Welcome!

This is my first ever newsletter send. That's pretty cool. Welcome to over 300 people who want to learn how to fly private. If you're not a subscriber, I would love to have you join us by going here.

I am ironically writing this email from the Delta Sky Club at LGA headed to NetJets HQ Columbus for a wedding. I definitely want and need feedback, so if you have thoughts hit reply. I'm excited to be on this journey together. We'll do some experimentation with format and formula, but I think the most important part is we just get started and iterate over time.

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Now... let's dive in.
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"We're Different."

When Wheels Up started marketing on College Gameday, I remember thinking that they’re trying to make the case that the everyday man watching a college football pre-show can fly private. They had a massive budget for media buying and advertising, and when they decided to SPAC the economics of the business looked awful, and then things got worse. The pitch was to democratize private aviation, and to create an Uber-like service for private jets. The everyday college football fan will likely never be able to afford flying private.

To be clear, here’s two things that will always be true in private aviation:

1. The jet will never pay for itself, and
2. It’ll never be cheaper than flying commercial. If you can accept these two facts, you’re ready to move forward.

When you’re beginning your private aviation journey, don’t go buy a jet immediately. You (likely) have no idea what your mission profile is when you start. Are you going to take more 2 hour trips or more 4 hour trips? 2-4 passengers or 6-8? Do you want to go fast or stand up in the cabin? All these questions will determine which jet, turboprop, or piston airplane you buy.

Insert: Jet Cards

Wheels Up is a jet card business. You’re loading “credit” on a "card" or account and moving cash out of your pocket and deferred liability onto their balance sheet. It’s a promise to fulfill an obligated flight some time in the future when you decide to redeem it. These have a variety of marketing names, and most private aviation operators have some version of a jet card. For the operator, it’s great because it’s working capital today to grow their business, and they’ll only need to fulfill their obligation in the future to the customer. For the customer, the benefit is primarily based on cash flow timing, tax planning, and convenience. Consult your CPA on what this looks like for your business. You’ll pay market charter rates or maybe get a slight discount, which means you’ll pay $2500-$3500 for a PC12 and $10,000+ an hour for long-range jets (G650 for example).

The issue here is there’s no obligation for the jet card provider to hold your cash in escrow. Now, they may say they do but when you look at two publicly traded jet card companies (think, VistaJet and Wheels Up) you will see on their balance sheet that the cash goes to fund operation and growth. Great when interest rates were 0 and cash was free and flowing. Wheels Up flew right into a liquidity crisis earlier this year and many in the aviation industry braced ourselves for a rush of King Air 360s (the primary aircraft of Wheels Up) to flood the market. I know one broker who short sold a King Air 360 because of fear of the Wheels Up planes hitting the market at the same time. Delta saved the day, injecting a few hundred million dollars into the company and keeping the deferred liability in tact. If they had gone under, though, all of the balances of their customers would vanish into thin air. You’re not a creditor of the jet card company in the case of a failure, in those situations you would be stuck.

When you’re considering a jet card, be sure you trust the vendor who’s selling it to you and that they have a strong business.

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Buying Part of The Jet
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You’ve likely heard of NetJets, which is what Warren Buffet calls a “beautiful business.” They’re a part of Berkshire Hathaway, so we can’t see their financials individually, but I will say what I know about the business is it is strong and will be here a while. When you buy a NetJets share, you’re actually buying a fraction of the plane. Some operators like Volato will allow you to buy as little as 1/16th of the plane and you get that proportionate amount of time (either days or hourly) using the plane at a cost+ hourly and a monthly management fee. At Volato as of last week, it cost $549,000 to buy 1/16th of the jet, $5950 a month for management, and $4200 per hour (plus fuel).
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You own the share for 5 years and then you can roll it into a new share with the same operator or redeem the cash portion at sale. You also get depreciation benefits and can deduct the hourly as a business expense as well. Again, not tax advice and consult with your CPA.

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Unlike our example about the Wheels Up credit vanishing, in a fractional the cash you put down is collateralized against your fraction of the jet.

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When JetIt went under earlier this year, Craig Fuller wrote about the CEO getting on a zoom call, introducing the partners that technically owned the plane together, and said “good luck.” The good news is, the owners were able to recoup most of their cash from the fraction they owned and then they could move on to a new solution. Or, the partners could decide to put the jet under the management of Volato (the smaller competitor). Hondajets flooded the market, and today it’s still saturated feeling the ripple effects from JetIt going under.

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Whether you charter, buy a jet card, fractional or whole ownership, the plane is a time machine and although it’ll never pay for itself and is never cheaper than commercial, there’s something about sleeping in your own bed and seeing your kids that makes the equation a bit more than math.
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Until next week.

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Preston