As most potential owners of private aircraft are not from the aviation industry, buying or leasing an aircraft is an unfamiliar territory

The air of excitement pervading the business aircraft market is almost palpable. After two years of gloom, improving demand means the industry can confidently look forward to a strong showing—perhaps as early as the end of the year. What’s more, emerging markets, especially in Asia, are taking the lead. The wider world may be in deep dread of a double-dip recession, but the Indian economy is cheerfully projected to grow between 8.2 and 9.5 per cent this fiscal. Finance Minister Pranab Mukherjee is making bold statements forecasting double-digit growth by 2012. At the same time, the number of top-of-the-rich-list Indians—the kind that might acquire or at least use a private plane—is skyrocketing. According to the 2010 Merrill Lynch-Capgemini World Wealth Report, the number of high net worth individuals (HNWIs) in the country with minimum investable assets of $1 million (Rs 4.6 crore) rose to 126,700 in 2009 compared to just 84,000 in 2008. Such customers account for about 10 to 20 per cent of business aircraft sales.

Slashed price tags are also tickling the urge to buy. With quotes for some private jets plummeting by as much as 35-40 per cent from their 2008 peaks, large and small companies are again eager to make purchases. And since prices are almost invariably quoted in the US dollars, a strong rupee further sweetens the deal for the Indian buyer. Only one thing is necessary to complete the picture—finance.

Jets At A Price

When the first Learjet burst on the scene in October 1964, it opened up a new vista of fast, efficient and super-comfortable business aircraft. Since then, there’s been no looking back. India currently has over 500 private aircraft—around half of them fixed-wing—and the other half helicopters. However, according to Gulfstream Aerospace, the country’s share of business jets is less than one per cent—just 123 of the 18,000-strong global fleet. Is it time to rewrite the story?

Six manufacturers dominate the global business jet scene—Bombardier, Cessna, Dassault, Embraer, Gulfstream Aerospace and Hawker Beechcraft. Together they offer a wide variety of over 40 sleek and attractive models to suit every need and budget. They also appear uniformly bullish on their prospects in the country. For instance, Roger Sperry of Gulfstream Aerospace says, “We are very optimistic about India. We have good business here as India is an expanding market.” Gulfstream offers mid-size jets like the Gulfstream G150 and leads the large-cabin, long-range segment with aircraft like the G550. Bombardier alone expects to sell at least 250 jets in India over the next 10 years. Its family of business jets stretches from the light Learjet series (the latest Learjet 85 is expected in 2013) to the super-large ultra-long-range global series. Besides, the light Citation CJ2+ and superlight Citation XLS+ Cessna offers the popular Citation X super-midsize model. Embraer will soon have seven corporate jets on offer ranging from the very light Phenom 100 to the super-large Lineage 1000. Hawker Beechcraft listings stretch from the light Premier IA to the super-midsize Hawker 4000. Business turboprops in the market include the Cessna Caravan series, Hawker Beechcraft King Air 350i, Pilatus PC-12NG, Piper Meridian and Piaggio Avanti II.

But the beautiful jets don’t necessarily come cheap. At the lower end of the spectrum, the Cirrus Vision SF-50 personal jet costs just $1.72 million (approx Rs 8 crore). Even a millionaire can go for one, perhaps with the help of a modest loan. Cessna’s Mustang offers excellent value for money at $3.1 million (approx Rs 14.5 crore) apiece while Embraer’s Phenom 100 costs around $3.8 million (approx Rs 18 crore). The superlight Cessna Citation XLS+ is quoted at $17.6 million (approx Rs 82 crore). While the Bombardier Challenger 300 super-midsize jet goes for $24.2 million (approx Rs 113 crore), the Hawker 4000 in the same category costs $22 million (Rs 103 crore). However, a company intending to buy a high-end, long-range jet like the Embraer Lineage 1000 or the Dassault Falcon 7X would need to lay hands on almost $50 million (approx Rs 234 crore) with only small change left over; while a Gulfstream G650 (due in 2012) could carry a price tag of over $58 million (approximately 271 crore). Large corporate jetliners like the Boeing BBJ3 cost $69 million (approx Rs 323 crore), and the Airbus A320 Prestige costs a whopping $85 million (approx Rs 397 crore). Where does that kind of money come from?

You Have A Dream? We Give It Wings!

A business aircraft represents a sizeable investment and should bring value that exceeds the cost. Insurance, fuel, maintenance, airport fees, catering, crew and hidden costs can add up to a pretty packet. For customers who foresee a requirement of 100 hours or less of flying per year, jet card or block charter arrangements usually are the most suitable. Above that, fractional ownership—similar to the familiar time sharing plans of tourist resorts—becomes the option of choice. Leasing or buying a jet makes sense only if annual utilisation is above 250 hours of flight time, preferably around 300-350 hours. And once the decision to lease or buy it is taken, finance often holds the key.

Buying a business aircraft is a lot more complicated than leasing one. Only relatively well-heeled customers are likely to decide to purchase such a pricey asset. Apart from the satisfaction of exclusive ownership of the object of desire, the main advantage is that the owner can claim tax benefit and offset other income by depreciating the value of the aircraft, perhaps in as little as five years. But aircraft residual value—which cannot always be accurately predicted—might cloud resale prospects.