Skip to main content
Insight

The use of corporate jets is on the rise; but what should you consider before buying one?

Andrew Evans
26/08/2020
COVID-19 hit the entire travel industry hard, especially the aviation sector where it rendered commercial airlines lifeless and shrank bookings for business jet charters. In April this year, monthly charters for corporate jets plummeted. Since then though, there has been an unexpected rebound in bookings, though not from necessarily from normal needs of business executives.
 
In June 2020 NetJets (one of the largest private jet companies) saw demand back to 85% of pre-COVID levels thanks to demand for leisure rather than business flights.

One of the main factors behind the increased demand is high net worth customers who are unable or unwilling to travel on commercial airlines, and are moving to charter jets to take them to and from their destinations. For those that can afford to, this makes sense.

Flying by commercial airline comes with the attendant risk of catching COVID at the airport terminal or in a pressurized aircraft cabin with other passengers. Many commercial airlines are also operating on limited routes as they start to recover from the effects of COVID-19 on their network; so flights to many destinations have been cancelled until further notice.

So, if you are a high net worth (or ultra-high net worth) individual what are your charter flying options?

Well, the main ones are that you could charter a jet (or prop) for specific trips; you could invest in a jet on a time-share basis (the NetJets model); or you could go the whole hog, and buy a jet.

Should the option to buy a jet tempt you, then it might be beneficial if you inhabit the ultra-high net worth category, as there is not only the cost of purchase to consider, but also the cost of the pilots (two for the larger jets), crew, maintenance (including a licenced air operator), airport charges, navigation charges,  fuel and insurance to consider among other expenses.

If you decide on a used aircraft – to save a couple of million - you will find that they are always 'sold as seen' so you need to have a very thorough pre-buy inspection before proceeding. This will include a check of the all the flight logs and paperwork 'back-to-birth' as well as engine maintenance programmes. You will also want to ensure you take it up for a thorough test flight. You will need a good jet broker to assist you in finding the best aircraft in the best condition to meet your particular needs.

If you go for a new jet, inevitably you will need to wait a year or two before delivery and it will be more expensive than a used one, but you will have a brand new plane with full warranties, a greater range, superior speed and better fuel economy. Manufacturers have a standard sale and purchase agreement, which they will not significantly depart from.

When considering the purchase of a jet, whether new or used, you could purchase outright or purchase on finance, which may mean a purchase on mortgage or a finance lease. There are tax issues to consider here including whether to pay VAT or enter into a scheme potentially to reduce the amount of VAT payable or possibly avoid it altogether. It is also necessary to consider where the aircraft should be registered as this can affect the tax treatment of the aircraft. Most owners will own the aircraft through a corporate vehicle; one reason for this is to shelter an individual owner from liability in case of accident.

When buying an aircraft it is important that the buyer keeps up the maintenance programs including the engine maintenance program as failure to do so will not only affect the operation of the aircraft, but also its resale value. Normally a buyer will choose an aircraft operating company to manage and maintain the aircraft and provide pilots and crew. A lender will normally insist on the buyer engaging a reputable aircraft operating company to manage and maintain the aircraft and enter into a tri-party agreement so that the lender has a direct contractual relationship with the operator.

In conclusion, if you are in the market for a private jet, you need expert tax advice to deal with registration and structuring, you need a good broker (if you are looking at a pre-owned aircraft), you need lawyers who specialise in aircraft, you need a good aircraft operator to maintain the aircraft for you and to provide pilots and crew.

And several million later, and you'll be able to enjoy the freedom of the skies.
 

Sign up to our email digest

Click to subscribe or manage your email preferences.

SUBSCRIBE