Pod Insights Masters in Business At the Money: Want to Fly Private? Here is how! About this episode Flying private used to be for billionaires, but that's no longer true. There's fractional ownership, hourly charter, jet cards, membership & leases. There is a way to fly private for a lot more budgets than there used to be..
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2:48 Barry Ritholtz? Flying private was once the province of billionaires, but that's no longer true. Sure, the top 0.1% can drop 50 large, buying their own jet, but there are many other ways to fly private beyond owning your own Gulfstream. There's fractional ownership, hourly charter, jet cards, membership and leases, those are another way to go. Let's explore this by speaking with Preston Holland. He's the founder of Prestige Aircraft Finance, hosts a weekly private aviation podcast called "The VIP Seat," and he's the author of the newsletter "Private Jet Insider," providing advice and strategies to help clients navigate
3:32 Barry Ritholtz? private aviation. So Preston, let's start with the basics. Besides bringing my dogs on the plane, what's the main reason people fly private? What are the benefits and drawbacks of private aviation?
3:46 Speaker 04 Barry, the one thing that you cannot buy more of is time. They say that money can buy anything in the world except for more time. I want to challenge your audience to say that is almost true until you start talking about private aviation. Private aviation is the only way to buy your time back using dollars and actually getting time back. Time is the number one differentiator when it comes to flying private. You go to a different part of the airport, you skip security, you drive up to the airplane, get on and take off, and oftentimes you're even going to an airport that is closer to your destination than the commercial airport is. So time is the biggest differentiator.
4:31 Speaker 04 It is, it's private. You don't have to deal with a lot of other people. There's some health benefits that come to it because you're not being exposed to so many people. But at the end of the day, it is time that you're buying back. That is the biggest difference.
4:44 Barry Ritholtz? So there are obviously a lot of key differences between flying private and commercial. Time saving is one. You're avoiding crowds and lines. What are some of the other benefits of flying private?
4:56 Speaker 04 It's, it's really that the airplane moves on your time. So if you think about the last time that you had to rush out of a meeting to go get to the airport and you needed to, because your flight left at 6:04 PM, that plane is leaving whether you get there or not. If you've ever had the experience in the last minute, you're rushing on and you're running down the airport. I live close to Atlanta, Georgia, and so I have had that experience many times in which I'm running through Hartsfield-Jackson trying to get onto the plane because I had a meeting that went long and I'm trying to get there. Five deviation is different. The plane does not leave without you. And so it really creates maximum flexibility. It also increases a lot of your ability to de-stress, right? You're, you're not, you don't have
5:41 Speaker 04 kind of that stressful moment leading up to getting on the airplane. Catering, you get to pick what type of food is on the airplane. You don't have to say, you know, cookies or pretzels. You can say, I want both. And I actually want homemade cookies and I want real pretzels and an actual Big Bang. A lot of people want to try and make the justification from a dollar standpoint. They say, okay, I value my time at a thousand dollars an hour. Let's say I'm an attorney and you can actually put a dollar amount on how many billable hours that you have. If you, and, and you say, okay, my first class ticket's going to be a thousand dollars. And so therefore, when can I kind of justify the difference between first class and flying private? It's a tough comparison when you think about
6:25 Speaker 04 all of the additional fringe benefits that come with flying private. If you just try and do a cost calculation, you're never going to get there. It's never going to make sense to fly private, probably 99% of the time. There is the 1% fringe time where you're going to Nantucket. And there's six of you and maybe everybody's gonna fly first class and maybe you can kind of make it make sense on a turboprop. But if you really boil it down, it's never gonna net out from a cost dollar standpoint. But really what it is, is all those fringe benefits that come from flying private that you really can't replace.
7:00 Barry Ritholtz? Since you brought up meetings and other related things, I'm curious how much of private jet usage is business travel and how much of it is recreation, vacation, fun travel?
7:13 Speaker 04 It depends on the demographic that you're looking at. I think one big misnomer that is out there is that private jets are reserved for Kim Kardashian and Justin Bieber. You look at how the public perceives private aviation, it's celebrities flying to Vegas, going on a party, they've got all of their friends there. But really, the bulk majority of private aviation actually looks like Main Street businesses that have multiple locations, a lot in manufacturing, for instance. You think about just-in-time manufacturing and you think about uptime in a manufacturing plant. And if private aviation can make sure that your plant is staying online for longer, that can be worth millions of dollars an hour to a manufacturing plant.
7:56 Speaker 04 So private aviation, a lot of times, looks a lot different than what you think. If you look at like a per hour basis, if you kind of broke it down, the majority is for business. Now, if you own an aircraft and you want to take depreciation benefits, it needs to be 51%. This is not tax advice, but that is, all of my tax friends say it's gotta be 51% use if you wanna get that depreciation. But oftentimes, it really is used a lot for business. Now, you can use it for private purposes as well. You can use it for vacation. It doesn't have to only be business. But the vast majority of travel in the private jet space is business, which is why... The use private jet and business aviation are very interchangeable because it's oftentimes,
8:41 Speaker 04 you know, those two things are often seen hand in hand.
8:44 Barry Ritholtz? Really, really interesting. Let's talk about the variety of options that exist, starting with fractional ownership. What does that mean?
8:52 Speaker 04 So there is a couple of different ways to fly private. And if it's okay with you, Barry, I'm going to take one half step back from there and I'm going to break down the four ways to fly private. I actually wrote an article about this. It's at my website, pressandhall.com. That's a free plug for myself. But there are four ways to really fly private and they go from the least committal, the least long-term committal to the most committal. So the least committal way to fly private is to on-demand charter. That means I'm going to call up my charter broker and I'm going to say, I need to go from New York to Miami. I need to go tomorrow and I have four people. You're going to make one transaction. You pay it. You fly the trip tomorrow and then you're done. No more commitment. You don't ever have to fly private again if you don't want to.
9:38 Speaker 04 Ad hoc charter is kind of the colloquial term. Ad hoc, the Latin word for on-demand, right? So that's ad hoc charter. The second committal would be a membership or a jet card. So that is kind of the second phase. Those listeners of Bloomberg will be familiar with XOjet. They'll be familiar with Vistajet if you read any of the bond ratings. There's a lot of memberships and jet card programs. You are prepaying for an hour block. So let's say you put down a $500,000 deposit and that's going to buy you X amount of hours on a certain aircraft type. So that is the second, you know, second least committal. There are, you know, membership fees that are sometimes associated with that, but you're not necessarily committing to one aircraft type or something like that.
10:23 Speaker 04 The next committal is fractional ownership. So you're buying in, that was your original question. You're buying into a program. This is NetJets. This is Flexjet. This is Airshare. There's a few regional providers that do fractional program, but you're buying a piece of an airplane, not too terribly dissimilar to a timeshare where you're buying a portion of the airplane. You may never fly on the tail that you own on. But you are committing to that membership tier. So maybe you buy one sixteenth of an aircraft that allows you 50 hours per year. There's a monthly maintenance fee that's associated with it, and then you pay per hour. You're committing to a program, you're committing to a fleet.
11:04 Speaker 04 The most committal way to marry an airplane is to buy it. So this is, I own the airplane. Now, you can do that a couple of different ways. Maybe me and Barry, we both live in New York, and we want to share an airplane. So we each go in 50%, and we buy the airplane. But you're only flying on that airplane. So it's one tail number, one aircraft, one set of pilots, not as much membership. So that's kind of the range to set the baseline of the different ways that you can fly private.
11:32 Barry Ritholtz? So you wrote an interesting post that kind of explains the cost differences between all those four things. And what struck me as so fascinating was the least amount of money you spend annually for something like an on-demand charter is going to be the most you spend on an hourly basis. And vice versa, if you make a big commitment annually, your hourly costs are the lowest. When people are considering these things, is it simply a function of, hey, how many hours do you think you're flying this year? Do you think it's 50 or 100 hours? Is that what informs those choices between jet cards, hourly charter,
12:16 Barry Ritholtz? memberships, and fractional ownership?
12:18 Speaker 04 Generally speaking, yes. When you talk about the first decision that you're making, when you're talking about, how am I going to average my cost on an hourly basis? That is generally the right framework to think about. Now, it is not the hard and fast rule. I know plenty of billionaires who fly Flexjet fractional, who can totally afford their own aircraft. And they probably fly enough hours, they just don't want to deal with the hassle, right? So, but generally speaking, if you're going to say, which bucket do I fit into private aviation? It's typically when you're thinking about how much am I flying per year? If you think about it strictly on a per hour that I am going to, per hour that I'm going to actually fly,
13:01 Speaker 04 how much am I paying? So let's say, let's set the benchmark, $10,000 per hour. This is going to be a super mid aircraft that's going to be able to take you coast to coast. If you were to own in a fractional program and you took your purchase cost minus your resale cost, so there's depreciation factor there, you took in all of your monthly costs and you averaged it out from time to time, that will actually be lower on a per hour basis. But if you're only flying 10 to 15 hours per year, you're going to have a lot of unused hours. You may not actually get the full benefit for it. So as you think about it, the typical breakpoint, this is, this is generally speaking, depending on the aircraft type, and everybody's different, but generally speaking, anything below 100 hours,
13:45 Speaker 04 you are typically going to win in a on-demand or a charter program. Anything above 100 hours, you should start considering fractional. And then somewhere between 150 and 200 hours per year of personal flying, you should consider whole aircraft ownership.
14:00 Barry Ritholtz? So I know after we broadcast this, I'm going to get some calls from some clients and some colleagues who are going to ask, hey, I've put some couple of million dollars away. I make a couple of million dollars a year. I'm tired of getting to the airport two hours early and fighting through, through TSA. At least I don't have to take my shoes off anymore. And they're going to say, what's the best program for me? They do some business flying, they do a bunch of, a few vacations a year. Every now and then they'll fly out, oh, my kid's in Purdue, let me go out to the Midwest. For someone like that, what sort of program would you recommend?
14:41 Barry Ritholtz? And I know I'm giving you broad parameters and not anything very specific.
14:46 Speaker 04 So I always suggest if you are just getting into it, an on-demand charter program is going to be what you want to do first because you don't know what your personal preferences are. You don't know if you like flying on light jets or if you don't like flying on light jets. You don't know if you want the extra room, be able to stand up, flat floor. There's a lot of variables that go into that. So I would say find a really good broker that has education forward. Jets are moving from one place to another and not necessarily between. It's not like a hub and spoke model like the airlines. And so get a really good broker that can help educate you on what it is you might like and what it is you might not like. Try a bunch of different flavors of aircraft before you start committing to anything long
15:31 Speaker 04 term because you just don't know what you don't know.
15:34 Barry Ritholtz? So since you mentioned different flavors of aircraft, let's talk about a few. There's Desault and Bombardier and Embraer and Honda Jets came out a couple of years ago. They kind of surprised everybody. How broad is the range of jets that are available either for charter or lease or membership?
15:58 Speaker 04 Yeah, so when you're talking about flying in the backseat, right? So we're going to leave the people who fly in the front seat, which is another type of person. When we look in the backseat, it ranges from turboprops, which is jet fuel that powers a propeller. So that's your King Airs, your Pilatus PC12s. So that is kind of the, call it the bottom end of the market. You're going to have the least amount of range, the least amount of speed, but it's also going to be the most cost effective. Wheels up, if you ever watched College Game Day and you remember seeing, oh, the one that has the two propellers on the side, that's a King Air 350, for instance. So that is kind of the bottom end of the range. You then have very light jets, which is going to take two to three passengers. That's a very light jet qualifies as the Honda Jet, the Citation M2.
16:43 Speaker 04 Even the Sturris Vision Jet, which is kind of in a league of its own as a single-engine jet, is in the very light jet category. You then have light jets, which is going to be Embraer Phenom 300, the Citation CJ3 and CJ4. Light jets are really great for regional travel, not as great for coast-to-coast. You're going to have to stop at some point. Then you have mid, so midsize, the Citation XLS. Uh, that's going to be, you know, again, regional travel, you're not quite going to get New York to San Francisco, but you're going to get pretty close. Then you have the super midsize jet, which is kind of like, you know, the difference between large and extra large shirts. It's like, oh, that was lazy. Um, super mid jets is a great example. Uh, super
17:22 Speaker 04 mid jets, the Challenger 300, 350, 3500, um, is going to qualify in that the citation latitude, the citation longitude. Um, the latitude cannot get coast to coast, but the citation longitude can. Uh, that's going to be your super midsize. Those are typically going to have a flat floor. They'll seat around eight people at max capacity. Um, and that's going to be the super midsize jet is the first time you're going to unlock that New York to San Francisco, New York to LA trip. Then you start getting into the large cabin. So when you get into the large cabin, you have the Challenger 604, 650, uh, 605, 650. You have the Falcon 2000, which kind of peters on that super midsize to large cabin.
18:03 Barry Ritholtz? And you take those New York to London, New York to Paris?
18:07 Speaker 04 You can get New York to London, depending on which way the wind is blowing and how new it is.
18:12 Barry Ritholtz? Well, that's a little tight. And my assumption is, as you go from small, light to mid to super mid to large, everything, not just the cost of the jet, but the insurance, the maintenance, the hangar, the pilots, all of this scales up dramatically as you go from flying New York to DC versus San Francisco to Hong Kong.
18:35 Speaker 04 Yeah, it, it scales up proportionately as you get larger in the aircraft. You start having higher pilot costs. You start having higher insurance costs. You have higher fuel burn on a per hour basis. So it does exponentially get larger. That's not to say though, that people automatically enter the light jet category, the turboprop first. There is a vanity piece to private aviation. They, they always say that the, uh, the most expensive part of the plane is the window. And that's because when the shade is up and you land at the FBO and you look out and you say, "Ooh, I like that one." And so you're tempted to kind of step up.
19:12 Barry Ritholtz? Really interesting. My last question, how has the technology changed private aviation in recent years?
19:19 Speaker 04 Yeah, so there's been a lot of software that's come to market over the last, call it 10 to 15 years, that have really impacted the way in which private flyers are interfacing with kind of the administrative layer of private aviation. Because it is such a tax complicated factor, there is tracking tools out there. There is services that will actually help you make sure there's maintenance tracking softwares. There's predictive maintenance tracking softwares. There's logbook scanning. Aviation in general, I know this is shocking, but aviation in general lags from a technological standpoint because of how concerning it is. So paper logbooks are still a thing.
20:01 Speaker 04 There are still maintenance records that are held in paper in a fireproof safe at the FBO. It's like still a very common thing. There's been a shift towards technology and aviation. When you look at private aviation though, the challenge for software entrepreneurs, I get DMs all the time on X to say, "Hey, I want to build XYZ software and revolutionize the market." The problem is, in the grand scheme of things, it's not that big.
20:27 Barry Ritholtz? So people listening to this conversation are thinking to themselves, "Hey, I'd like to fly private." Ballpark figures, how much money do you need to have to make this really a worthwhile experience?
20:40 Speaker 04 So generally speaking, it's $2 million in net income, right? So that's kind of cash flow to you and $20 million net worth before you start chartering on a regular basis. So that's, you know, probably vacations, that's probably some business trips. That's not, you know, you're not pedal to the metal, never have seen the inside of a commercial airport again, but you're seeing it less and less at $2 million of income and $20 million in net worth. Before you start thinking about buying a mid-sized jet where you sit in the back and you have pilots and all of that, the number was between 10 and 20 million of net income and around 100 to 200 million dollars of net worth. Now that includes privately held companies.
21:23 Speaker 04 That includes my operating company has been marked to market at $200 million. And then I'm starting to think about an aircraft. But that is generally speaking. Now, that is not the rule. In my day job, I look at people's financials and help them place debt for aircraft purchases. I will tell you that that number is not a hard and fast rule. It is a good rule of thumb, but for everybody, it's different, right? It may be a higher net worth, maybe you're a lower cash flow. Maybe you're a really cash flow person and this is really what you want to do. But that's kind of a good general, you know, general term to start looking at kind of midsize jets. And then as you kind of scale up, you're really not buying a brand new G700 until you're knocking on the billion dollar mark.
22:08 Barry Ritholtz? So to wrap up, if you're doing pretty well income wise and have a couple of shekels put away, you don't have to go out and drop tens of millions of dollars buying your own jet. You could do hourly charter, you could do fractional ownership, or you could do one of the jet membership cards that allow you to spend less time in commercial airports and more time getting to where you go quicker, faster, more comfortably. I'm Barry Ritholtz, you're listening to Bloomberg's At the Money.
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