Providing private aviation services for UHNW clients can be a complicated business. This article looks at some of the dos and don'ts.

The benefits of private aviation for travelers are considerable and well documented in both business and lifestyle media. They include additional flexibility, convenience, security, privacy and access (private aviation has access to more than 5,000 airports compared to 500 for commercial airlines) not afforded when flying commercially. Ellen Urell, an aviation financial management specialist in the multi-family office of Geller & Company, shares insights gleaned from years of planning, accounting for, and managing private aviation services for the firm’s ultra high net worth clients. A previous version of this article appeared on Family Wealth Report, sister publication of this one. We hope that readers, regardless of their region, find the points useful.

Start with an integrated wealth planning view

There is no one who “only owns an aircraft.”  While wealth levels may vary along with entity and family structures, we all pay taxes, have a risk profile, are required to comply with regulations, and have multiple goals in life beyond flying comfortably from point A to point B.

The planning and use of private aviation services should not exist in a vacuum, but rather be considered as part of a complete financial plan.  An integrated wealth provider, such as a multi-family office, will consider private aviation this way, and seamlessly tailor and integrate aircraft access to best meet each client’s unique needs and goals.

The costs of private aviation, potentially considerable, can either enhance a preferred lifestyle, or erode available cash flow. In the most extreme case, these costs cut into important capital available for earnings through other means.  This does not have to be the case, however, provided that the desired private aviation services are considered within the larger context of an overall financial plan and the asset management needs of a client.

Work with a team who knows aviation planning, not just financial planning

Operating aircraft can be complex, and there are many facets to consider, such as FAA regulations, tax, liability and risk, how to manage the initial cash outlay (if a purchase) and ongoing operating expenses as well as, of course, how to manage and maintain the aircraft itself.

If contemplating private aviation, it is always best to review the matter with a wealth advisor who also has experience in aviation financial management.  Having a good team in place in advance that can provide a full view of considerations is vital to ensuring there are no unexpected consequences or costs down the road.

For example, there is a generally common rule of thumb suggesting that if one flies more than approximately 300 to 350 hours annually, ownership is the way to go, leading many to add up hours and rush to purchase. However, that is not always the best course of action when an inclusive review of finances, taxes and goals are considered. One simply shouldn’t base the decision purely on hours.  Is most flying done domestically, all locations within a few hours, or will an aircraft get around the world with minimal stops?  Is flying done once or twice a quarter, or continual throughout the year?

The right wealth advisor will reflect on these questions and ensure the correct aircraft type and operating/ financial structures are in place.  We have found that the benefits of flying private often far outweigh other considerations when viewed comprehensively, and that there are many ways to access aircraft from outright ownership–with or without bank financing–charter, jet cards, fractional ownership, dry leasing, joint ownership or interchange agreements.

To fully understand each of these options and their applicability to each person’s unique circumstances, and to avoid “fix it” costs later on, one will need a comprehensive aviation financial management plan.

Best practices
After decades of use by high net worth travelers, there are important lessons to share as how best to structure and manage private aviation travel.  Below are a few important ones to consider:

- Ensure the operating structure is correct

It is reasonable to want to isolate aircraft operations in an LLC for liability protection and to segregate finances.  Except that this is prohibited, as the FAA considers it providing transportation for hire (i.e., operating a charter company without the appropriate operating certificate). Only if there is another source of income that can pay for aircraft operations or substantial other businesses within that same LLC can this be done.  Without that, the result can potentially be fines and /or one could be confronted with complications related to insurance coverage.

There are ways to mitigate this, for example, by dry leasing the aircraft (which is lease of the aircraft without crew) to an entity that has business travel, but this all needs to be reviewed in light of one’s current financial plan to decide what is best for a particular family/organization.

- Put an aircraft usage policy in place

It seems easy enough to get an aircraft and fly off, but to not fully understand the consequences of that travel from a regulatory and tax perspective can cause significant headaches later on.  For example: Who will have access to the aircraft?  How will entertainment travel be addressed and will time sharing agreements be required, or will income be imputed?  Who will be maintaining documentation? All of these dynamics should be discussed in advance with the aviation financial management team, and a usage policy with clearly articulated supporting procedures be put into place so there is a common understanding between the flyer/owner, the flight department, the financial team and legal counsel.

- Track flight purposes  

Once a decision is reached on how to handle entertainment and non-entertainment use, track it properly.  Was non-entertainment travel, for example, related to company business, a 501(c)3 charity, medical appointment, etc., or was the flight purely for entertainment purposes?  The IRS requires substantiation, particularly with respect to non-entertainment travel if a deduction is sought, so carefully collect documentation such as travel itineraries, and meeting agendas/notes.

- Make sure the right people are communicating

Strong communication between the flight department (whether internal or through a management company) and the business team is essential.

The worlds of private clients and companies are extremely complex, and each team has information the other requires when it comes to accounting for, reporting on, and the tax treatment of flights.  Setting up strong intra-department communications as well as documentation sharing standards and practices will go a long way in helping both the flight team service the client and the business team account for the flight.

- Understand and track spending

Understand how much it costs to operate the aircraft type being utilized as well as what other typical expenses are (e.g., maintenance, catering, phone use, etc.).  Know what is required under each particular arrangement and work with the management/financial team to budget accordingly and to locate cost saving opportunities.

- Make sure confidentiality is protected

Flight departments and management teams have access to sensitive information ranging from travel patterns, locations of homes, family information, and business deals that are discussed while on board.  Private travel should be private and all information discussed on the aircraft and all information related to travel must be held in the strictest of confidence.  Make sure team members are screened properly for their specific roles and strong procedures surrounding confidentiality and information sharing are implemented.

Take the long view

Consider whether private aviation use will be an infrequent occurrence or an essential element for a preferred lifestyle or business operation.  In either case, consider the long-term implications in relation to one’s complete wealth and other personal goals.

Get professional help from a team that knows both financial planning and aviation planning.  Few people have the training, practical experience or patience to manage many of the decisions they’ll face when it comes to the financial intricacies of using, maintaining, insuring and planning for private aviation.

Even if one were so inclined, coordinating advice from experts in each of these areas would be time consuming and fraught with additional complexities and decision-making requirements.  Using a third party who has expertise in all of these areas and one that understands the client’s full financial picture can save time, avoid future problems and provide critical guidance so that good decisions are always made when it comes to private aviation.