Aviation Usage: In an aircraft fractional ownership program, the program operator is required to buy back the owner's fractional interest in the aircraft for the "Repurchase Price." Fractional programs use different terminology, but the meaning is generally the same. The "Repurchase Price" is determined at the time that the owner's fractional interest is repurchased, but the terms affecting the "Repurchase Price" are negotiated when the owner buys its fractional interest in the Purchase Agreement.
Playing it Smart: The "Repurchase Price" for the owner's fractional interest in the aircraft will be an adjusted fair market value of the aircraft at the time of repurchase, multiplied by the owner's percentage of interest in the aircraft. The fractional documents will define this value, and how it is calculated, but there will always be a degree of discretion. In some cases (large aircraft and high fractional interest), it could be worth the investment to engage an aircraft valuation expert. The starting point is a careful review of the documents to ensure the procedure is followed.
The best time to protect yourself is before signing the fractional documents. Fractional documents are not highly negotiable, but the repurchase terms can be clarified and adjusted. One area we typically focus on is the assumed condition of the aircraft for determining the Repurchase Price. If the fractional owner is paying a regular reserve that will be applied to restoration and overhaul of time-controlled components (engines and landing gear), then the Repurchase Price should be based on an assumption of zero-time on those components, since the program holds the funds to bring the components to zero time. Alternatively, the Repurchase Price should be based on actual hours and then increased by the entire reserve balance for the aircraft. Also keep an eye out for additional fees for fractional repurchases, such as an assumed brokerage fee, or remarketing fees and liquidated damages that apply to the buy-back. Try to get the fees for "remarketing" the aircraft waived or reduced or at least refunded if the fractional operator is able to find a purchaser for the relinquished fractional interest within a few months.