Aircraft: Upward in a Downturn

<< Back to Robb Report, April 2003
  • Fluto Shinzawa

Unstable global politics, dropping stock averages, and scrutiny of corporate misbehavior have driven down profits for most American businesses, but not for Sentient, a Massachusetts company that offers private flight service. In fact, the stock market’s malaise actually sparked the company’s 145 percent growth rate in the third quarter of 2002.

Nowadays, the mention of a company-owned jet in a public corporation’s annual report pulses as if written in neon. Sentient CEO Mark Stone says that for today’s corporations, even fractional ownership can provoke rebuke. “Fractional owners are under fire from their boards to spend capital dollars wisely,” Stone says. “They need to apply capital dollars to core assets, and fractional ownership is not a core asset.”

In a time of tighter budgets scripted by increasingly vigilant CFOs, a growing number of corporations, business owners, and private fliers have turned to Sentient. A typical fractional program requires fliers to purchase a base amount of annual flight hours (usually 50 hours for $195,000 to $350,000, depending on the fractional company), pay monthly management fees ($3,600 to $5,500) and hourly flight fees ($1,000 to $1,350), and sign a five-year contract.

However, Sentient clients purchase a private travel card that operates like a debit card, allowing fliers to travel without committing to a certain number of hours per year and without paying any management fees. For example, if you own a $100,000 Sentient travel card, you can take an eight-hour flight aboard a Gulfstream IV (the hourly flight fee is $4,950 round-trip for a heavy jet) and have $60,400 remaining on your balance.

Sentient’s hourly rates, which are $2,050 (round-trip) for light jets and $3,200 for midsize jets, tend to be higher than the flight fees charged by other fractional companies. However, when up-front charges and management fees are factored in, Sentient’s prices are at least comparable.

Furthermore, Sentient clients can leave the program and collect all unused dollars without paying a penalty. Meanwhile, they enjoy all the perks of private air travel, including access to jets such as the Challenger 604, the Hawker 800XP, and the Learjet 31 within five hours’ notice, limousine service to and from the airport, and gourmet meals on board.

Budget-conscious corporations and business owners have been jettisoning their jets, creating a surplus of aircraft available for sale. With aircraft supply exceeding demand, fractional fliers who sell their shares often have to do so at a loss far greater than they anticipated. Stone says he has spoken to fractional owners who once expected to receive 75 percent returns when they sold their shares back to the fractional companies. Those owners are now seeing returns as low as 37 percent, and they must also pay remarketing fees and penalties if they end their contracts early. “It’s speculation in the aviation market,” Stone says. “[The market] can stay strong, and you might get 80 percent of your value back, or you could get 40 percent back. It’s too much risk.”

A certain rock star who flies Sentient jets from one show to the next, however, does not seem concerned with risk. He can never decide which type of plane he wants to fly until after his performance. “If it’s a poor concert,” Stone says with a smile, “he flies a light plane. If it’s a good concert, he wants a heavy plane.”

Sentient, 866.473.6843, www.sentientjet.com

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