Most people are familiar with time sharing in the real estate context. You purchase an undivided interest in a condo in Maui that allows you to use it for a specific week or two out of the year. Real estate time sharing has become increasingly popular as an investment vehicle as recreation property values continue to appreciate. Additionally, as an owner of a real estate time share, you can trade your week or two in Maui for an equal amount at another location by participating in a time sharing swap program. Pretty cool -- So does aircraft time sharing mean the same thing?
Actually, when people speak of buying a "time share" in an aircraft they are usually referring to what is commonly known as a fractional program, such as NetJets, CitationShares, FlexJet or Flight Options. With a fractional program, you buy an undivided interest in an aircraft, typically a 1/16, 1/8 or 1/4 interest. The ownership of a fractional interest in an aircraft entitles the owner to a specified number of hours per year (based on 800 max hours for the airplane per year). So for example, if you buy a 1/16 interest that would entitle you to use your aircraft for 50 hours per year. With the purchase of a fractional interest in an aircraft, the owner pays an acquisition cost, which is the approximate price for the aircraft multiplied by the fraction purchased, and gets added to the title on the aircraft at the FAA registry.
With up to 16 different owners per plane, what happens if everyone wants the plane on Thanksgiving? Luckily, the fractional companies provide and manage interchange programs that allow owners to trade their time on their aircraft into a common pool and to use a corresponding amount of time on available aircraft that are part of the interchange pool. In this way, unless every owner in every plane wants to use the aircraft on Thanksgiving most if not all of the owners will be accommodated.
As in the real estate time sharing context, where owners delegate maintenance, cleaning, utilities, etc. to the time sharing company, aircraft fractional owners delegate all aircraft management responsibilities to the fractional program operator. This means that the fractional program operator, NetJets for example, provides flight crew management, trip scheduling, ground support, catering, ground transportation and all maintenance on the aircraft. The owner's responsibility is to pay a monthly management fee and a fee for each hour that a program aircraft is used by the owner. Since a fractional interest is an owned asset, it can be depreciated it if it is used in the owner's business. There are limitations to the deduction where there is personal use of the aircraft interest by the owner or his or her guests so careful tax planning in advance is imperative. Further, since buying a fractional interest in an aircraft is a material transaction, some due diligence on the fractional company as well as legal and tax planning for the ownership structure is in order, but that's a whole other topic.
Now back to the "time sharing" issue -- so, is there such an animal as aircraft time sharing? Actually, there is. But it's nothing like real estate time sharing or fractional interest ownership of aircraft.
Time sharing an airplane is defined by the FAA as an "arrangement whereby a person leases his airplane with flight crew to another person, and no charge is made for the flights conducted" other than reimbursement of certain permitted charges. The reason for the limitation on reimbursement is that the FAA considers any carriage of persons or property for compensation to be a commercial operation requiring the provider to be properly certificated by the FAA. This means that you can't hire your friend's aircraft with crew to fly you to Tahoe and pay a market-price hourly fee, unless your friend is a charter operator in possession of an FAA air carrier certificate. But what if your friend wants to let you use his plane with crew and you just reimburse him for fuel, catering and some other incidentals? That's where time sharing comes in.
Recognizing that owners may want to provide transportation to their affiliates or friends and will want to be reimbursed for its use, the FAA permits an owner to lease out its aircraft, subject to certain limitations on aircraft size, citizenship and company structure, and to be reimbursed for an amount no greater than two times the fuel, oil, lubricants and other additives, plus any travel expenses of the crew, hangar and tie-down costs away from the aircraft's base of operation, insurance obtained for the specific flight, landing fees and similar assessments, customs and similar fees, catering, ground transportation and flight planning and weather contract services. As long as the reimbursement is no greater than the above permitted amount, and provided that none of the limitations on aircraft size, citizenship and company structure apply, then the carriage qualifies for time sharing treatment as long as the parties enter into a proper time sharing agreement.
Unlike time sharing in real estate, which involves buying an interest in a property or its partial corollary, the aircraft fractional interest purchase, time sharing in an aircraft does not involve buying anything but rather is only an arrangement for the reimbursement of limited flight charges as discussed above. Time sharing can be useful for letting friends use your aircraft and getting reimbursed the basic cost of providing the flight, as well as providing a means to permit transportation to affiliated companies without risking being considered an unauthorized charter operator. Additionally, subject to limitations, time sharing can also be part of an overall corporate ownership structure as a means to handle personal usage of an aircraft by principals of a corporate aircraft owner.
Aircraft fractional interests and time sharing agreements are different options available to owners and users of aircraft allowing them to own aircraft or use others' aircraft, or permit the use of their aircraft by others, to suit their mission profile and needs. These are two of the multiple options that should be considered when evaluating and formulating your overall private aviation ownership and usage strategy.
Mansour is a partner with Luce, Forward, Hamilton & Scripps LLP and a member of its aviation practice area. He can be reached at (858) 720-6336 or email@example.com.>