Latest / The High Net Worth Podcast with Fexingo: Wealth Management, Tax Strategy, and Affluent Finance / How Ultra-Wealthy Families Use Aircraft Fractional Ownership
Transcript
- Lucas: So the aircraft fractional ownership market is worth about 13 billion dollars globally, and it's growing at roughly 8 percent compound annual growth rate. For high-net-worth families, it's no longer just about convenience — it's a serious piece of wealth management architecture. Luna: Wait — wealth management architecture? That sounds like we're talking about depreciation schedules and leverage, not flight hours. Lucas: Exactly. Because for a family with 50 million or more in net worth, a fractional share on a Gulfstream G650 or a Bombardier Global 7500 can cost anywhere from 2 to 10 million dollars upfront. That's a real asset on the balance sheet. And the way you structure the purchase, the usage, and the eventual exit — that's where the wealth management play comes in. Luna: Okay, so let's start with the basics. Fractional ownership — you buy a share of a specific aircraft type, you get a certain number of hours per year, and the operating company handles the pilots, maintenance, hangar fees, all of it. Right? Lucas: Right. The dominant player is NetJets — Berkshire Hathaway's subsidiary — with about a 45 percent market share. Flexjet is second at maybe 20 percent. Then you've got smaller operators like PlaneSense and fractional programs from the manufacturers themselves, like Bombardier's Flexjet actually started as a manufacturer program. But the key structural detail is that you're buying an actual asset — a fractional interest in a specific tail number, typically 1/16th, 1/8th, or 1/4th of the aircraft. Luna: And that means you can depreciate it. Which is where the tax strategy comes alive. Lucas: Bingo. Under current tax law, business aircraft are classified as seven-year property under MACRS — Modified Accelerated Cost Recovery System — but with bonus depreciation, you can write off a significant portion in the first year. For 2025, bonus depreciation is at 60 percent. So if you buy a 5-million-dollar share, you could deduct 3 million in the first year, assuming the aircraft is used more than 50 percent for business. Luna: And that's the rub. The IRS is very specific about what counts as business use. Personal flights don't qualify. So wealthy families have to track every trip — flight logs, passenger manifests, purpose of travel. If the IRS audits and finds that personal use exceeds the 50 percent business-use threshold, they can recapture the depreciation. Lucas: Right. And that's why a lot of family offices set up a separate LLC to hold the fractional interest. The LLC then leases the aircraft back to the family's operating businesses. Each flight is billed to the business that generated the revenue. The family members pay fair market value for personal flights. It's a whole compliance architecture. Luna: Let's talk about liquidity. Because a fractional share isn't like a stock — you can't sell it in five minutes. What's the secondary market like? Lucas: It's definitely less liquid, but NetJets and Flexjet both have buyback programs. NetJets, for example, guarantees a buyback price based on a formula tied to the aircraft's age and hours. Typically, you get around 80 to 90 percent of your original capital back after five years, depending on market conditions. But if you want out before the typical five-year hold, you may take a haircut. Luna: So the exit is predictable but not guaranteed. That's a risk that families need to factor into their overall asset allocation. Lucas: Precisely. And there's another layer: some families use fractional shares as a way to defer capital gains. You can do a like-kind exchange under Section 1031? Well, not anymore — the Tax Cuts and Jobs Act eliminated 1031 exchanges for aircraft, unless you structure it as a commercial jet used in trade or business. It's complicated. Most family offices just treat it as a held asset. Luna: There's also the question of whether it's better to use a jet card instead of owning a fractional share. Jet cards — like NetJets' Marquis Jet Card — give you a prepaid block of hours, but you don't own the asset. No depreciation benefit. But you also have no capital at risk. Lucas: Exactly right. For a family that flies less than 50 hours a year, a jet card is probably more efficient. No management fees, no capital tied up. But if you're flying 100 to 200 hours a year, fractional ownership starts to make economic sense. The blended cost per hour is lower, plus you get the tax shield. Luna: And there's a newer trend: syndicated ownership. Multiple families pool their capital to buy a whole aircraft, then share operating costs. That's becoming more common among family offices that want more control over the asset. Lucas: It's a small but growing segment. I've seen syndicates form among three or four families who all need to fly between the same city pairs — New York to Palm Beach, London to Geneva. They hire a management company to run the aircraft. The economics can be better than fractional, but it requires a lot of trust and a good operating agreement. Luna: So to bring this back to the wealth management angle: how does a fractional share fit into an overall portfolio? Is it a consumption asset or an investment? Lucas: It's mostly consumption — like a vacation home. But unlike a vacation home, it has a useful business purpose that generates tax deductions. So the net cost after tax can be much lower than the sticker price. A family that spends 300,000 a year on charter flights might find that a fractional share costs them 200,000 after depreciation and business deductions — plus they get a capital asset at the end. Luna: That's a compelling argument. But let's be real — a lot of families buy fractional shares for the status, not the tax math. Lucas: Sure. The Gulfstream logo on the tail is a signal. But the smart families run the numbers. They look at the after-tax cost per hour, the liquidity of the buyback, and the operational reliability. And they make sure their schedule justifies the commitment. Luna: Speaking of the numbers — let's talk about the current market. In 2025, pre-owned aircraft prices have softened a bit from the pandemic peaks. That's affecting fractional share values. Lucas: Yes. During 2021 and 2022, new aircraft production was constrained by supply chain issues, so used prices skyrocketed. That drove fractional share prices up as well. Now, with production ramping up again — Gulfstream delivered about 120 aircraft in 2024, Bombardier around 100 — the supply-demand balance is shifting. Buyers have more leverage. Luna: So if a family is considering a fractional share now, they might be able to negotiate better terms. Maybe a lower management fee or a higher buyback guarantee. Lucas: Absolutely. And there's a new entrant — Wheels Up, which went public via SPAC in 2021, has been restructuring its fractional program. They're offering more flexible share sizes, like 1/32nd, which lowers the entry point. That's opening up fractional ownership to families with 10 or 15 million in net worth, not just the ultra-wealthy. Luna: And the technology is improving too. Better scheduling apps, real-time tracking, more transparency. The experience is becoming more like a premium service than a financial product. Lucas: Which is exactly what NetJets and Flexjet have been aiming for. They want to make the ownership feel seamless. But at the end of the day, it's still a seven-figure commitment. It requires due diligence. Families should work with an aviation consultant who understands both the operational side and the tax side. Luna: And maybe also a family office advisor who can stress-test the assumptions. What if your flying needs drop? What if the tax rules change? Lucas: Right. That's the prudent approach. Run a five-year projection with bear, base, and bull cases. Look at the net present value of the depreciation benefits. Factor in the cost of capital — because a 5 million dollar share could otherwise be earning 7 or 8 percent in a diversified portfolio. That's an opportunity cost. Luna: So it's not just about whether you can afford the jet. It's about whether the jet is the best use of that capital. Lucas: Exactly. And for families who fly frequently to multiple business locations, it often is. But it's not automatic. That's why we're having this conversation. Luna: Before we wrap, I want to touch on one more angle: the environmental piece. Private aviation has a big carbon footprint. Are wealthy families using carbon offsets or sustainable aviation fuel in their fractional programs? Lucas: They are, increasingly. NetJets offers a carbon offset program, and Flexjet has a partnership with a sustainable aviation fuel provider. But the offsets are voluntary — they add about 5 to 10 percent to the cost per hour. Some families see it as a reputational necessity. Others ignore it. Luna: And the newer aircraft are more fuel-efficient. The Gulfstream G700, for example, burns about 15 percent less fuel per seat mile than the G650. Lucas: Right. So the technology is helping. But the biggest driver of emissions is simply the number of flights. And fractional ownership tends to increase utilization — owners fly more because the plane is available. So the net effect is ambiguous. Luna: Alright, so let's land this plane. For a family with 30 million or more in net worth, serious business travel needs, and a long-term horizon, fractional ownership can be a smart move. But it requires homework. Lucas: And the key takeaways: understand the tax benefits, but don't over-leverage them. Choose a reputable operator with strong buyback terms. And think about the asset as part of your overall wealth picture, not just a lifestyle upgrade. If the numbers work, it's one of the few luxury assets that can actually generate a return — in saved time, tax savings, and efficient travel. Luna: And if they don't work, there's always first-class on the commercial airlines. Lucas: There you go. For the listener who is curious about running their own numbers, we'll put a link to a fractional ownership calculator in the show notes. That's it for this episode of The High Net Worth Podcast.