Flying private may be about to get easier: govt mulls ownership syndicates

Fractional ownership, a concept that is still gaining traction in India, allows an entity to buy a stake in an aircraft and share its flying hours and crew with other part-owners. (Photo: AFP)
Fractional ownership, a concept that is still gaining traction in India, allows an entity to buy a stake in an aircraft and share its flying hours and crew with other part-owners. (Photo: AFP)

Summary

  • The government is working on a policy framework to facilitate fractional ownership of these aircraft.

NEW DELHI : Private jets may be within reach of more Indians in the days to come, with the government working on a policy framework to facilitate fractional ownership of these aircraft. A draft of the policy, which will apply to both non-scheduled commercial flight operations or charters, and for private usage will be released for public feedback within a couple of months, two people aware of the matter said.

Fractional ownership, a concept that is still gaining traction in India, allows an entity to buy a stake in an aircraft and share its flying hours and crew with other part-owners. As per the draft framework, anyone who wishes to be such a part-owner must hold a certain minimum stake, which is likely to be set between 5% and 10%. The model is likely to involve aircraft that can seat a maximum of 20 passengers, the people said on the condition of anonymity.

To make the policy more palatable, the government is looking at limiting regulatory compliances—as per Directorate General of Civil Aviation (DGCA) norms and civil aviation requirements—for the entity that will manage, operate and maintain the aircraft, and keep out those with fractional ownership in the aircraft, one of the two people mentioned earlier said.

“There is an intent to provide greater flexibility to those who make fractional investment in the aircraft so that it is safely operated and optimally utilized," one of the officials said.

Queries sent to the civil aviation ministry remained unanswered until press time.

For now, the government is likely to keep the regulatory framework of the fractional ownership model under the existing purview of general aviation or charter services, another official aware of the matter said.

According to DGCA data, in 2022, there were 95 non-scheduled operator permit holders in India, collectively owning a fleet of 330 charter aircraft. Depending on size, range, model, and features, a private jet can cost from $2 million to over $100 million.

“There are many people who want to buy private jets, but they are sceptical because of a lack of experience in the field and the issues regarding maintaining the aircraft themselves," said Santosh Sharma, the founder of Bookmyjet, an online booking portal for business jets. “It is here that a model like fractional ownership works as the perfect solution where you can own a jet at a fraction of the cost and get access to a kitty of aircraft that an operator may have."

At the same time, Nilaya Varma, the chief executive and co-founder of consulting company Primus Partners felt that scaling fractional ownership to the level visible in the US will be a challenge, though not unsurmountable. “An aspect that warrants attention is the possibility of enabling multiple fractional owners to claim depreciation on a single asset, such as an aircraft. As of now, existing accounting standards or policies might not accommodate or permit shared depreciation. This limitation stands as a fundamental obstacle that has contributed to the success of fractional ownership in other global regions," Varma said.

In India, demand for private jets surged during the covid-19 pandemic, but reversed thereafter, with many returning to premium segments of commercial flights. Movement of private jets and helicopters fell around 6% year-on-year during April-October 2023 to over 128, 300 flights, according to data from the Airports Authority of India. Private jet usage is measured in terms of aircraft movement—one take-off and landing equals two aircraft movements.

In 2022, the civil aviation ministry said it would allow fractional ownership of business jets and helicopters to spur the growth of non-scheduled operations in the country. An inter-ministerial committee with members from finance and corporate affairs ministries has also been working to address the nuances related to taxation and the resultant financial transaction wherein one does not buy the aircraft, but a stake for use of the aircraft.

The policy was “long overdue", said Nitin Sarin, managing partner at aviation-focused law firm Sarin and Co. “It really is the need of the hour as the cost of acquisition of aircraft is tremendously large. Currently, you cannot register an aircraft in various different names. Secondly, it has been evident to us that several high-net-worth individuals are done buying their luxury cars and are now looking forward to putting their money in aircraft. So, this will provide that platform to enable that,"

Fractional ownership of an aircraft offers benefits to wealthy individuals or firms that might not have an ongoing need for a private jet, but nonetheless are users of the private jet service and sometimes might need multiple such jets at the same time.

As a result, it is expected to ensure efficiency in availability of a private jet as the fractional owners often have guaranteed access to either the aircraft in which they own a share or a similar aircraft in the managed fleet via approved agreements.

The fractional ownership model took birth in the US. In 1986, Executive Jet Aviation, Inc. (EJA), now known as NetJets, created a program that offered aircraft owners increased flexibility in the ownership and operation of aircraft by individuals and corporations. In the US, the fractional aircraft industry typically sells shares in sizes that are multiples of 1/16th (1/16, 1/8, 3/16, etc.)

An aircraft usually has 800 flight hours available per year, and one 1/16th share—the smallest possible purchase—includes the right to 50 flight hours. Fractional aircraft ownership programs also guarantee availability, some requiring as little as eight hours’ notice. The industry has grown significantly in the US with just NetJets reaching a fleet size of 1,000 aircraft, up from 750 before the pandemic.

Fractional ownership as a concept is gaining traction in India’s real estate sector among retail investors. According to a report by Knight Frank, the market size of fractional ownership in Indian realty was $5.4 billion in 2020 and is projected to reach $8.9 billion by 2025, growing at a compounded annual growth rate of 10.5%.

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