Want to co-own a jet? You could if fractional ownership policy takes wing | Mint

Want to co-own a jet? You could if fractional ownership policy takes wing

Depending on size, range, model and features, a private jet can cost anywhere from  $2 million to over $100 million. (iStockphoto)
Depending on size, range, model and features, a private jet can cost anywhere from $2 million to over $100 million. (iStockphoto)

Summary

The civil aviation ministry is drafting policy to insulate fractional owners of private jets and choppers from “regulatory compliances as far as possible”

The government’s hoping more people will take to co-owning and flying by private jets once it frames clearer, and friendlier, rules on fractional ownership of aircraft. Why? One primary aim seems to be to help a nascent industry take off.

While demand for private jets and helicopters surged during the covid years, it reversed thereafter. The civil aviation ministry, hoping to revive interest in the sector, is now fine-tuning its policy on fractional ownership of aircraft to strengthen the ecosystem for private charters, said Shankhesh Mehta, director, ministry of civil aviation.

“... we believe there are passive investors who would want to acquire an aircraft but are waiting for clarity," Mehta said. “The idea is to have as enabling a legislation as possible in place so that we have a NetJets coming out of India."

NetJets Inc., an Ohio-based company owned by Warren Buffet’s Berkshire Hathaway, is a global leader in the fractional ownership space, and currently has more than 750 fractionally owned business jets. The company has created a program that allows flexibility in the ownership and operation of aircraft by individuals and corporations.

“We have to have two major entities in this programme. One would be owners or the fractional owners, who would bring in the money, and the other would be an entity or an operator who would acquire and eventually operate the aircraft for the fractional owners," said Mehta. 

“We want to insulate the fractional owners from the regulatory compliances as far as possible, and therefore the pivot of this programme is the operator," he said.

Fractional ownership, a concept 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 India’s draft framework, a part-owner must hold a certain minimum stake, which is likely to be set at between 5% and 10%, Mint had reported in December.

Mehta said the civil aviation ministry has broadly outlined the policy requirements and is working on addressing the taxation implications for investors buying a stake in an aircraft.

“How this transaction would be structured? That is still in the works as there are taxation implications," he said. 

The ministry is also working on defining the entity that would operate the aircraft on behalf of the fractional owners.

“The entity would acquire the aircraft locally or import it, then sell it fractionally to various owners. And thereafter, once the possession and control of that aircraft is assigned back to the entity that originally acquired the aircraft, it operates this aircraft for the use of those fractional owners," Mehta said.

He added that the operator could also offer the aircraft for hire to third parties by obtaining a non-scheduled operator permit, which allows carriage of passengers on charter flights on per seat-basis or by way of chartering the whole aircraft, or both.

In 2022, there were 95 non-scheduled operator permit holders in India, collectively owning a fleet of 330 charter aircraft, show the latest data available from the Directorate General of Civil Aviation.

Depending on size, range, model, and features, a private jet can cost from $2 million to over $100 million.

India’s aviation industry is optimistic that a model similar to that of Netjets would work in the country. Netjets started as Executive Jet Aviation in 1986 and created a program offering aircraft owners increased flexibility in operations and ownership by individuals and corporations.

“Once the final policy comes up, it would be the responsibility of the industry to make it a success," said Group Captain Rajesh K. Bali, managing director, Business Aircraft Operators Association, which counts more than 80 members, including operators, support services, and maintenance companies. 

The association is involved in the draft policy formulation stage as a stakeholder.

Bali added that the ministries of finance and corporate affairs are also being consulted in the fine-tuning of the policy on fractional ownership of aircraft. 

In India, movement of private jets and helicopters fell by around 8% year-on-year during April-December 2023 to about 168,200 flights, show 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.

However, fractional ownership as a concept is gaining traction in a more grounded space–India’s real estate sector. According to a report by consultancy 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 compound annual growth rate of 10.5%.

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