Phil Edgar loves to travel, whether to Cancun, Rome, Tahiti or another warm or exotic locale. But the always-on-the-go Port Perry, Ontario entrepreneur, who runs two gas stations under the Fill-Up Fuels banner on the Mississaugas of Scugog Island First Nations Reserve, was getting tired of flying commercial, especially with the time he had to spend at the airport.
In early 2020, he took the advice of a pilot friend and chartered a plane to take him, his wife, his daughter and his in-laws to Disney World in Florida. It was a crazy idea, he admits, but he wanted a new adventure with his family. The ride cost him $26,000, but as soon as he stepped onto that plane, he knew he would never fly commercial again. “The experience was life changing,” he says.
That’s a sentiment shared by a growing number of affluent individuals who are deciding to fly private. According to data from WingX, a business aviation intelligence company, private jet travel rose by 10% in 2022 year-over-year – and by 14% from pre-pandemic levels.
The appeal for Edgar, who also owns a few real estate properties and has invested in other businesses, goes beyond comfy seats and always-on service. For him, it’s about the hours of time he can save travelling. “What do I not have enough of?” he asks. “Time. If I can spend more time with family instead of at airports, then that’s what I’m going to do.”
Covering climbing costs
The challenge with private travel, though, is the expense, explains Paul Wylie, Head of BMO Family Office Canada. Buying a plane outright can cost between $15 million and $30 million for a used jet and run upwards of $100 million for a new one. Then there’s the operating costs and maintenance, which can cost thousands of dollars every year. Yet, for affluent individuals, avoiding the congested airport terminals and having a space to spend time with family or do work trumps costs. “You can easily save about 10 hours on a weekend getaway,” says Wylie who often relays a quote his father used to tell him to those thinking buying into a jet: “Happiness is found along the way, not at the end of the road.”
In 2023, Edgar took that thought to heart, buying a fractional interest in a private jet, which allows him to share the costs and maintenance with others. Edgar paid $800,000 to buy into a pool of planes and pays about $200,000 per year for roughly 25 hours of travel time.
Part of that ongoing cost includes fuel, pilots, maintenance, airport landing fees, and amenities, like food and drinks. In the case of direct ownership, people often put pilots on staff, so they can leave at a moment’s notice, and pay for storage.
Some flyers may also want to buy carbon offsets to counter the emissions their plane produces. In the case of fractional ownerships, carbon offset purchases may be facilitated by the private jet company. There are also several ways to buy credits directly, such as directly investing in offset projects, such as reforestation projects, or to buy carbon credits from a broker. In any case, interest in carbon offsets is growing. “A lot of people are asking about it,” says Wylie.
Paying for the plane
It’s critical then to ensure you’re financing a jet purchase in the right way so you can enjoy the travel. In many ways, purchasing a plane is similar to getting a loan to invest in real estate. There are some key differences, though, notes Wylie: if you’re buying an investment property in Canada you often have to put 20-30% down – not so with jets, which can be financed 100%, though often people borrow between 80% and 90% of the price. Both variable and fixed rates are available.
Another difference, Wylie says, is that terms are generally shorter than say a 25-year amortization – often between 12 and 20 years, though he points out people aren’t generally as eager to pay the loan off as they are with a home. “Some clients just want to manage it like a rental mortgage,” he notes. That’s partly because a lot of people end up selling their plane (which can be a depreciating asset) after a few years to buy a new and improved jet, so there’s less incentive to pay it all off. With fractional ownership, most people pay a one-time fee, but they can buy more hours as needed or, at some point, sell their shares, potentially earning a return.
Setting up a special purpose vehicle
BMO has experienced Private Bankers who have helped many families finance plane purchases, whether fractional or direct, via BMO’s jet financing program. There are two routes most people go when financing a plane – commercial or personal. Business-owning clients often go through BMO’s Commercial, or Private Banking, division, where a plane can be purchased within a corporation. To approve the funds, the bank looks at the cash flows of the company, the business’ relationship with its clients, and the overall structure of the loan among other factors.
Most of the clients that Wylie and BMO Family Office professionals work with have significant wealth – and want a more convenient way to travel for pleasure. In that case, it’s common for people to create a special purpose vehicle (SPV) which helps support anonymity while travelling, asset protection, and limiting liability. An SPV is a corporation-like entity that helps families provide continuity of plane ownership and management, but also protects families from certain risks that could arise at the time of transaction when purchasing a plane. Other risks can be related to crossing international borders, country registration and permits, and added protection against unexpected events that many occur while flying that could result in a lawsuit. If a legal issue does arise, the buyer’s personal assets are greatly protected from any claims. BMO’s jet financing program can help people explore the need for an SPV with their other professionals, and also help them go through the credit and legal process needed to secure funding in order own and enjoy the value of private plane ownership.
After flying private on three trips in 2023 – Florida again, New York for Valentine’s Day, and Las Vegas for his daughter’s hockey tournament – Phil Edgar doesn’t want to travel any other way again, he says. His advice for others who may want to fly private? “Have a candid conversation with your commercial banker or your wealth manager to see if private makes sense,” he explains. “Ask yourself, do I have the revenue stream that can support this? Do I have a need for it? And hopefully they’ll tell you to go for it.”
The opinions expressed above are those of the named client author as at the time of publication, and are in no way representative of the views of all clients. Client testimonials do not constitute a guarantee, warranty, or prediction regarding outcome of your investments.
