CEO of Fractional Jet Europe says now is the time to buy fractional shares
Chris Moody, CEO of Fractional Jet Europe and former NetJets employee says that now is a great time to buy second-hand shares.
The last three years have been tough for fractional aircraft ownership. Operators have had to buy back shares in more aircraft than they have sold.
Chris Moody, CEO of Fractional Jet Europe, an exchange for second-hand shares, says that now is a great time for buyers and that they should look at pre-owned shares. “No one should be looking to sign a new aircraft contract at the moment,” He says. “The thing to remember with fractional jets is that you may never fly on the aircraft you own. The operator simply sends you any aircraft from the fleet, so there is no advantage to buying a new share over a used one.”
Hourly fees do go up slightly after an aircraft reaches five years to reflect higher maintenance costs but Moody says this is more than made up for by the lower acquisition costs. “Jets have taken a massive hit, so values are down and you can get a good purchase price now,” says Moody. “In the boom market these shares were not available, but now you can get them at a discount.”
One of Fractional Jets Europe’s customers is looking to sell 3/32nds (or just over 9%) of a 2008 Hawker 750. The owner originally paid NetJets $1,171,875 for its share of the aircraft and received 75 flying hours per year. It is now for sale at $650,000. Another advantage of buying from a current owner is that the share frequently has extra hours, as owners are likely to choose to sell a share because they are not using it. For example Fractional Jet has a 1/32nd share in a Hawker 800XP with 25 extra hours. According to Moody the buyer will save over €1,000 per hour ($1,200) on standard NetJets rates because of these extra hours.
Buyers may be getting a bargain but the seller also benefits as he can exit his contract early, saving on the fixed costs and the often-substantial fees charged for terminating early. Buyers of new fractional shares commit to five years with the option to terminate early after three years. Even then the owner needs to give three months’ notice and pay fixed monthly management fees during this time.
The fractional ownership company also charges a re-marketing fee, which is usually either 7% of the aircraft value at the time of the sale, or a further three months fixed costs.
By selling on the open market the owner can exit at any time, even before the minimum three-year term and avoid those fees. Fractional Jet Europe charges owners just 25% of any savings made. “It’s a win-win situation, as both parties benefit,”says Moody. His company does not own the aircraft at any time – it just links the new buyer with the seller.
Fractional ownership contracts give the operating company the right to decide on transfers but this is rarely an issue. Although they argue that they introduce liquidity to the market, Fractional Jet Europe and other companies like FractTrade, a 15-year-old US exchange, sometimes have an un-easy relationship with fractional companies. This is partly because the fractional company no longer receives a margin on the transaction. Ironically both Moody and the founder of FractTrade are former NetJets employees.
Moody was part of the team that launched MarquisJet in Europe in 2002, which gave owners 25 hours of NetJets flights. He stayed when NetJets acquired the business in 2004 eventually leaving in 2008. He launched Fractional Jet Europe on the day that Lehman Brothers collapsed.
“It was a complete coincidence,” says Moody. “But it meant that we had a lot of aircraft to sell in a very short space of time.”