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Deloitte The Sky is The Limit Understanding Ownership and Use of Private Aircraft Audit .Tax.Consul ina .Corporaie Finance. EFTA01135579 Benefits and Alternative Forms of Private Aircraft Steve Thorne Deloitte Copyright 2004 Delo.tte Development LLC EFTA01135580 Benefits of Private Ownership Why Fly Privately... • Comfort • Security/Safety • Privacy • Convenience • Flexibility • Efficiency 3 The Sky is The Limit EFTA01135581 Complete Ownership Advantages • Availability/Accessibility • Full control over costs • Configuration can be customized • Prices are currently low on used aircraft • Age and history of aircraft are known facts • Tax benefits • May operate under less stringent FAA Part 91 Certification 4 The Sky is The Limit EFTA01135582 Complete Ownership Disadvantages • Substantial initial investment • Cost of idle time and deadhead time • Capacity and length of flight limited to one type of aircraft • Consumption of time to manage and operate • Scheduling • Valuation risk 5 The Sky is The Limit EFTA01135583 Complete Ownership Criteria for Usage • Anticipated flying time >400 hours per year • Flexibility/Timing important • Origination and termination locations are similar • Require only one aircraft per day • Passenger load remains fairly constant 6 The Sky is The Limit EFTA01135584 • Bombardier Learjet • Cessna Citation Bravo • Cessna Citation Encore • Raytheon Beechjet EFTA01135585 Complete Ownership Midsize to Large Business Aircraft • Bombardier Challenger • Cessna Citation Sovereign • Cessna Citation Excel • Dassault Falcon • Gulfstream G Series • Raytheon Hawker 800XF 1 Gulfstream 200 8 The Sky Is The Ume EFTA01135586 Complete Ownership Large and Superlarge/Regional Business Aircraft •Boeing Business Jet •Bombardier Global •Bombardier CRJ •Bombardier Q Series I 9 The Sky is The Limit 7" Boeing Business Jet EFTA01135587 Complete Ownership Aircraft Price Cessna Citation Encore $7,000,000 - $8,000,000 Bombardier Learjet $9,500,000 - $11,000,000 Cessna Citation Excel $9,500,000 - $11,000,000 Raytheon Hawker 800XP $12,000,000 - $13,000,000 Cessna Citation Sovereign $15,000,000 - $16,000,000 Bombardier Challenger $16,000,000 - $20,000,000 Gulfstream 200 $16,500,000 - 18,500,000 Dassault Falcon 2000 $23,000,000 - $25,000,000 Bombardier Global $30,000,000 - $35,000,000 Boeing Business Jet $42,000,000 - $45,000,000 10 The Sky IS Trle EFTA01135588 Complete Ownership Risk Factors • Extended selling period • Low residual value • Major repairs • Owner is in "Operational Control" • Liability can be High II The Sky is The Limit EFTA01135589 Fractional Ownership •Purchase a share of a specific type of airplane from an operating company • 1/16th share minimum purchase (approximately 50 hours of flight time per year) • 5 year management contract usually required •Remarketing fee for early termination 12 The Sky is The Limit EFTA01135590 Fractional Ownership Cost • Initial purchase - dependent upon size & type of aircraft - New aircraft (1/16th share) - $280,000 to $1,500,000 - Used aircraft (1/16th share) - $265,000 to $1,250,000 13 The Sky is The Lime EFTA01135591 Fractional Ownership Cost • Management fees - dependent upon size & type of aircraft - Range from $70,000 to $150,000 annually for a 1/16th share - Premium for lower ownership percentages - Fees cover: - Flight Crews - Training - Hangar Fees - Maintenance - Insurance - Other Administrative Issues S' s EFTA01135592 Fractional Ownership Cost • Hourly Usage Fees - Range from $1,400 to $2,700 per flight hour - Occupied hourly fee same for new and used aircraft - Fees cover: - Fuel - Catering - Other Flight Related Costs 15 The Sky is The Limit EFTA01135593 Fractional Ownership Advantages • Lower upfront capital outlay • Guaranteed availability • Professionally managed and maintained • Flexibility • Quick response times • Usually does not include fees for deadheading or taxing time • Guaranteed buyback (at FMV) with most companies • Tax benefits EFTA01135594 Fractional Ownership Disadvantages • More advance notice required than with complete ownership • Monthly fixed fee set by management company without owner input • Resale market can be limited (Valuation risk) • 5-Year commitment usually required • Liability is greater than Charter • Operate under new Part 91 Subchapter K with rules similar to on demand charter operators, Part 135 EFTA01135595 Fractional Ownership Criteria for Usage • Anticipated flying time is 50-400 hours per year • Require more than one plane at once • One-way or extended stay trips • Cost of plane being out of service is a major issue/concern • Need for varying types of aircraft 18 The Sky is The Limit EFTA01135596 Fractional Ownership Risk Factors • Resale Value • Dependent on quality of program manager • Owner is in "operational control" • Liability greater than charter • No control over annual fixed fee EFTA01135597 Fractional Ownership Bombardier FlexJet • Minimum interest - 1/16th share (i.e. 50 hours) • Additional increments of 1/16th share • Put option available 24 months after purchase (remarketing fee applies) • Access to fleet of small, midsize and large aircraft 20 The Sky is The Limit EFTA01135598 Fractional Ownership Citation Shares • Minimum interest - 1/16th share (i.e. 50 hours) • Additional increments of 1/32nd share • Put option available 12 months after purchase • Access to fleet of small and midsize aircraft • Additional fuel surcharge may apply EFTA01135599 Fractional Ownership NetJets • Minimum interest - 1/16th share (i.e. 50 hours) • Additional increments of 1/16th share • Put option available 24 months after purchase • Access to fleet of small, midsize, large & superlarge aircraft • Monthly management fee adjusted annually; increase will not exceed the greater of Consumer Price Index-Urban or 3.75% 22 The Sky is The Limit EFTA01135600 Charter •Services contracted on a trip by trip basis •Cost dependent upon: - Size of aircraft - Type of aircraft - Length of trip - Type of trip (one-way vs. round trip) 23 The Sky is The Limit EFTA01135601 Charter Advantages • No initial capital outlay • No fixed costs • Flexible choice in type of plane and departure time • Potentially no charge for deadhead time • No management time required • No valuation or operational risk • Charter company is in "Operational Control" of the aircraft EFTA01135602 Charter Disadvantages • May require up to several weeks notice for use (national companies) • Cost may include charges for deadhead time • Varying levels of safety/maintenance standards • Smaller fleet of aircraft than other options EFTA01135603 Charter Criteria for Usage • Anticipated flying time is 0-50 hours per year • Annual utilization difficult to predict Tile Sky is The Limit EFTA01135604 Charter Risk Factors • Consistency of aircraft quality • Hidden charges • Possible deadhead or taxiing charges 27 The Sky is The Limit EFTA01135605 Charter National Charter Companies • Bombardier SkyJet • Delta AirElite • Executive Jet Management (NetJets) • Jet Aviation • PrivatAir • TAG Aviation 28 The Sky is The Limit EFTA01135606 Charter Local/Regional Charter Companies • Quality may vary within this category • Less flexibility (variety of aircraft, lead time required) 29 The Sky is The Limit EFTA01135607 Charter Brokers •Middle men between passengers and charter companies •Coordinate/consolidate flights to avoid deadheading or idle time •Utilize consultants to audit various charter operators •Cost dependent upon -Type of aircraft -Size of aircraft 30 —1-17knigi l-ii.,,,c ,f trip EFTA01135608 Charter Brokers Advantages • No upfront acquisition costs • Unlimited type of planes available from charter company • Lower per hour charges than straight charter • Block charter (Flight cards) arrangements available 31 The Sky is The Limit EFTA01135609 Charter Brokers Disadvantages • No control over charter company used • Consolidator not responsible for issues arising after flight is set up • Inconsistency in age and quality of plane 32 The Sky is The Limit EFTA01135610 Charter Brokers Criteria for Usage • Minimal anticipated flying time • Flexible schedule so that you are able to adjust to provider's availability 33 The Sky is The Limit EFTA01135611 Charter Brokers National Charter Brokers • Sentient • Air Royale International • Blue Star Jets 34 The Sky is The Limit EFTA01135612