates that it understands your needs, relates to you as an individual, and wants to be in a business relationship with you.