While business travel continues a slow recovery, commercial airlines have kicked off the year with turbulence. Over the last month, thousands of flights were canceled, due to a combination of inclement weather and an already sparse staff calling in sick.
As executive road warriors return to the sky, more will opt to fly private. In fact, private business jets flew 26% more flights in the first 10 days of this year than they did in the same period in 2020 before the pandemic, according to aviation data provider WingX. In the U.S. alone, the WingX report showed demand increased 31%.
A corporate jet may sound like a tempting way to avoid crowded airports and canceled flights. But the cost of a private jet — from maintenance to fuel to insurance to staffing — may exceed your expectations (and your budget). With demand higher than ever before, the competition for a company jet may also prove fierce.
Before you shop around, consider these nine reasons your company may regret buying a private jet.
1. The Jet Itself Costs Millions
The price of a new corporate jet varies, based on the model, number of passengers and built-in features. For example, a private jet that seats seven passengers is only $2 million. Meanwhile, an Airbus A380 with every bell and whistle will run you close to $500 million, according to finance website Bankrate.com.
Don’t expect a steal on something used. Take the Gulfstream G450, one popular private jet. The aircraft costs between $38 million to $43 million when new. A pre-owned model still runs a hefty price tag — ranging from $14 million to $35 million. Prices of pre-owned aircrafts will vary according to age, use and the level of upkeep the plane requires.
In the past, around 85% of private jet buyers opted for second hand, according to luxury private aircraft company The Jet Business. However, demand for both new and used private jets far exceeded the supply in 2021. Last year, business jet retailers saw a shortage of pre-owned aircrafts — with each receiving multiple bids from potential buyers.
“In the used aircraft marketplace, there are almost no aircrafts available, and anything that is on the market is either overpriced or an aircraft that will put you off private ownership for life in maintenance costs,” says Nick Davis, CEO at private aviation company Instajet .
The purchasing and ownership process is also complicated — so set aside money to lawyer up. Plan on engaging a team of aviation lawyers, technical advisors and escrow agents to guide your company through every step.
So what makes such a lofty purchase worth it? Experts suggest that potential buyers curb their enthusiasm, unless their company can use the aircraft at least 150 hours per year.
2. You’ll Have to Wait a Long Time for Your Private Jet
Those eager to own a private jet should expect to wait in a long queue. Delivery timelines for used aircrafts stretch between two and three months. If you opt for something brand new, be prepared to wait up to a year before your purchase can take to the skies.
Supply-chain obstacles have hindered the process further. Manufacturing — both of the jets themselves and mission critical parts — has been delayed by shortages of semiconductor chips, plastics, steel and aluminum. As a result, prices are up. The aviation industry on average paid 27% to 44% percent more for raw materials in 2021 compared to 2020, according to data from consulting firm AlixPartners.
3. Your Private Jet Needs Staff — Be Prepared to Pay
Your first staffing priority is obviously the pilot. But good luck finding one who is available. Pilots are in short order across the airline sector, leaving private jet charter companies and owners to scramble for staff. According to pilot recruitment site Thrust Flight, a private jet pilot salary ranges from $47,000 to $273,000. But with the demand at an all-time high, expect to pay upwards of $200,000 annually.
There are services that can help you find part-time pilots. However, many companies choose to hire a full-time pilot, which includes all the traditional items such as health insurance, a solid retirement plan and top-notch training opportunities.
The larger the jet, the more staff you’ll need to hire. Depending on the size of the aircraft and level of service your company wants to provide, you will also need to budget for a co-pilot and flight attendant.
4. The Cost of Aircraft Insurance Is Skyrocketing
Private aircrafts require multiple types of insurance. Hull insurance covers physical damage to the jet. Liability insurance covers injury and property damage resulting from operating the aircraft. Other common types of coverage include passenger legal liability, passenger and crew personal accident and host liquor liability. Aerospace company Honeywell estimates hull insurance at $34,520 and “single limit liability” at $12,500 for a rounded total of $47,000.
New buyers should also prepare for their insurance rates to rise, adds Lori N. McGee, a partner at Jetstream Aviation Law. “First-time buyers may not realize that their second-year premium will likely be much higher than their first-year premium, and thus it may not be priced into their budget,” McGee says.
Policy holders should expect a second-year increase upwards of 25%, says Bill Behan, CEO of AssuredPartners Aerospace. Behan has also seen jumps as steep as 110%. “The following years will also increase but likely by a lesser percentage,” he says.
5. You’ll Have to Park It Somewhere
Some storage options are more cost effective than others. But regardless of what you choose, finding a place to park your jet will be expensive. When assessing your options, consider the following questions:
- Will you be parking indoors or outside? While outside parking might only cost $420 to $900 a year, your pricey purchase will be exposed to the elements. Rust and chipping paint mean you’re out even more money.
- If looking for indoor storage, do you want to share a hangar? A shared space increases your likelihood of damage as jets are reshuffled. However, this is a more cost-effective option, averaging $3,300 per year. The larger your jet the bigger the price tag for a private hanger. Private storage for larger jets costs around $96,000 a year, according to Honeywell. Meanwhile, smaller jets cost around $36,000 a year.
- Where do you want your plane to be stored? Major airports, like LAX, will be more expensive than regional options. Expect to pay closer to $160,000 a year for a convenient location.
6. Budget for Maintenance, Too
Airplane maintenance costs will depend on the age and the size of the aircraft, as well as the number of hours it is used each year. Older models that fly frequently, for example, may need to be serviced more regularly. Going back to the Gulfstream G450, maintenance will average $10,000 per hour annually. In that case, 400 miles will lead to $4 million in maintenance per year.
“Have a ‘rainy day fund’ set aside with a cool $250K in it — as when the fuel truck on the busy airfield that is trying to fuel all the aircrafts bumps into your wing, you are going to need it,” says Davis.
7. Having a Fleet of Private Jets Can Be a Bad Look
Even if your company really does need a jet, brace for negative public perception. Your clients, customers and shareholders may see the purchase as wasteful. If you oversee (and over-use) the private jet, you may be blamed. Remember when Samsung chairman Lee Kun-hee faced backlash for lavish spending on private jet travel during a 2015 shareholder meeting.
Then, there’s the environmental impact. Think back to the outcry after last year’s Scottish Environmental Summit, when 118 private jets carried celebrities and political figures to the event. If your company has set sustainability as a priority, owning a private aircraft will cause customers to roll their eyes. Private jets produce a significantly greater carbon emission per passenger than commercial flights, according to the BBC. As of May 2021, private-jet emissions rose at a faster rate than that of commercial planes.
8. You Can Charter Private Jets Instead
Many companies that need access to private jets begin by chartering planes. Jet chartering services provide customers with a card that allows them to prepay for jet flights at a fixed hourly rate with guaranteed availability.
The average hourly rate for large-cabin jet cards is now $13,229 per hour, according to service comparison site Private Jet Card Comparisons. Smaller planes have an hourly rate of $6,724 — up 9.2% from last year. Rates may seem steep, but you no longer need to front the cost of storage and unexpected maintenance.
This option can work well when multiple senior leaders need to travel, especially if they live far apart. Instead of trying to coordinate everyone’s schedule around one plane, your team has access to multiple flights.
Demand for charter services has also increased, so you may need to wait. In the fall of 2021, jet card companies NetJets and FlexJet stopped taking new, entry level customers, according to the Financial Times. NetJets plans to resume sales gradually during the first quarter of 2022. With continued aircraft deliveries and normalized flight patterns expected by the end of March, the company expects to resume offering their full product lineup this spring.
9. You Will Lose Money When You Decide to Sell
“From my perspective, there are many reasons why a company might sell an aircraft, but the one I tend to see most frequently is that the intended use of the aircraft has changed or did not turn out to be in line with what was anticipated,” says McGee. “If the actual use does not align with expectations, then the per hour cost to use the aircraft may be higher, there may be negative tax consequences, and/or the company may find that the type of aircraft they have is not a good fit for their use.”
Say your company labels flying private as a failed experiment. Selling an aircraft in this current environment is easy to do, but your company will inevitably lose money on your investment. Airplanes, like used cars, lose value as they age. Depreciation rates for aircrafts remain very high — in the 7% to 12% range annually — according to analysis from Shearwater Aero Capital, a private lender for business jet owners.
Has your company bought a private jet? Share the pros and cons with our team.