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- [00:03]
A
Hi, I'm Lisa Mateo, introducing you to the new Stock Movers Report from Bloomberg. These are short audio reports, five minutes or less, 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 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.
- [01:09]
B
I wish that I could fly into the sky so very high Just like a dragonfly I fly above the trees, over the seas and all the grew anywhere I please.
- [01:31]
C
Have you ever wondered what it was like to own your own private plane? It may not be as out of reach as you imagine. Sure, some people spend $50 million or more, but there's a plane for nearly every budget. Let's speak with Preston Holland. He's the founder of Prestige Aircraft Finance. He also hosts a weekly private aviation podcast called the VIP Seat and is author of the newsletter Private Jet Insider, which provides advice and strategies to help clients navigate private aviation. All right, so let's just keep it simple. Do I need to be a billionaire to own my own plane?
- [02:10]
B
Barry, you don't need to be a billionaire. And actually most of my clients are not billionaires. In order to own an aircraft, one that you're going to sit in the back and you're going to have flown professionally for you. Typically, what I'm seeing is a net worth of somewhere between 100 and $200 million as kind of the starting point. And so not only is net worth something to consider, but also what does this do for my tax strategy and tax planning? How am I going to use bonus depreciation to my benefit? There's a lot of other things that come with this and what how much cash flow does my business spin off? But generally speaking, when we're thinking about that, it's it's really in the $100 to $200 million mark before you're starting to buy something like a light jet or maybe a midsize jet, there are.
- [02:55]
C
A handful of watches you can buy and A handful of very specific sports cars that sell for more on the secondary market than msrp. My assumption with jets is that there's depreciation in the used market, not appreciation. Is that a factor here or do most of these jets go through the normal straight line depreciation process like a boat? As the hours add up, the answer is generally yes.
- [03:24]
B
To that, let me add two caveats. One is Covid. And if you watch the valuation of aircraft between 2018, 2019 and 2021, they appreciated significantly. So there's a lot of people that were selling their airplanes in 2021 for what they bought or more than what they bought in 2018, 2019. So general market trends definitely matters in this scenario. Generally speaking, over a lifetime, there is a real depreciation factor. You sell for less than what you bought it for. Only nuance to that is in a few make and models and in a very short period of time post delivery. So right now, if you look at the overall ecosystem, I can think of off the top of my head, three models in which that's happening. And they're driven by a few kind of different forces. One is the Phenom 300. The Phenom 300 is an excellent light aircraft and it is loved by charter operators, it's loved by owners, and the contract price that you bought it for two years ago while you waited in line, oftentimes you can take possession of it and you flip it immediately and actually get a premium above and beyond that market. Specifically, it's happening a lot. The Prater 500 and the Praetor 600, which are also an embryo product, are experiencing similar, but not quite as dramatic to that. The Pilates PC12 market has experienced that over the last couple of years. The wait list for a Pilatus PC12 is five years. If you wanted to buy a brand new PC12 right now and you got in line, you'd be waiting five years. And so for the first couple of years, you may be able to fly it for a little bit and then get out of it a little higher than what you have.
- [05:03]
C
I imagine the range of private aircraft is very different from what I see in luxury automobiles. The sizes vary a lot. How many people they can carry, how far they can fly, how fast they can go, how broad are the ranges of private planes and how big is the price range from small regional planes to cross Atlantic type jets?
- [05:30]
B
Yeah, Barry, let me start with the ratio of size to range, because those two things actually play with each other. You have light jets, which are usually really good for regional travel. So this is for people who are flying from Atlanta to Charleston, West Virginia, or there are people flying from New York to Chicago. Right. Not terribly far as the crow flies. Those light jets, you know, are not necessarily going to do cross country type activities, but they're going to be really good for that. When you're thinking about how much am I going to spend? There's also a very wide range, I would say just to give you a really broad range. Your kind of get in price for a jet, and this is, you're talking pretty old, pretty small, is going to be around a million to $2 million. And the top end of the market is going to be what Jeff Bezos just took delivery of, which is a G700 at $75 million sticker. And it's everything in between.
- [06:30]
C
What are the other costs and responsibilities beyond the purchase price? What do people who purchase a plane, what do they need to think about.
- [06:39]
B
And budget for the framework to think about? This is the difference between fixed cost and variable cost. In the same way, if you're going to draw the boat analogy, whether you boat one day a year or 365 days a year, there's a certain set of costs that are constant and you're going to have to pay them. Whether you use it a lot or you don't use it, we refer to those as fixed costs, right? So whenever you see somebody say what's the fixed cost of this airplane? That is typically crew expense. So that is your pilot expense, that is your training expense because your pilots have to be trained in the aircraft. There's aircraft management, which is you're paying a company, a third party company to basically it's a property manager for your jet. That is the best comparison. It's not a one for one comparison, but it's pretty close. The hangar cost. So Barry, you're in New York, I'm sorry to break it to you, but hangar cost in your neck of the woods is very expensive. But hangar cost, you got to pay it whether you're, whether you're flying the airplane or not. Your insurance cost is going to be a percentage of whole value, liability value, things like that. And then there's some other miscellaneous fees. There's subscriptions, there's nav aids, there's things like that. That fixed cost will range in the kind of light Jet World, 400 to $500,000 a year. And then when you get up into the large aircraft, you may have fixed costs north of a million dollars. If you have to have multiple captains for your aircraft, you're flying a lot, things like that.
- [08:01]
C
What are the variable costs like?
- [08:03]
B
So when you talk about variable costs, you touched on an important fact, which is the fuel. There is jet a fuel which is much more expensive than what you put into your car. And there are ways to mitigate that. You can get fuel contracts to get you a discount, but it kind of is what it is.
- [08:19]
C
You actually pay six, seven dollars a gallon, something like that, somewhere in there.
- [08:23]
B
Depends on what part of the country. It can be as low as five and a half. It can be as high as eight and a half.
- [08:28]
C
Five and a half. I'll put it into my car. So I mean I'm, I'm okay with that. People don't realize when you're flying a jet, even regionally, you're burning through hundreds of gallons, if not thousands of gallons of fuel. What is the hourly fuel cost for a mid sized jet?
- [08:45]
B
Yeah, so I actually, I have a tool that a friend of mine built. It's called obvious. And I use that to do all of my calculations. So the Citation XLS, which burns 227 gallons per hour. You have the CJ4, which burns 198 gallons per hour. The Challenger 300, which burns 20880 gallons per hour. Once you start getting up into your large aircraft, let's say your Global 5000, which is an aircraft that can easily do New York to London, it can do New York to Paris, you're burning 490 gallons of fuel per hour. So it ranges significantly on how much fuel you're burning. There's also in the fuel burn, it's not a one to one, you're not going to save a lot of money. But if you're going faster and burning more fuel, like there's a coefficient there, there's some math to do. But for instance, right, if we assume $6.25 per hour, the Global 5000 is burning $3,000 of fuel per hour. Barry, where, where do we want to travel on our, on our global issue?
- [09:44]
C
What?
- [09:45]
B
New York to la. All right, so we're going to leave out of Teterboro Airport because we are not going to deal with the Port Authority and we're going to go to John Wayne, which is sna. Yep. Because we're also not going to deal with lax. We're going to take four people with us. We are going to fly the Global 5000. It is 2100 miles nautical miles. It's going to take us 4 hours and 40 minutes approximately in the Global 5000. And we are going to have $7000 of variable costs per hour. Our total trip variable cost is going to be $38,281 to go from New York to L. A.
- [10:23]
C
We're talking about fuel costs. We haven't talked about maintenance costs. If you're flying 100 hours a year and you have a jet, what can you expect in. In maintenance expenses? Assuming nothing goes wrong?
- [10:38]
B
Yeah. So a lot of times maintenance is actually calculated on an hourly basis. So you're buying into a program. There is not a direct correlation to this. In the real world, the closest it would be is to an insurance product, but you're paying on a consumption basis. So let's say I am signed up for a maintenance program, a maintenance platform. One of them is called JSSI Jet Services Solutions, Inc. They have 100% coverage for my engines. That's going to amortize my overhaul cost, which can be a couple of million bucks. That has to happen every 2,500 or 5,000 hours. It's going to amortize it on a per hour basis. So I pay per hour I pay to the service, and then they pay my chunky maintenance bills. Those, those engine programs vary pretty significantly depending on how much coverage. You can also put coverage on the parts on the aircraft program, called pro parts, where you're paying an hourly cost. And then they're basically, they're taking the other side of the bet that you're going to have less maintenance, and you're taking the front side of the bet that says I'm going to have a lot of maintenance and they're going to pay for it.
- [11:44]
C
Or just that I want to have a fixed set of costs and don't have to worry about the, you know, possible surprises. And willing to pay a little more upfront.
- [11:53]
B
Exactly. Yeah. You're. You're willing to pay kind of stretched out over time as opposed to large chunks. So instead of paying your $2 million overhauls, you're going to pay, you know, let's say 1,000, $2,000 per hour. So generally speaking, if you were to amortize your maintenance expense over your hourly, which is typically how everybody calculates this on the Global 5000 that we're talking about is going to be around $4100 per hour.
- [12:18]
C
Let, let's talk a few minutes about jets. If you want to go cross the Atlantic, what size jet are we talking about?
- [12:25]
B
Yeah, you're going to have to go into the large cabin range. You're going to be looking at the Gulfstream G450 to unlock kind of London. I think it's going to be on the fringe for Paris. The G550 gets it with no problem. The Gulfstream G650, the Bombardier Global 5000, 6000, 6500, there's a lot of numbers and so that you're really gonna have to get into that large cabin to comfortably get nonstop from New York to Paris. And that's gonna, you know, possibly have a flight attendant. It's gonna have at least two pilots. You're gonna have at least one nice sized restroom, maybe a small restroom in the front. So that's really getting up into your larger cabin aircraft. But that's really how you're gonna be able to get transcontinental.
- [13:07]
C
I recall a few years ago there was a commercial pilot shortage. I have a buddy who I grew up with who flies Detroit to South Korea, and he was telling me they just can't find enough pilots. Does that same shortage of qualified pilots exist in private aviation as well?
- [13:25]
B
Yeah. So the pilot situation in private and business aviation has undergone some similar pressures to what it has in commercial aviation. The price has gone up, the. The price of pilots has gone up, the price of training has gone up. Just everything associated with the pilot has gone up. When you look at kind of the shortage, you have to remember that every pilot has to go through what's called a type rating, and every pilot has to go through what's called recurrent training. So, Barry, if you are qualified to fly the Gulfstream G650, you have gone through the initial training, the initial type training, and you keep that current because you have a client that is, you know, kind of running through, flying that aircraft. And then you have one of his buddies that calls and says, barry, can you come fly my Global 5000? You would have to go through the initial type training and do the recurrent training. Right. Every pilot can only fly so many types of aircraft. And so as you look at kind of the pilot, the quote, unquote, pilot shortage, which there's a lot of debate in the industry of whether it even exists or not. If you look at that, you have to look at type ratings. Now, when you're looking at buying an aircraft, one thing that I advise clients to do a lot of times is follow the big dogs. Okay? You've got the big dogs, which is NetJets, they're the largest. Flexjet, which is second largest. VistaJet, which is pretty large. And then a lot of the other operators, if you follow their make, model, kind of their fleet composition. They train so many pilots. I mean, to put into perspective for those that follow publicly traded companies, Berkshire Hathaway owns NetJets and Flight Safety. They just reported an up quarter, 8% revenue growth. NetJets owns its own training facility. That's how much, that's how many slots that they were buying in the training facility. So they will actually leak out pilots for people that are like, you know what? I don't want to do the seven days on, seven days off thing. So, you know, feed on 300 pilots, relatively easy to come by.
- [15:25]
C
So someone's thinking about buying a private jet and they're saying themselves, gee, this sounds like a lot of responsibility and a lot of cost and maybe it's a little out of their budget. How significant is fractional ownership to the experience of owning your own jet?
- [15:42]
B
So fractional is similar, but it sometimes from time to time will feel a bit more like chartering than owning your own aircraft. Now, every fractional contract has slightly different language in their contracts of what's called call out hours. Barry, I'm going to come to New York and you and I are going to go for a sushi dinner in la. I know this great spot. We're going to go out there if we wanted to leave in two hours. We are not guaranteed availability on a fractional if we want to leave in 12 hours. So let's say we want to leave tomorrow morning, guaranteed availability. And sometimes they will be able to swing something through and actually get you there. When you own an airplane, it is waiting for you at the hangar and you determine how close your pilots have to be so that if you want to leave in 20 minutes, you can do so. Right? And so that is the biggest difference in the experience. The other piece is the hassle that comes with hiring pilots and managing stuff. I have a lot of billionaire clients and billionaire friends that say, look, I don't want to mess with this. I just want the easy button. Fractional is the easy button. Like at the end of the day, you're paying somebody to deal with all the headache and you show up and you get on the airplane and you go. You're not having to say, why, I've got pilot turnover. It really is the easy button, which is where that feels in the market. Not only can you save kind of on your gross cost, but even if you're flying where it makes sense to fly private, you're. You're negating a lot of that stress.
- [17:15]
C
So our last question, someone reaches out to you and says, hey, Preston, I'm thinking about buying my first plane. What sort of advice do you give to that person?
- [17:25]
B
Assemble a good transaction team. That is the number one thing that you have to do. Your transaction team typically looks like person number one is your broker. They're going to be your quarterback. It's not dissimilar to buying a commercial property. They're going to find the aircraft, they're going to manage the process, they're going to do all of your pre buy inspections. Everything like that to your attorney is probably pretty good in house. They know nothing about FAA law. So you need to get an aviation specific attorney. In the grand scheme of things, it's going to be similar pricing to any other specialized attorney, but it's going to make sure your in house attorney is going to pull their hair out trying to figure out how to do this. Where the aviation attorney is going to be easy. Third, aviation tax consultant of some sort. There's a few different firms that specialize in aviation tax. Your CPA probably knows how to run your books and make sure that everything's good. They don't understand the concept of truth in leasing and subleases and leasing between all the known entities. And how do you not get flagged by the FAA to illegally charter? So get a tax consultant. That just makes your life easier. And the last one is a financier. So that's what my firm does. If you're paying cash, we're not necessarily in the equation. But if you're, if you're going to finance your aircraft, you may call your bank and they may do it for you. They may not. Some of the larger banks don't necessarily want to do older aircraft or smaller aircraft. And so then you're kind of left wondering, what am I going to do? How am I going to finance this? We basically run an RFP process for you and make sure that we can kind of drive your rate down, stretch out your amortization, drive your down payment down. Whatever your goals are. We work with family offices, CFOs to make sure that the proper leverage amount at the right cost is put on the aircraft for whatever your goals are.
- [19:07]
C
Hey, you could save money with fractional ownership or with jet memberships, but for some people the only way to go is by owning their own private aircraft. I'm Barry Ritholtz and you're listening to Bloomberg's at the Money.