Thursday, July 31st 2014

The Luxury of Buying a Boeing 787

by Mr Credit Card

Joseph Lau, the Hong Kong billionaire who holds stakes in Hong Kong property developer Chinese Estates Holdings Ltd. (0127.HK) and department store owner Lifestyle International Holdings Ltd has ordered a Boeing 787 for his personal use. According to Forbes, his net worth is a very cool $2.1 billion dollars.

The price tag on this machine is a cool $151mm (but I’m sure he’ll either get a discount or could end up paying more for customization). I guess when you are worth $2.1 bn, throwing away $151mm for a transport is OK. This is in contrast to most mere mortals (us) who actually take out a loan for our cars (most people have to invade their emergency fund if they fully paid their cars!).

Somehow, I am wondering how much does it cost to maintain this beauty. Rather than taking a speculative guess, I did some research into how much a fractional ownership on a much smaller plane will cost and arrived at a rough estimate.

To own a one-eight share in a Learjet 31A, you will roughly need to cough up about $700,000. Monthly fees are about $5,500 a month and you pay $1,500 per hour on the airplane. As far as maintenance goes, that means it cost $66,000 a year in maintenance fees. This is for a one-eighth ownership. Assuming you fully own the jet, that will work out to $528,000 for maintenance fees. Now, assuming you fly 500 hours a year, that will work out to $750,000 a year. Fractional Jet companies have to cover their cost and make a profit too. So let’s assume eight owners will pay $750,000 X 8 = $6 million. Total cost is $6.528 million to maintain a private jet. That is just an estimated cost of owning a small LearJet 31A. With a Boeing 787, I’d guess it probably runs to about $10mm ?

But since Joseph Lau is worth about $2.1 billion (though they are concentrated positions!), I guess $10 million a year is nothing to him. Look at it this way, if you have $500 million in tax free municipal bonds, then the interest you will get is about 3.8% or $19 million on a $500 million portfolio. So it looks like the aircraft maintenance is easily covered.

For someone who s a private jet, I don’t think you can ever justify the cost based on hard numbers. But rather, you can only justify it by the time you save. How much is your time worth ? Presumably, Joseph is worth thousands of dollars an hour. As he is probably a frequent flyer, the time he saves, the ability to conduct business in his private jet will probably cover the cost of the plane and the maintenance cost as well.

How I wished I could fly a private jet !

P.S – Think of how much reward points he would rack up if he paid his aircraft loan with an American Express Card!

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