Loading summary
Transcript27 lines
- [00:00]
Nuveen Announcer
This message is brought to you by Nuveen. How would you invest if you knew the future was watching at Nuveen? This isn't a theoretical question. It's a perspective that comes from navigating 125 years of market cycles and the changing needs of investors around the world. Visit Nuveen.com future to learn more. Investing involves risk. Principal loss is possible. Every business has an ambition. PayPal open is the platform designed to help you grow into yours with business loans so you can expand and access to hundreds of millions of PayPal customers worldwide. And your customers can pay all the ways they want with PayPal, Venmo pay later and all major cards so you can focus on scaling up when it's time to get growing. There's one platform for all business PayPal open grow today at paypalopen.com loans subject to approval in available locations.
- [00:55]
Lisa Mateo
Hi, I'm Lisa Mateo, introducing you to the new Stock Movers Report from Bloomberg. These are short audio reports five minutes early, delivered right to your podcast feed throughout the day, Stock Movers fills you in on the day's winners and losers on Wall street and tells you about the news and data that's driving those gains and losses. If you want to stay plugged into the stock market but don't want to spend all day watching tickers scroll across your screen, then Stock Movers is a place for you to get informed. Listen a couple times throughout the day to find out what's moving equities and why. Search for Stock Movers on Apple podcasts, Spotify, or anywhere else you listen. Get the latest stock news and data backed by reporting from Bloomberg's 3,000 journalists and analysts across the globe. Subscribe to Stock Movers wherever you get your podcasts.
- [02:04]
Preston Holland
The road I've been down before Riding along on this big.
- [02:16]
Barry Ritholtz
Flying private was once the province of billionaires, but that's no longer true. Sure, the top 1% can drop 50 large buying their own jet, but there are many other ways to fly private beyond owning your own Gulf Stream. 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 private aviation. So 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.
- [03:16]
Preston Holland
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 now. 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.
- [04:13]
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?
- [04:25]
Preston Holland
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 6:04pm 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. Private aviation 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 not. You don't have 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 bag. A lot of people want to try and make the justification from a dollar standpoint. They say, okay, I value my time at $1,000 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 you say, okay, my first class ticket is going to be $1000. 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 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 going to fly first class and maybe you can kind of make it make sense on a turboprop. But if you really, really boil it down, it's never going to net out from a cost dollar standpoint. But really what it is is it's all those fringe benefits that come from flying private that you really can't replace.
- [06:28]
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?
- [06:42]
Preston Holland
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. 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 got to be 51% use if you want to 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 those two things are often seen hand in hand. Huh.
- [08:12]
Barry Ritholtz
Really, really interesting. Let's talk about the variety of options that exist, starting with fractional ownership. What does that mean?
- [08:21]
Preston Holland
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. Actually wrote an article about this. It's at my website, PrestonHolland.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 committ. 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. 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 Exojet, 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 membership fees that are sometimes associated with that. But you're not necessarily committing to one aircraft type or something like that. 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 1/16th of an aircraft that allots 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. 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.
- [11:01]
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 memberships, and fractional ownership?
- [11:47]
Preston Holland
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, how much am I paying? So let's say, let's set the benchmark. $10,000 per hour, that's 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 a depreciation factor there, you took in all of your Monthly costs and you average 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, 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 break point, this is, this is generally speaking, depending on the aircraft type and everybody's different, but generally speaking, anything below 100 hours, 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.
- [13:29]
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 kids in Purdue let me go out to the Midwest for someone like that. What sort of program would you recommend? And I know I'm giving you broad parameters and not anything very specific.
- [14:14]
Preston Holland
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 term because you just don't know what you don't know.
- [15:03]
Barry Ritholtz
So since you mentioned different flavors of aircraft, let's talk about a few. There's Dassault 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?
- [15:27]
Preston Holland
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. But 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 Pilates PC 12. 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 the most cost effective wheels up. If you ever watch 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 very light jet qualifies as the Honda jet, the citation M2. Even the stewards Vision jet, which is kind of in a league of its own, is 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 so midsize the Citation xls. 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 this 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. Super mid jets is a great example. Super mid jets. The Challenger 300, 350, 3500 is going to qualify in that the citation latitude. The citation longitude, the latitude cannot get coast to coast but the Citation longitude can. That's going to be your super mid size. Those are typically going to have a flat floor. They'll seat around eight people at max capacity. And that's going to be the super mid sized 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, 605, 650, you have the Falcon 2000, which kind of teeters on that super mid size to large cabin.
- [17:32]
Barry Ritholtz
And you take those New York to London, New York to Paris.
- [17:35]
Preston Holland
You can get New York to London, depending on which way the wind is blowing and how new it is.
- [17:41]
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 D.C. versus San Francisco to Hong Kong.
- [18:03]
Preston Holland
Yeah, it scales up proportionately as you get larger in the aircraft, you start having higher pilot cost, you start having higher insurance cost, 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 always say that the, 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, you look out and you say, oh, I like that one. And so you're tempted to kind of step up.
- [18:41]
Barry Ritholtz
Really interesting. My last question, how has the technology changed private aviation in recent years?
- [18:47]
Preston Holland
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 conservative it is. So paper logbooks are still a thing. There are still maintenance records that are held in paper in a fireproof safe at the fbo. That's like still a very common thing. There has 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 X, Y, Z software and revolutionize the market. The problem is, in the grand scheme of things, it's not that big.
- [19:56]
Barry Ritholtz
So people listening to this conversation are thinking to themselves, hey, I'd like to fly private. Ballpark figures how much money you need to have to make this really a worthwhile experience.
- [20:09]
Preston Holland
So Generally speaking, it's $2 million in net income, right? So that's kind of cash flow to you and 20 million dollar 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 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. That includes my operating company has been marked to market at $200 million. And then I'm starting to think about an aircraft. 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 those, 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.
- [21:36]
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 time getting to where you go quicker, faster, more comfortably. I'm Barry Ritholtz. You're listening to Bloomberg's at the Money.
- [22:15]
Bloomberg Event Announcer
Join Bloomberg in Los Angeles or via livestream on October 7th. For the future investor finding the opportunities, this 2025 event series will examine how companies are investing, investing in their businesses to create efficiencies, innovating their products and services and improving the customer experience. This series is Presented by Invesco. Q. Q. Q. Register at bloomberglive.com futureinvestorla. That's bloomberglive. Com futureinvestorla.