I recently received a call from a past client. He’s looking to acquire a business jet with a partner. When they are not using it, they want to put it on their management company’s charter certificate. He was told that the charter would offset the costs making his aircraft “almost zero to operate.” He was wondering if that was feasible.
Before answering that (no), here’s how this can be set up. The aircraft owner who is looking to reduce the cost of operating their aircraft, places the aircraft onto a commercial Part 135 certificate. When the owner is not using their aircraft, it can be earning revenue by flying charter. You will generate revenue that will offset the cost of owning and operating the aircraft. You will not “fly for free.”
As a rule of thumb, the aircraft owner typically gets 85% of the base charter rate while the certificate holder keeps the remaining 15%. The aircraft owner typically pays all the aircraft specific charter expenses such as fuel and maintenance. The excess of charter revenue over those expenses helps offset the fixed costs resulting in a net decrease in total cost to the owner.
Charter rates in the US are very low relative to what these aircraft cost to operate. An aircraft that charters for $3,200 per hour can cost about $1,700 pr hour for the variable expenses. Since the charter operator gets 15%, the owner gets $2,720. So far they are ahead $1,020 per hour. But there are fixed costs such as hangar, insurance, pilot fees, etc. that might run $400,000 per year.
Also, this jet costs the owner $3 million to acquire. Lease payments can run to $300,000 per year. If the owner paid cash, there is a cost of capital to the owner as they cannot invest this money elsewhere. Adding the lease expense plus the fixed expenses, you get $700,000 per year. At an income over operating expenses of $1,020 per hour, our owner needs 687 hours of charter revenue to break even before tax considerations. Very, very few charter operators can generate that much revenue flying in a year.
If this were easy to do, the charter operator would buy the aircraft and keep 100% of the revenues. When you factor in the fixed costs and cost of capital or leasing, charter rates don’t pay enough. But, for the owner who flies infrequently or on a very fixed schedule, the revenues from charter can help reduce their cost of flying.
If the jet in the example above generated 200 charter hours and the owner flew 200 hours personally, this works to everyone’s advantage. The owner gets $204,000 in income, in effect cutting their fixed expenses in half. They also get to use their aircraft about 25 times per year at eights hours per round trip. The charter operator get the use of an aircraft without the large capital investment. Thus, they get to provide a service and stay in business at today’s charter rates.
For an aircraft owner placing their aircraft onto someone else’s commercial certificate requires careful planning and compromise. The arrangement can be beneficial for both aircraft owner and charter operator, but only if both parties compromise, cooperate and communicate.