Owner’s View: Chartering and pride of ownership

Oct 14, 2020 by Melvin Miller

Owner’s View: by Melvin Miller

I have chartered houses, cars, aircraft and yachts. If I want to spend a week on a yacht in the Med, I would save both money and time by talking to a charter broker rather than moving my yacht from its normal program.

I can own and charter out a house, car, aircraft or yacht. Chartering is a business, the purpose of which is achieving at least a partial profit, so both sides of the trade can be evaluated by arithmetic.

I can have pride of ownership in a house, car, aircraft or yacht. Pride is an emotion, differing among owners and among their possessions, so it is harder to measure.

Owners of any business can have pride in their possession of the business in addition to the hopefully positive cash flow, but owners of non-producing assets, such as a yacht in a totally private program, may depend more upon pride to justify the expense of ownership. Different owners see the balance between pride and profit differently.

Profit in yachting often means a little less loss. One often hears “Nobody buys a boat to make a profit; chartering just offsets the costs” and “It’s very improbable that any charter superyacht will turn a profit. ... The vast majority, 90- 95% of superyachts that charter do not earn a profit;, what they earn is money to offset expenses.”

In addition to the possible contribution to annual operating expenses, an owner with an aggressive tax policy may also see some tax advantages, but the possible reduction for wear and tear and recapture of depreciation upon sale of the vessel make the long-term arithmetic of chartering somewhat problematic.

We previously placed some yachts in charter but concluded eventually that the juice is not worth the squeeze. We have also reviewed a number of proposals to establish a company to own and operate a fleet of charter yachts but could not find an attractive risk/reward business plan for yachts as there is for businesses that rent (charter) out houses, cars, and aircraft. 

There was a time when we wanted the short-term cash flow advantages of yacht chartering, but presently both the arithmetic and my personal view of pride of ownership vote against chartering out our vessels.

The term open checkbook describes an owner whose pride of ownership dominates decisions and thus dictates a high level of appearance and operability, both of which require the allocation of time as well as money. On my own boat, pride of ownership will often motivate me to delay a trip to achieve a first-class repair or upgrade, even when the change is not needed for operability. 

However, I would not want to interrupt a cruise when chartering someone else’s boat if the charter captain suggests that a Band-Aid will suffice, and I suspect that less experienced charterers have no idea how many short-term fixes are going on.

Therefore, a heavy charter history might imply a crew of effective short-fix experts who might have applied many such fixes, not all of which were caught in a survey or corrected in a yard. I am well aware that the owners and captains of heavily chartered vessels are determined to correct anything that might affect the charters whenever they visit a yard, that charter vessels may be subject to more class and other surveys, and so some owners of heavily chartered vessels may be more generous about yard bills than owners of totally private vessels who do not wish to spend more or wait longer just to increase pride of ownership.

Our experience is that there is often a larger purchase survey list for a vessel that has been heavily chartered than there is for a private vessel owned by someone who did not sufficiently value (or could not afford) a high level of pride of ownership. Some of this is because both of those programs are concerned about cash flow, whether in or out, and some is because using those boats can be a higher priority than trying to maintain near-perfect condition.

Thus, although we enjoy chartering someone else’s house, car, aircraft or yacht when that is appropriate, and we appreciate the charter crews and owners who make that possible, a history of chartering can be an issue for us when viewing a CV or a brokerage listing, as it is when we know that a private program was not well funded.

Each owner will rationally decide on a balance between cash flow, yacht availability for the owner, and just the raw pride of ownership, and that balance defines the program. Most vessels, captains and crew effectively serve the purposes of their programs, and we can often see that between the lines of a CV or listing.

Melvyn Miller is an American yacht owner from the U.S. East Coast. He has owned and operated yachts for six decades and employed crew for more than 30 years. Comments on this column are welcome below.