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Fractional Ownership Ready for Takeoff

Fractional aircraft ownership is the ‘in-between’ alternative to
chartering aircraft or buying them outright. In return for purchasing
‘share’ in an aircraft – typically 1/8th or 1/16th of the aircraft’s
purchase price – a fractional owner gets access to it as needed (unless
someone else is using the plane), or to a similar aircraft in a
fractional aircraft operator’s fleet.

“Fractional
ownership allows business executives to make the best use of their time
and skills,” says Michael Bannock, president and CEO of Jet-Share
Canada. “More than just cost-competitive to airline or charter flights,
a private jet can often take passengers to smaller – and often far more
convenient – municipal and private airports.” Based in Toronto,
Jet-Share Canada has a fleet of Citation and Beech jet aircraft
operating from Toronto Pearson and Toronto Buttonville airports.

“For
customers who are chartering aircraft for 100 hours or more a year up
to 400 hours annually, fractional ownership offers a cost-effective
alternative that delivers superior service,” says Judson Macor, CEO of
AirSprint Canada. Based in Calgary, AirSprint offers fractional
aircraft ownership of Pilatus PC-12, Citation Bravo, and Citation Excel
aircraft from bases across Canada. “It’s like owning your own business
aircraft, without having to pay the full cost of ownership.” Adds
Jet-Share Canada’s Bannock, “No lineups, convenience of scheduling, and
complete security means travel arrangements are built around the
client’s needs.”

This said, there’s more to fractional ownership
than the shared purchase price. You also have to pay for each hour
flown, cover fuel, and pay fractional aircraft management companies
such as AirSprint a monthly fixedcost fee that includes maintenance and
storage. But for those businesses needing the convenience of and access
to a private aircraft without the total cost, fractional ownership can
be a wise choice.

TAKEOFF DIFFICULTIES
In the US, the
economics of fractional ownership have made it a key player in
corporate aviation. Yet the same is not true in Canada. To date,
AirSprint and Jet-Share are among the few national service providers.
Even Bombardier, which markets fractional ownership in the US and
Canada under its Flexjet program, only flies out of Montreal while
Corporate Express sticks to the West. Flexjet flies two Learjet 45s and
one Challenger 604 in Canada, while Corporate Express flies four
Piaggio P-180 Avanti twin turboprops.

“The US is years ahead of
Canada when it comes to personal and private aircraft,” says Brent
Genesis, Corporate Express manager of corporate charter services.
“People there have the financial wherewithal to go out and purchase a
personal jet for themselves or a corporate aircraft for their business,
but such is not usually the case in Canada.”

These conditions
govern fractional aircraft ownership here as well, which is why “our
primary service is defined by the continental US, where we have 70
fractionally-owned aircraft,” says Sylvain Lévesque, Bombardier
Flexjet’s vicepresident of marketing, contracts and administration.
“This service area includes anything within 200 miles of CONUS, which
is why we are able to reach most Canadian cities with crossborder
flights in addition to our service based out of Montreal.” In a market
where fractional ownership has yet to truly catch on, this is a
realistic strategy.

FRACTIONAL OWNERSHIP HURDLES
Lethbridge’s
Integra Air used to include fractional ownership among its many
aviation services. However, the company gave up after numerous
headaches selling shares in its first fractional ownership aircraft.

“We
had lined up three fractional owners for a Piper Cheyenne,” says
Integra Air president Brent Gateman. “However, when it came down to the
last minute, it turned out that the guys didn’t want to own the
aircraft just to have access to it to fly when they needed to. This
left us financing the aircraft, which really didn’t offer any advantage
to our company. So we decided to get out of fractional ownership and
stick to our core scheduled regional and charter flight businesses.”

Integra
Air’s experience points to what may well be the biggest hurdle to
selling this service north of the 49th parallel: The thrifty, nonflashy
Canadian psyche, which doesn’t think well of ‘show-offs.’

“In
the US, people view private business aircraft as evidence that a
company is prosperous and well-run,” says Dr. Joe D’Cruz, an aviation
analyst and professor of business strategy at the University of
Toronto’s Rotman School of Management. “In Canada, that’s not the case
at all: A company that uses business aircraft is seen as somewhat
ostentatious and even spendthrift. Since Canadian businesspeople tend
to be more conservative than their American counterparts, they are not
comfortable with being perceived as flashy or arrogant. That’s why they
shy away from business aircraft in general, including those that are
fractionally-owned.”

Even if Canadian businesses were
comfortable with owning corporate aircraft, our economy just doesn’t
have the strength to support widespread purchases. It’s not just
because Canada’s market is 1/10th the size of the US: it’s also because
Canadian executives are paid far less than their US counterparts.
Without this extra income and business-paid budgets to match, they do
not have the money at hand to buy private aircraft the way American
executives do.

This fact makes it hard for Canadian fractional
companies to purchase aircraft, which they have to do in order to sell
shares in them. “It requires a tremendous amount of capital to operate
a fractional ownership service,” observes AirSprint’s Macor. “This is
why – besides ourselves – there hasn’t been an entrant that has fully
committed to the Canadian marketplace.”

“In addition, US tax
laws encourage American business to buy their own aircraft,” says
Integra Air’s Gateman. “That’s not the case in Canada. In fact,
Transport Canada’s regulations – which don’t recognize
fractionallyowned business aircraft as being unique the way the FAA
does – lump this category in with commercial aircraft in general,
adding to cost and paperwork. This can result in a fractionally-owned
aircraft sitting on the tarmac for months unused, while we wait for the
documentation to be approved. Businesspeople are impatient by nature:
They don’t like to wait, and will often go elsewhere if they’re forced
to wait too long.”

If these hurdles aren’t enough, geography in
Canada works against fractional ownership, while helping to boost it
south of the border.

“Even though Canada is a very large
country, the actual market for business aviation is highly concentrated
along the Canada-US border,” says Dr. D’Cruz. “As a result, virtually
all of the major centres that could be reached by business aircraft are
already well covered by commercial carriers. Given that these carriers
charge less and offer a varied schedule of flights, Canadian companies
are far more likely to use them than to spend extra for the added
flexibility of using their own aircraft.”

“Canada’s geography
really doesn’t work well for business travel, what with its long
distances between cities,” he adds. “In contrast, the US has urban
areas distributed throughout its territory. For most companies, this
means that they are working within regions that are easily and
efficiently covered by small aircraft. There’s also not the same degree
of commercial service to smaller centres as there is in Canada, making
business aviation more of a necessity than a luxury.”

This last
point is proven by Wal-Mart’s US fleet of business jets. “Wal-Mart is
not known for extravagance, yet they have their own fleet,” says Dr.
D’Cruz. “Why? Because every Monday Wal- Mart dispatches its
vice-presidents from head office in Bentonville, Arkansas to check
stores throughout the country. Given their schedules and available
commercial flights, it is simply more cost-effective for Wal-Mart to
fly them itself. Contrast that with Canada, where the company doesn’t
operate its own aircraft: The reason is that they can get where they
need to using commercial carriers, so they do.”

DETERMINED TO KEEP GOING
Despite
these challenges, Air- Sprint, Bombardier Flexjet, Jet-Share Canada and
Corporate Express are sticking with the Canadian fractional ownership
market. “In fact, we’re expecting the market to grow, which is why we
have four Citations 550s and 20 Pilatus PC-12s on order,” says
AirSprint’s Macor. “We also have a 95% retention rate for our
fractional ownership program,” Bombardier Flexjet’s Lévesque says,
“which is a good testament to how satisfied our fractional owners are.”

Still,
it will likely take a major decline in fractional ownership costs,
relative to commercial carriers and other mass transportation
alternatives, to make this aircraft option popular in Canada. That’s
just how Canadians are: In this market, price trumps convenience and
sometimes even economic common sense.