The Truth about Piggy Back Charter!

Piggy Back Charter, Aviation’s version of “Three Card Monte”

Three Card Monte is one of the oldest street scams there is, and it’s a game run by hustlers. The odds of winning are slim to none regardless of how carefully you pay attention to the game.

Now, why do I bring up “Three Card Monte” in relation to the aviation industry? Because there is a much more expensive and risky “hustle” in the aviation industry called “PiggyBack Charter”! And a “hustle” is exactly what is involved.

You need to know the real truth about it and why you cannot afford to be involved.

It starts out innocently enough. As the price of used aircraft has continued to drop, it has made corporate aircraft considerably more affordable to purchase, sometimes by unsophisticated buyers. And while the purchase price might be affordable, a fact not often mentioned during the sales process is the real operating costs of owning and maintaining that “inexpensive” pre-owned jet. Those operating costs are going to be the same now if not higher than when the aircraft was brand new. Costs which in many cases may well be outside of your operating budget.

Once you realize this, and not having a sophisticated flight department or knowing how to significantly save on the costs of the many ongoing services necessary, you might look for outside income sources to offset the true operating costs (which the aircraft salesman did not mention). So you decide to put your aircraft out for charter.

However, as private owner (or a 91 operator) you cannot fly for hire or accept income. You can become a 135 charter operator but it will take 2 to 3 years and hundreds of thousands of dollars. Any options? Glad you asked.

Step in the “PiggyBack Charter” (PBC) operator! Why might an owner fall for this “answer/hustle” and how does it work?

Ever had a charter operator tell you that they will make money for you Piggy Back Chartering your aircraft, and they will be happy to do it for just a small charge – Well there you go, welcome to (here comes) the hustle!

First, what is a Piggy Back Charter Operator or PBC? Well, a PBC operator is a charter operator with the necessary FAA 135 certification to fly your aircraft for hire and is “willing” to let you put your aircraft on their certificate for certain costs.

That is the illusion the “PBC” operator offers you…the neophyte owner. The PBC operator offering you the opportunity to make extra income by putting your aircraft on his FAA certificate, making it available/legal for hire. But there are a few profound and disturbing issues with this accommodation and that is what we need to examine.

Those profound and disturbing issues follow in this order:

#1. Your aircraft’s basic operating costs within this arrangement are going to be well over the going charter rates. Therefore, any hours of operation/charter are going to be more than the charter price, costing you more money than if you never flew the aircraft for even one hour of charter.

#2. Additionally, the certificate holder also charges you a 15% fee which comes right off the top before the operating costs. Plus, another 5% commission if a charter broker is used, for a total of 20%. These charges add 20% to the already insufficient operating costs. Also, the charter operator will charge you the aircraft owner a management fee of up to $10,000 a month, or an additional $120,000 a year.

#3. What is the result? The certificate holder always makes his profit off the top plus a management fee because you the owner are now supplying your multimillion dollar aircraft with all of the associated costs to the charter certificate holder at no risk or cost to the charter operator. You have handed over your aircraft free of charge, and he makes money off of you by charging you a fee to use his certificate plus that management fee. This might make sense if you, the owner of the aircraft made any money off the transaction. But you will not.

And if you learn nothing else from this post, understand this: You will never make any money off the Piggy Back Charter because the cost of the aircraft operations alone is always going to be more than the charter income, plus those operator’s fees. A classic exploitation of one party using other people’s money to make a profit and with zero risks to themselves! That is one part of the game you are never supposed to know about.

Here is the other issue. Since the charter operators do not own the plane, they do not care if the charter rate is sufficient to cover the costs of the owner’s aircraft operations. Their only real concern is to generate pure 100% profits for their bottom line from the fees they make by chartering your aircraft at zero risks to themselves. So why would anyone think Piggyback chartering is a good program for them? Because they said so?

What do you the owner get out of all of this? Depending on the type of aircraft you are supplying to this scheme, you might face $200,000 or more in unanticipated additional annual costs. Plus, the Piggy Back Charter operator might add up to 200 hours a year or more in additional use to your aircraft, which will impact your aircraft’s resale value.

But there is a bigger issue you need to understand. While your aircraft is flying charter in a commercial environment, your liability is through the roof! If that aircraft should be involved in any kind of incident, especially if it included fatalities, you could in all likelihood lose your company and everything you own. In some cases, while operating in a revenue environment (charter) there has also been criminal liability. This comes about because almost all aircraft accidents involved pilot error. And since it is your aircraft, and your pilot flying for hire, on your behalf, depending on the circumstances it could get extremely ugly. Meantime, you are taking on all of this risk just to lose hundreds of thousands of dollars operating the aircraft as a charter aircraft. * Remember “the Hustle”? The old charter two-step, well there you go!

My message to all owners is that you should absolutely not do this. With only increased expenses and the further risks, as well as the added wear and tear to your aircraft, there are zero benefits in it for you the owner.

Do not be hustled. “PiggyBack” chartering will eat your lunch, create excessive liability for you, and ruin your aircraft.

To be sure there are other ways to improve your operations and save substantial money, contact me and I will show you how.

* To determine if these statements above are correct, I’ve used Conklin and deDecker’s latest cost analyses, finding the exact operating expenses of the Hawker 800XP aircraft as an example, although the results are pretty much the same for all aircraft.

For this illustration, I’ve put the aircraft in for 300 hours of standard corporate use but also added 200 hours of charter for a total of 500 hours annually. Then going to the Air Charter Guide as well as Charter Hub I averaged 35 different prices for the charter rate of the 800XP. These costs do not include the payment if there is any, nor the RON cost, catering, landing fees, ramp fees or any other non-direct operation costs.

These are the results:
At 300 hours of use, the real cost to operate the 800XP is $4,818/hr. At 500 hours (with the extra charter hours), the cost is diluted to $3,884/hr. But then add in the 15% charter operator’s fee, and another 5% for the sales commission of the charter broker and that brings the out-of-pocket costs for the aircraft owner to $4,540.45. The advertised standard charter rate for the 800XP is $3,283. This means that every hour of charter flown on the 800XP is costing, not saving the aircraft owner $1,257.45 an hour or $251,490 annually. The result is the charter certificate holder is making $98,460 in 15% fees plus the management fees (another $120,000) with zero risks At the same time, the charter broker is making another $32,830. So on those exact same 200 hours, you are losing $251,490 dollars, the Piggy Back Charter operator and charter sales group are making a total of $251,290 (sound familiar) in the long game hustle!

Check it out for yourself. These numbers may be verified using the same information I have used.

Meantime there is a program developing called “Executive AirPower” that will actually save each and every one of the used aircraft owners $150,000 to $400,000 annually (significantly more money they thought they were going to make in PCB with out the liability). It cost the owners nothing to join, and there are no tricks or scams. With that program you do not have to add even one hour to your aircraft, you will be a standard 91 operator or corporate operator meaning you will not have the liability risk associated with “Piggy Back.” This program can be demonstrated online in real time to you so you will know exactly what you will be saving and it is guaranteed.

If you would like to find out more about this program and be an early adopter to gain maximum/early benefits, please call me at 702 994 4491 or email me at rick.eriksen@cox.net and I will help you with getting in the queue.

 

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