Fractional jet ownership: eight key questions to avoid flying blind.

For companies whose executives travel extensively, the benefits that private jet ownership or charter offer are clear in terms of flexibility, time savings and increased productivity, when compared with commercial airlines. A third option--fractional jet ownership--has been widely promoted as a more cost-effective alternative to chartering or full jet ownership and, in some select cases, this may be true.

However, the hidden costs of fractional ownership often make it more expensive than chartering, and generally participants do not enjoy the same level of flexibility or service. Further, even full ownership of a jet can be competitive with a fractional interest with today's low interest rates and discounted aircraft prices, as well as the revenues that can be derived from professional management and chartering when a privately owned jet is not being used by its owner.

Following are important questions that can help companies and individuals who may be considering the alternatives to decide whether or not private jet fractionals are the best choice:

* What is the real cost of a fractional ownership? First, the owner's share of the aircraft cost will be based on its full retail value--not the discounted price the fractional company receives through volume purchasing. Furthermore, each fractional owner typically is charged an exorbitant amount for the annual cost of maintenance, insurance and other expenses. Should an owner decide to sell its share, not only will there be a 5 percent to 7 percent re-marketing fee, but the value of the share will be based upon the current fair market value of the aircraft. Because fractional programs put far more hours on their aircraft than the typical corporate jet, the sales price of that share will reflect a deeply depreciated asset. This is one of the reasons that many current fractional owners who are trying to sell their interests are finding it hard to come anywhere close to getting their investment out.

* Will fractional interest owners fly in the planes they purchase? Not necessarily. Like commercial airlines, all the planes in a fractional program are part of a large scheduling pool so it is unlikely that owners will fly in the planes they purchase. And since all planes in the fleet are identical internally and externally, owners never know whose plane they have boarded.

* Do fractional owners have control over who uses their aircraft? No. When they agree to participate in a fractional program, the scheduling coordinator takes on responsibility for who uses the aircraft and where it goes.

* Do fractional owners get to choose their crew? Very seldom. And neither do they have any input with regard to hiring standards. While the FAA has set the standards, the training and qualifications for fractional program pilots and cabin crew can be less demanding than for a private jet.

* Do fractional programs provide faster flight scheduling than chartering an aircraft? It is unlikely, but a lot will depend on the size of the charter fleet. Fractional operators typically guarantee take-off within 8 hours of the order fur service, a guarantee that The Air Group with its fleet of 56 planes consistently beats.

* Do fractional owners get the benefit of splitting maintenance and insurance costs with other owners? The operating company establishes a fixed annual budget to operate each aircraft, which is then divided by the number of fractional owners. However, that operating budget generally exceeds the fixed out-of-pocket costs of operating the same airplane for one owner. Each fractional owner also has to pay an additional hourly operating charge every time he or she takes a flight. While this hourly charge may be lower than a typical charter hourly rate, it exceeds the direct hourly operating costs of the airplane by a substantial margin, if you do the math, fractional ownership is almost always more expensive than chartering or direct ownership except in limited circumstances.

* Take a close look at fractional insurance. As a fractional owner, your insurance coverage is fractional as well. You are not covered by the full amount of the fleet policy as you are when you charter.

The fractional interest aircraft ownership is a great fit for some people, such as a golf pro who doesn't know if he will make the cut on any given week, or a top executive in Little Rock, who doesn't travel enough to justify purchasing an airplane and has no access to good charter service. But even these potential owners need to be fully aware of the facts and fiction of fraction al jet ownership.

Jon Winthrop is Chairman and CEO of The Air Group, an FAA certified commercial air carrier. For more information, visit www.theairgroup.com.