Jersey: Yacht Management:  The Business of Pleasure ….

Last Updated: 11 October 2000

As the aviation industry continues to shrink the world, so the yachting industry continues to grow. It is growing to supply the needs of those pleasure seekers who, maybe thirty years ago, had the means and ability to find that little hideaway in that near or far-flung paradise. Our friends in the aviation business spotted this potential growth area and with the help of our friends in the hotel industry developed those near and far-flung places for the masses to enjoy.

What has happened to our pioneering pleasure seekers of thirty years ago? Well, some continue seeking, but this time they are keeping quiet about their activities, whilst others have taken to the waters of the world, in yachts of all shapes and sizes. Using yachts that they own or charter, they still demand their own seclusion when they want it, intermixed with overnight visits to marinas and the occasional day on a crowded beach, when that need arises. If you have spent a few days on a private yacht you will know what I mean, if not, you should certainly try it.

A walk around any marina will show the diversity of yachts available, reflecting the diversity of their owners. There are those who have retired to their yacht, spending months at a time on it, occasionally venturing back to civilisation as we know it, to those at the other end of the spectrum who can only escape to the yacht for the occasional few days. What they both have in common is the knowledge of where to find peace and tranquillity.

As yachts have become larger and more sophisticated so has yacht management. The demands and needs of a yacht must be allocated and balanced depending on the owner’s wishes. Whether it is a balance between owner and yacht manager or owner and captain and manager, each has a part to play, but there is an all to often forgotten difference; the owner is there for pleasure others are providing a service.

With this increase in size has come the inevitable escalation of capital and running costs. Before purchasing a large yacht most, but not all, owners discuss the acquisition with their financial advisors. It is at this stage the financial advisor or trustee has to decide whether he has the required expertise or whether he will rely on the owner or a yacht manager for his own guidance. Most managers have at some stage, experienced late appointment, and have seen unclear aims of ownership, resulting in a flurry of activity and alterations in order to place the vessel in the desired structure. Assuming that yachts are purchased by offshore companies much legal responsibility is then placed on the administrator or trustee. Do these people have the necessary knowledge to handle such an asset, which in a lot of cases will be the most valuable moving asset belonging to the offshore structure? Do these people want the responsibility of a yacht, which is so foreign in behaviour, compared with other assets? And, by the way, what exactly does a yacht manager do?

The key to yacht management is the coordination of the owner’s or trustee’s wishes and ultimate control; who is doing what, when and where, and ensuring that all duties are performed in good time and with the absolute minimum disturbance to the ultimate owner. The yacht manager remains as much in the background as possible but still provides that checking role for the administrator or trustee. There are occasions when the yacht manger may be required to make some difficult recommendations which may not be popular with the owner, but that manager is only as good as the tact and forcefulness in which he puts the message across. Yes in rare cases he will even take "the flak" to maintain the harmony between the administrator/trustee and the owner. The yacht manager’s task and purpose is clear, he is there to be objective and to speak his mind based on past experience and the constantly changing regulations for the good of the vessel, the owner and the owning structure.

Commercial yachts versus private pleasure yachts

As the size of yachts have increased, so have their running costs and it is not unusual for a yacht of 40 metres to cost in excess of US$ 10 million, and by adding a further 10 metres to the yacht the cost can double again to US$ 20 million. On top of this capital cost there are the running costs to be considered, crew, maintenance, insurance, mooring and positioning the yacht for the owner’s use can add up annually to ten per cent of the capital cost for such a vessel. Many owners have chosen to defray some of these costs by placing the yacht in charter for periods of the year when it is known that it is not required for own use. A week’s charter revenue can be as high as one per cent of the yacht’s capital cost, six weeks charter revenue makes a substantial contribution to the annual running costs. In order to make such a yacht available for charter the yacht must be commercially registered and comply with commercial safety regulations. The cost of compliance will vary and most newly built yachts are constructed to comply with the majority of current regulations of licensing authorities. Even if the yacht is only for private use these regulations provide for sensible safety levels onboard and enhance the sales value of the vessel.

Most of the yachts under offshore administration are the smaller private pleasure yachts and many without permanent crew. These yachts are still important to the administrator/trustee, who may have to accept some liability if things go wrong. The old adage "if the insurers are happy then we’re ok" will be put to the test. Here the yacht manager has more of a mediation role, by discussing issues and sharing experiences with the Owner who may well be a knowledgeable yachtsman on an equal level. Safety and owner’s enjoyment go hand in hand and that is the goal of any yacht manager.

European VAT

Since the early nineties, interpretations and the regulations of different European countries have slowly been imposed from one European Directive. This Directive has slowly split the yachting industry into the two categories, Commercial and Private. Vessels changing flags, VAT mitigation schemes, and local regulations have all blurred this one EU directive and it may be years before total harmonisation is effective. Yacht managers will have their preferred routes and these will differ, but none can argue that if an EU resident is deriving pleasure from a yacht in European waters then some form of VAT will be paid, be it on the yacht itself or as part of a "charter fee".

Crew and Maintenance

The Captain plays a vital "in the spotlight" role - he is head of the "service team" of the yacht. In order to be effective he must have the total support of those behind the scenes. His primary function is the safety operation of the vessel but so much more is required and expected of him. Likes and dislikes of the Owner and his guests, cruising areas, victualling and maintenance to name a few, entitles him to support, be it from his own crew, the owner or yacht manager. The amount of support required is also dependent on the work schedule of the yacht; if the work schedule is heavy, then the necessary maintenance will need to be organised in a more precise manner. Add into the equation breakdowns and "time away from the yacht", one can begin to understand the pressure that some captains can be under.

Maintenance applies to all yachts. In terms of industrial usage, much of the machinery on board most yachts is used lightly but this intermittent use can put more wear on machinery than that which is in constant use. Heavily used yachts will require more domestic maintenance. Again a balance has to be agreed as most maintenance is preventative and yet too little of it can reduce the overall value of the asset. Some may disagree but generally a yacht will not increase in real value, maintenance and the occasional refit will help prevent the decrease in value  

Yachting comes of age

The changes to the industry have happened at an alarmingly fast rate, with the result that some areas which lagged behind have had to progress at an even quicker rate just to catch up. Changing regulations should not, if handled carefully, affect the pleasure derived from yachting. Access to yachting is becoming easier and as the glamour side of this pastime is promoted at every level so the dreams of potential new owners are hatched. New wealth has created a huge increase in the market in line with many other leisure activities. Whether the investment is US$ 250,000 or US$ 25,000,000, the task of the yacht manager is clear - protect the owning structure, protect the investment and make sure the owner has fun.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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