Shared Ownership: A Perspective for Changing Times

No Military Commander has ever won a war by sitting in his cosy headquarter. No Doctor can diagnose the disease without sitting across his/her patient. No Political leader can win an election without physically addressing the constituency. No Industrialist can feel the pulse of the work force without going on the floor shop. No Business leader can close a deal on a video conferencing from the comfort of his/her office. Business travel is an indispensable function in the road to success by all leaders.

The Covid times have been unprecedented and challenging. The travel restrictions and with almost two-third of the airline fleet grounded, have made travel by airlines baffling with connectivity and schedule issues. The safety issues of reporting early and passing through busy and possibly contaminated airport terminals makes the proposition extremely complex.

Business Travel is catching attention of business houses, industrialists and HNIs across the globe. The travel by charter or own aircraft has multiple advantages. The traveller

• commands the schedule of travel
• has the direct connectivity
• avoids number of contaminated touch points in the baggage check-ins, security and boarding queues
• Stays productive during the flight.

Private flying is therefore encouragingly being explored and tested by the first-time business travellers. The increased cost of travel is well appropriated by time saving in the trip and remaining productive during the flight. It may therefore be an interesting case study by an HR Pundit to evaluate cost versus productivity benefits of traveling private by the C-Suite (CEO, CXO, CFO, COO, CIO etc).

How does a business traveller fly private?

• Purchase/acquires suitable aircraft.
• Charters suitable aircraft.
• Be a partial owner of aircraft.
• Innovative Charter programmes.

The outright purchase of an aircraft has its own challenges of prohibitive cost of acquisition and the fixed costs of running the flight department with all regulatory compliances. The charter of an aircraft is subject to availability and usually has additional ferry costs and overnight halt costs associated with it.

During the current pandemic, fractional ownership or the membership programme has found increasing acceptance amongst business travellers in United States. It gives the benefits of private travel without owning or completely owning the aircraft. Much as the Indian Private aviation user would like to join the fractional ownership programme, the Indian Civil Aviation Authority does not register fractional owners and the tax regulations do not permit the fractional owner to avail the depreciation benefits. It is definitely a time to look at innovative ownership or usership models for private aviation. The regulatory environment may have inertia to accommodate changes that may be most conducive for private aviation. Exceptional situations demand exceptional measures. A concept that is actively being discussed and catching the winds in the Indian environment is ‘Shared Ownership’.

SHARED OWNERSHIP

What is a shared ownership?

In a shared aircraft model, members/shared owners set up a company to acquire and hold an aircraft. The company obtains an NSOP license to operate the aircraft. The annual flying hours are divided on pro-rata basis of the share holding of the company. The fixed costs are similarly divided over the shareholders. Each member can fly the aircraft for their allotted number of hours. It is ideal for those business travellers whose travel requirements are limited. A light or a mid-sized business jet may fly up to 600 hours with one set of crew and about 900 hours with two. A three membered share holding may have 200 to 300 hours of annual flying per member.

What are the Key Advantages?

• Low investment as ownership costs are divided between multiple share holders.
• Members enjoy ownership privileges without having to invest substantially.
• Members can charter their hours in case they don’t use them.
• Access to your own aircraft at fractional cost.
• Option to sell your share after few years.
• Risk is shared over multiple members.

Possible Disadvantages

• Will not be able to avail depreciation benefits on the capex as the aircraft is held in a separate company.
• Aircraft may not be available at all times in shared ownership, more the members per aircraft, lesser time available and lesser availability.

The shared model is not new, there are some large business houses following it in Delhi and Ahmedabad, but it assumes greater advantages for mid-size and multi locational companies especially in the Covid and post Covid situation. Citing an example, Pantnagar SEZ has manufacturing units of many companies headquartered in Chennai. A to and fro trip between Chennai and Pantnagar by an airline was never direct and could only be completed by a transit via Delhi in two days. A shared ownership between these companies will let them fly private and complete this in a day with better productivity.

Two examples of broad numbers for a pre-owned midsize Jet and a new light Jet for a three-member shared ownership may be highlighted.

• A Pre-owned Hawker 850XP/Lear 60XR/ Citation XL with an imported cost of around $4 million (approximately 30 crore) would have an acquisition share of 10 crore.
• The fixed costs of 21 Lakhs/month would get divided to 7 Lakhs per member/month.
• Each member pays for the direct operating costs (approx. 1,25,000) per hour.

Similarly

• A new Light Jet like HondaJet with an import cost of $6 million (approximately 45 crore) would have an acquisition share of 15 crore.
• The fixed costs of 18 Lakhs/month would get divided to 6 lakhs per member/month.
• Each member pays the direct operating costs of 65,000 per hour.

The world is fast changing. Economy of resources and the efficiency of the efforts are the mantras to survive and keep moving with one’s business through these challenging times and beyond. Many US business travellers have joined the innovative fractional ownership programmes offered by companies like Jet It. These companies have actually grown during the Covid period with many first-time Private flyers coming forward to subscribe to their programme. While in India, we may not strictly be able to replicate the fractional programme because of regulatory issues, the shared ownership is a close match with almost similar takeaways of reliability, cost savings with ownership experience.