Contributed by: Nicholas E. Gonzalez, CEPA, CRPS, CDMA
Private aviation is often seen as the ultimate symbol of success, efficiency, and convenience. For individuals and families with significant wealth, the decision to use private aviation is less about luxury and more about optimizing time, ensuring safety, and maintaining privacy. Yet, a critical question remains: should you lease or buy a private aircraft?
This article explores the key considerations and financial implications of both options, helping you make an informed decision that aligns with your unique needs and long-term financial goals.
The Benefits of Private Aviation
Before evaluating leasing vs. buying, it's essential to understand why private aviation is a strategic choice for many high-net-worth individuals:
- Time Efficiency: Skip commercial airport delays, lengthy check-ins, and limited flight schedules.
- Privacy and Security: Control who has access to your flight, safeguard your personal data, and ensure a discreet travel experience.
- Customizable Travel: Direct routes, flexible departure times, and tailored onboard experiences cater to your specific needs.
- Health and Safety: Mitigate risks by reducing exposure to crowded public spaces.
These advantages make private aviation a practical solution for frequent travelers managing multiple business and personal commitments.
Leasing a Private Aircraft
Leasing a private aircraft involves an agreement to use an aircraft for a specified term and cost. Leasing arrangements typically fall into two categories: dry leasing (aircraft only, no crew) or wet leasing (aircraft, crew, and operational support).
Advantages of Leasing
- Lower Upfront Cost: Leasing eliminates the substantial capital outlay required to purchase an aircraft outright.
- Flexibility: Short-term leases allow you to try private aviation without a long-term commitment.
- Reduced Maintenance Responsibilities: Depending on the lease structure, maintenance and operational management may be handled by the lessor.
- Access to Newer Models: Leasing agreements often include access to the latest aircraft with cutting-edge technology and enhanced fuel efficiency.
Considerations
- No Equity: Unlike ownership, leasing does not build equity in the aircraft.
- Restricted Usage: Lease agreements often include limits on flight hours and usage.
- Lack of Customization: Leased planes may not offer the same degree of customization as owned planes.
Buying a Private Aircraft
Purchasing a private aircraft involves acquiring full ownership, either outright or through financing. Ownership provides unparalleled control and customization but comes with significant responsibilities.
Advantages of Buying
- Complete Control: Ownership gives you the freedom to use the aircraft as you please, without restrictions on flight hours or destinations.
- Customization: Tailor the aircraft interior, technology, and amenities to your exact preferences.
- Potential Tax Benefits: Depending on your circumstances, aircraft ownership may offer depreciation and tax deduction opportunities.
- Asset Ownership: While planes depreciate, they are tangible assets that retain some value over time.
- Lease-Back: Ownership allows the option to lease out the aircraft when it is not in use, generating cash flow to offset ownership costs.
Considerations
- High Upfront Costs: Purchasing a private aircraft requires a significant capital investment, often ranging from $5 million to over $50 million depending on the model.
- Ongoing Expenses: Ownership includes maintenance, storage, insurance, crew salaries, and fuel costs, which can total several million dollars annually.
- Depreciation: Aircraft lose value over time, potentially making ownership less financially advantageous in the long run.
- Operational Responsibilities: Managing a private aircraft requires significant time and expertise or outsourcing to a management company.
Key Financial Considerations
The decision between leasing and buying hinges on several financial factors:
- Flight Frequency: For those who fly over 200 hours annually, ownership may be more cost-effective. For less frequent travelers, leasing is often the better choice.
- Budget and Cash Flow: Leasing preserves liquidity, while buying ties up significant capital.
- Tax Implications: Consult a tax advisor to understand how ownership or leasing aligns with your broader financial strategy.
- Resale Value: Consider the depreciation curve and potential resale value if purchasing an aircraft.
Other Alternatives to Consider
If neither leasing nor buying feels appropriate, fractional ownership or jet card programs may be worth exploring. These options offer the benefits of private aviation without the full financial commitment of ownership or leasing.
- Fractional Ownership: Purchase a share of an aircraft, granting proportional usage rights.
- Jet Cards: Prepay for flight hours, offering flexibility without long term commitments.
Conclusion
Whether leasing or buying a private aircraft, the right decision depends on your travel habits, financial priorities, and long-term goals. Private aviation offers unparalleled freedom and efficiency, but it requires careful planning to ensure it complements your wealth strategy.
At Granite Harbor Advisors, we understand that private aviation decisions go beyond convenience—they intersect with your broader financial goals. Contact our team of experienced advisors who will work with you to evaluate the costs, benefits, and tax implications of leasing versus buying, ensuring your decision is informed and aligned with your overall wealth strategy.