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Direct costs of operation did not include costs fixed and paid
annually, such as insurance, the cost for the hangar, and the
salaries of the pilots and mechanics. Petitioners therefore
charged Ms. Harrah $1,200 per hour for the use of the Falcon
based on the direct costs of operation, and Ms. Harrah charged
petitioners approximately $1,300 to $1,400 per hour for the use
of her jet based on the direct costs of operation.
Petitioners made sure, however, that Ms. Harrah’s request
for use of the Falcon had least priority such that, if a third-
party charter customer or CFI had requested the use of the
Falcon, Ms. Harrah would not be able to use it. Petitioners
believed the arrangement was advantageous to them because the
agreement enabled them to use a jet worth about four times as
much as their own for only about $100 to $200 more per hour.
Petitioners could use Ms. Harrah’s jet for personal travel or
could accommodate charter customers on Ms. Harrah’s jet when the
Falcon was not available.
Success of the Jet Charter Activity
Petitioners believed BHJ would be able to generate a profit
if the jet had enough hours of flying and if the activity had the
right mix of charters to CFI, charters to third parties, and
charters to Ms. Harrah pursuant to their agreement.
CFI was treated like any other customer and did not have
priority over using the Falcon. Petitioners noted that if a
third-party customer wished to book the jet (which would be at a
higher rate because of CFI’s bulk discount), petitioners would
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