Another way to unload your fractional

Many fractional share owners don't understand that they have alternatives when they need to sell a share before the contract is over or when their contract is complete. "Their fear is that they can't [sell their shares privately]," said Dan Dugger, founder of fractional trading company Fractrade.

In fact, share owners are legally allowed to sell to anyone, he explained. However, fractional providers do try to limit that right in their contracts.

Dugger, a former southeast sales vice president for NetJets, estimates that about 25 percent of fractional share transactions involve used shares. He said he has sold shares managed by NetJets, CitationShares and Flight Options, but because fractional companies have carefully controlled the process, a robust secondary market hasn't developed. Dugger claims he can save fractional owners substantial sums by charging half the providers' contracted remarketing fee for the transaction. 
Other independent consultants can help you with share sales to third parties, but the ones contacted for this article report that few jet shares are sold outside of the fractionals' systems. "It's turned out to be a smaller part of our business," said Kevin O'Leary, president of Jet Advisors in Broomfield, Colo.

Fractional companies are reluctant to allow sales to third parties, according to O'Leary. "They don't necessarily want a free marketplace where you can get what you can [for the share]," he said, noting that if a shareowner is leaving the program and will no longer be a customer, the provider has no incentive to try to maximize the share sale price. When a fractional provider buys back a share, he explained, the company resets the management fee to the current level instead of reselling the share as is and allowing the new owner to continue to pay at the original shareowner's fee level. "If I sell the share, I can sell it within the framework of the existing contract."

If the secondary sale is presented to the fractional company correctly, some program managers will accept third-party involvement, said Daniel Herr, a Murray Hill, N.J. attorney who specializes in the fractional jet market. "It depends on the program," he noted, adding that while some fractional companies try to restrict secondary sales in their contract language, most recognize that gaining a new customer that way is better than no customer at all.

Herr has seen fractional programs limit secondary sales until after a certain time has passed, usually two years into the contract period. "That would be waived in the right circumstances," he said, such as when the company can add a customer for a relatively low marketing cost. Another recent development, he noted, is the fractional company allowing the sale outside of its system but imposing a transfer fee, which is usually less than the typical 7-percent remarketing commission that fractionals assess. 

The problem with the secondary market for fractional jet shares, Herr said, is that "there is no community of fractional owners, no common meeting ground. It's difficult to bring them together."

James Butler, CEO of Shaircraft Solutions and a columnist for this magazine, tackled that issue by creating an online forum for fractional share owners called Shaircraft Connections. Members can post comments about fractional ownership and shares for sale; they can also list itineraries, so they can share costs on some trips. Shaircraft is offering complimentary one-year memberships "for the foreseeable future," according to Butler. (The normal annual fee is $495.) The company also assists share buyers and sellers with legal paperwork and processes involved in a sale.

"There's a genius to the fractional model," Butler said, "in the sense that [owners] are not able to communicate with each other. Shaircraft Connections provides them an opportunity to communicate. It changes the balance of power between owners and providers."

Butler agrees with O'Leary and Herr that an efficient secondary market for fractional jet shares has yet to develop. "I don't think it's an accident," he said. "The major providers are intent on controlling the market. They don't want owners competing for their customers and they don't want to lose their remarketing fees."

Matt Thurber | AIN