Learn to Fly Private

Welcome to the 11th edition of "Learn to Fly Private". Today is a really exciting day, because my first newsletter subscriber and X follower purchased a jet. If you're here because you are interested in jet cards, fractional ownership, charter, membership programs, or the like, this may not be the most relevant issue for you today. But, those are the gateway into ownership so this will be very relevant to you one day. I hope you still like it. If you don't, you can reply and tell me you didn't like it.

I've had 5 calls with subscribers so far, with another 4 scheduled today. They have ranged from one time charters to looking for aircraft ownership and everything in between. I use the knowledge I've gained from working in the industry to help give you some direction, and make some connections along the way. If you want to have a conversation, booking a call is easy using this link. I don't charge you, its free!

If you're new, first of all welcome! Second, you can see the past 10 issues of this newsletter here in case you missed any.

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As always, I love your feedback and I want to make this stuff useful. Reply to this email or DM me on X at @prestonholland6.

Now let's dive in...

Purchasing a Challenger 300: The Real Numbers and Lessons Learned from a First Time Jet Buyer

Just in time to capture 80% bonus depreciation, a newsletter subscriber and X follower has purchased a 2004 Bombardier Challenger 300 for $8.4m. They were kind enough to anonymously disclose their business, use case, the economics of the deal, real operating numbers, and first time buyer lessons so that you can be more informed when you decide to dive into purchasing.

The Aircraft

The Bombardier Challenger 300 is two models old, which have since been replaced by the Challenger 350 (2014) and the Challenger 3500 (2022).

The Challenger is classified as a super-midsize jet. Super-midsize jets are typically used for transcontinental flights (NYC to LAX) but rarely for international flights. They offer more competitive operating costs compared to their heavy jet counterparts. They typically seat 8-12 passengers. Other notable midsize jets are:

• Gulfstream G200 and G280​
• Dassault Falcon 50 and Falcon 50EX​
• Citation Sovereign, X, Longitude, and Latitude​
• Embraer Legacy 450, Legacy 500, Praetor 500, and Praetor 600​
• Hawker 4000

The Challenger 300 will seat 9 with an optional 10th seat on the belted lavatory in the rear. This jet was in this configuration, with an interior overhaul done in 2012. It does pass the bathroom check!

The Challenger can't be missed on the ramp either, with a stout nose and a distinctive profile, you can't miss it.

With a stated range of 3,220nm, the Challenger 300 can easily do coast to coast, and can reach Hawaii and all of Alaska from the west coast. The max cruising speed (which will decrease range) is 460 knots. With a tail wind, one of my X followers and a writer for one of our publications, flyingmag.com, sent me this picture of doing 700 mph of ground speed with a whipping tail wind.

The Business and the Mission

The owner of this aircraft has a $77m revenue supplements business with strong cash flows and a robust balance sheet. The purpose of buying the jet was to condense time when traveling to various locations involved with the business including corporate headquarters and manufacturing locations.

This aircraft will be flown exclusively Part 91 (owner flown operations), but as the airplane is already Part 135 (charter) qualified, they will keep it up to date in the event they decide to charter it. The jet will be managed by a company that also has a Part 135 operation, so it will be as simple as giving the green light to selling the excess capacity on the jet.

The owners plan to fly the aircraft for 250 hours per year. They estimated the same amount of flying on charter would cost $12,000 to $15,000 per hour netting them out to $3m a year in charter fees. Instead, they decided to purchase not only for reduced hourly cost but also for depreciation benefits.

The Deal Structure

This is likely what you've been waiting for. Here is the 45,000ft view, and then we'll dive a bit deeper in to each point.

• Asking price: $9.7m
• Purchase price: $8.4m
• Down payment: $2.9m
• Financing $5.5m (65% LTV) through their bank at 6.7% fixed for 120 months (10 years). $63,000 per month.
• 80% bonus depreciation of $6.720m
  • C corp and 27% tax rate.
  • Estimated reduction of tax exposure of $1.84m
  • Before purchase, the tax obligation was $6.75m
• Initial maintenance expenses: $47,500 (paid by seller)
• Soft interior refresh in April planned for leather seats, new carpets, and new finishes: $220,000
• Intend to keep it for 2-3 years and resell, estimating the value after use at $6m to $6.5m

Ask to Purchase Spread

The delta between the asking price and the final sale price was $1.3m. This aircraft had been on the market for an extended period of time. Compared to the fleet (in this instance, meaning a similar year aircraft of the same make and model), it had higher time (likely due to the charter use of the previous owner) and had an older interior.

This is one of the main reasons to use a reputable aircraft broker when purchasing an aircraft. There are many factors that go into a purchase like this. I introduced them to broker they worked with on this deal, and if you would like an introduction, reply to this email and I will connect you with them.

Financing

Since I am in the aircraft financing business, this is one that I'm intimately familiar with. When financing an aircraft of this vintage, the conservative underwriting would be:

• 75% LTV, 8.5% interest rate, with a 15 year term
• $2.1m down payment
• $62,039 per month

These rates require a personal guarantee on the loan for anyone with 25% or more ownership of the company. The rate can get as low as 7.15% with a monthly adjustable rate. Many times, your bank doesn't understand aircraft loans and what goes in to it. That's where we (FLYING Finance) create value in the transaction, because we have a bench of over 100 lenders on our platform to help get a deal done.

In this situation, the owner went with their bank. This allowed them to do a balance sheet loan, which did not require any personal guarantees. The catch was their bank wasn't able to get the loan done in time to close before the end of 2023, so the existing owner financed the airplane at 10% interest only payment for 2 months while the bank finished their documents. As I've mentioned a few times, December is a very busy month to buy airplanes so it is always advantageous to start the process earlier so that you can close to capture the depreciation.

Depreciation

One of the reasons to close in 2023 as opposed to 2024 was to capture the 80% bonus depreciation that was offered in 2023. This has changed as of 4 days ago to 60% for 2024, and will drop to 40% in 2025 until it eventually phases out in 2027.

Remember earlier, we said the buyer estimated his tax reduction in year 1 to be $1.84m, and the down payment was $2.9m. This took the cash down payment down to $1,060,000 when you subtract the bonus depreciation tax advantage. You may have a higher corporate tax, so this math could be even better.

After the bonus depreciation, the owner intends to depreciate an additional 4% per year, which will have an additional $91,000 in tax reduction. As always, this is not tax advice and you should consult an aviation tax consultant before making any decisions.

The Costs of Ownership

Here is a breakdown of the monthly fixed costs and the costs to fly the airplane. We'll throw in a bonus of what it would look like if they chartered it as well. This data is directly from the operator of the aircraft and from the owner.

Monthly Fixed Costs (gotta pay these regardless if you fly or not)

• Debt Service: $63,000 per month, $756,000 per year
• Pilot Cost: $461,500 per year
• Crew Training: $45,425 per year
• Hangar: $5,000 per month, $60,000 per year
• Insurance: $15,775 per year
• Management fee: $6,500 per month, $78,000 per year
• Charts & Databases: $14,868 per year
• SATCOM & WiFi: $4,095 per month, $49,140 per year
• Cleaning: $10,000 per year
• Misc. $9,300 per year
• Total annual fixed cost, exclusive of debt service: $744,008
• Total annual fixed cost, inclusive of debt service: $1,500,008

Variable Flying Costs

• Fuel (at $5 per gallon) $1,430 per hour
• Engine Program: $1,061 per hour
• Parts Reserves: $540 per hour
• Labor Reserves: $131.25 per hour
• APU Program: $124.19 per hour
• Dispatch fee: $100 per hour
• Other trip related expenses: $50 per hour
• Snacks and Supplies: $20 per hour
• Total Direct Operating Cost Per Hour: $3,456.44
• At 250 hours per year: $864,110

Grand Totals:

Expense Exclusive of Debt Service: $1,608,118 ($6,432.47 per hour)

Annual Expense Inclusive of Debt Service: $2,354,118 ($9416.47 per hour)

Compare this to our earlier estimate of only chartering at $3m per year.

Bonus: What if they chartered?

The charter operator estimates a wholesale total revenue per hour of $6,600 per hour with an 85% split going to the owner and a 15% split going to the charter operator. This would give the owner $5,610 per hour.

• $5,610 per hour to the owner
• ($3,306.44) direct operating cost
• $2,303.56 net per hour to owner

At 100 hours of charter, this would give $230,356 of contribution to the total annual expenses of $1,608,118 or $2,354,118. Now you see why its so hard (basically impossible) to house hack your way in to a jet? It would have to fly 1,250 hours a year for you to fly free. That will never, ever happen.

I know what you're thinking: how did we get a delta from $12,000 an hour to $6,600 per hour? Remember, when you're quoting a charter, the price you are seeing is only the hourly for when you are on the airplane.

If that airplane had to travel 1 hour to get to you, you flew a 2 hour trip, and 1 hour to get back to the owner, the total time is 4 hours ($6,600 x 4 = $26,400). Divide that number by the hours your flew ($26,400/2), you will be paying $13,200 per hour. Then you have to add Federal Excise Tax of 7.5% ($1980), and you may have to pay a broker for the trip (3%-10%). It adds up quickly to a $28,000+ trip.

$9,214.24 total margin for the $28,380 flight. 35% margins if your jet is flying on charter.

First Time Buyer Lessons

These are some of the takeaways from the buyer, and I hope that you find them useful when you're ready to buy a jet. These are just a copy-paste of a message they sent me.

• Find trusted resources to teach you the terms and ropes to navigate (part 91, 135 ext, programs, maintenance)
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• Start financing earlier than you think, it’s like closing on a home, each document begets more documents. Closing takes time.
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• Be patiently decisive. Don’t fall in love with a tail number, but when you commit act swiftly and accordingly.
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• Money talks - having a solid liquidity allows for more comfort for all involved. Tough for someone to walk back from multiple 7 figures that are non refundable
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• Maintenance is its own monster. Planes need inspections and maintenance like nothing else. Don’t skimp. Ever. Not only is it taking your life in your hand, but it is going to come back to bite you on the resale side.
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• Skip the starter plane. Most light duty jets don’t see the light of their second year because of their lack of speed, space and comfort. If you can jump over the first small jet, directly to midsized…do it.
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• Resist the urge to share it everywhere. Lots can go wrong in a deal, and people look at you differently when you start saying “my jet”. The best moves are made in silence
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• Pilots are a hot commodity. If you thought hiring sales staff was challenging, just wait until you hit the pilot market.
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• There are great values on planes, for a reason. If planes have low pilot availability, or low pilot training support…a plane may be the least of your long term issues.
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• Enjoy the process. There are somewhere around 20k jets registered in the US. A large % are owned by fleets. Good things take time. Stop. Breath. Smile and go with the flow. You are joining rare air.

And I'll leave it at that.

Until next week,

Preston Holland

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