Sales of Aircraft Fractional Interests - The Meaning of "Fair Market Value"
As noted in a prior entry, in the larger programs, the program manager will have committed itself to repurchase each fractional owner's interest. Typically, the purchase price is based on the "fair market value" of the aircraft, multiplied by the owner's percentage interest. The program documents will usually provide that if the parties can't agree on the fair market value, that value will be determined through some type of an appraisal process.
Shortly after you exercise your repurchase or "put" right, the program manager will quote you a value. Resist the urge to throw up you hands. Insist that the program manager show you the data it is relying on, and explain its methodology. You should consider bouncing the program manager's quote off a consultant (e.g., Fractional Advisor or Aviation Management Systems). You should absolutely do so if the program manager's explanation seems unintelligible and/or unreasonable -- a classic indicator of a well below fair market quote. Once you have the program manager's quote in hand, your options are to accept that quote, or go though the appraisal process. A consultant should be able to give you a sense of whether the program manager's quote is an unreasonably low "low ball" number. If it is, consider going the appraisal route.
