The following is a Side Bar that accompanied the article titled "Fractionally Owned Aircraft: The Pig in the Python" published in the February 1998 Business and Commercial Aviation. Reprinted with permission of The McGraw Hill Companies, 1998.

SUPPLY & DEMAND

Jay Mesinger, president of J. Mesinger Aircraft Sales, Inc. of Boulder, Colo., believes that the high-time fractional aircraft will have to be appraised in a "What has fractional ownership done to the fleet after valuation?" he asked, rhetorically. "It will provide two distinct categories, as airframe time always has--we just haven't had such a clear distinction before. Now we do, so if you look at it this way, it isn't skewed." Considering a nine-year-old former NetJets Citation SII with 8,800 hours on its clock, Mesinger asked, "Now, how do we price this airplane? I have a client who was intrigued with it, as it has low-time [overhauled] engines. I advised the client not to buy it, though, since it was priced at $2.5 million. In a down market, this airplane would never resell at that price."

The effect of a higher-time airframe varies with the strength of the marketplace, Mesinger pointed out. "When it's strong, everything is priced high; when it's weak, everything is cheap, whether it's good or bad. And when it's strong and everything is priced high, you can still buy junk and pay too much for it. If the market is mediocre, there is a distinction between good and bad. In today's strong market, you should stay away from an airplane that is priced too high...The hours will drive the value, not the year model, in any economy."

People buy into fractional ownership because their need eclipses charter but is not great enough to justify full ownership. "When the airplane then gets sold--and there is little history now on the 'back' end of fractional ownership--the guy who buys it fractionally then has an asset that isn't as valuable as the asst that was purchased by the typical flight department. That's one side of the equation; the other side is the guy who buys it used with high time who before now couldn't afford a new airplane. This buyer is blind to airframe time but keen on acquisition cost; for example, a charter operator."

There's nothing negative about the presence of these high-time former fractional aircraft in the used marketplace, Mesinger concluded. "It's just a different situation. We'll get used to it. We'll find ways to re-market these airplanes with integrity. There will be a market for them."

"Used by the permission of the McGraw Hill Companies, 1998."