#351 - Preston Holland - CCO @ FLYING Finance - Private Aviation 101

Chris Powers: Preston, thanks for joining me today. 

Preston Holland: Dude, Chris, it's a long time coming, man. 

Chris Powers: I know. 

Preston Holland: We've been internet friends for about five years now. 

Chris Powers: You were one of my first internet friends when I got on Twitter. 

Preston Holland: Yeah, it's funny. People ask me why I am on Twitter all the time. I'm like, I've got all these friends there.

They're like, well, what do you mean? And I'm like, well, I met them in person. I hung out with Nick several times, and Craig met Craig on Twitter. There are a ton of guys that we know in common, including Hunter Jones, who's up in Knoxville.

We get together once a quarter. And so it's a lot of fun, fake internet friends. My wife makes fun of me a lot.

Chris Powers: I have to tell my wife all the time. It's like friends, but I promise you there's work embedded in this. And I have proof. And on that note, you have proof that Twitter is like work. The best place, let me take one step back. 

You and I have been jamming on this idea for a year. We met years ago, and I was going through our DMs. We started DMing each other in 2019-2020. But a year ago, you said, " Hey, we should do an episode that gives the listener a full one-on-one overview of how the private aviation industry works.

But before we get to that, it's just a cool story about how you got into private aviation because you didn't grow up dreaming of being a pilot or loving aviation. It started with Twitter. 

Preston Holland: Yeah, it did. Before I started working with flying, I stumbled across this corner of Twitter with really intelligent people, and we're all talking about business processes and things that are trying.

And I'm not an internet guy. I grew up in my space with the internet, but I'm not. My brother is a big gamer, and I Have All these virtual friends. That was never me. I would play with my friends in the neighborhood or something like that.

And so, I will start tweeting about what I'm thinking. I was running a service business in East Tennessee. We're one of those service businesses that private equity is trying to roll up because it was in Southeast Tennessee with good weather.

Three hundred sixty-five days a year, good margins, and as a franchise business. And so, I was on a trajectory that I was totally happy with; I had no interest in going anywhere else. I was tapped to continue to grow the company. And so I started talking about hiring, firing, and managing, and how I was thinking about Google AdWords, what we were doing on marketing strategy, and all that stuff.

And so I didn't have a lot of followers. I probably had 900 followers for a long time, but it was guys like you and Nick before. You're a celebrity. I don't know this about you, but it's not people on the street; just about one step off the street.

And it's like, Oh, do you know Chris's powers? Oh yeah. I love that guy. I followed him when he had like 3,000. 

Chris Powers: Never meet your heroes. Trust me. 

Preston Holland: But so I started tweeting about it and, ended up, some so many people are Twitter personalities that say like, Oh, the beauty happens in the DMS.

And I don't want to sound like a broken record, but truly, there are a whole lot of interesting conversations that happen on Twitter. DMS and Craig Fuller were both in Chattanooga. We had, it's like, all of these friends that Overlapped. And I knew what Freight Waves was doing and was in the business ecosystem.

He'd sent me a DM and asked if I was looking for a career move. And my dad taught me one thing early on. He said the answer to that question has yet to be discovered. It is always, let's have a conversation. And so get on a Zoom call. During COVID, Craig was at home. He was getting on a Zoom call and said, " Hey man, I'm buying flying magazine.

And I looked at him. I was like, I found a magazine, dude, 2020 at this point, it's like, I can't tell you the last time I'd looked at a magazine, but my dad was a pilot. And so he flew blank checks or bank checks from Atlanta all over the Southeast and the Midwest. And he grew up telling me stories about flying through winter storms and getting stuck overnight and all this stuff.

I'd always dreamed about aviation and was a fan, but it never made sense. My parents were in real estate, and I grew up during a time when 2008 was right about when I should have been starting to learn to fly. And it was a tough time.

I'd always wanted to learn how to fly. I was always interested in it. And so I said, Craig, I know nothing about magazines. I know nothing about aviation, but I'll tell you this: I'm pretty good at figuring stuff out. And it sounds like a lot of fun. So, count me in if you want to have me. And so I joined, day negative 30 of the flying media group.

And so we went, and I remember we announced at Oshkosh, and I walked around and was the vice president of sales, which meant absolutely nothing. It meant I didn't even have a business card. I had one of those virtual tap cards that I'd made. And I'm walking up to these people like, hi, I'm pressing Holland.

 I'm with the group that just acquired Flying Magazine. I'm the vice president of sales, and they're all like, who the hell are you? And I'm like, we've got a tough hill to climb. So, we brought over some team members who had been with Flying for a long time.

I moved into an operations role quickly. I like to tell people that we were a hundred-year-old startup in those days. The brand started in 1927 with the first flight across the Atlantic. And it's like all this innovation happening during that time of aviation, yet we were brand new. We'd exist for 45 days in court.

We incorporated 45 days before we acquired the asset. So, we set up all of our back-end systems, which took on more of a senior leadership role. And then, here we are. I don't know. We went from, I think, day one when we had seven or eight employees to 200 and something today. 

Chris Powers: At Flying Media group?

Preston Holland: Yeah, at Fire Crown.

So We're at 200 something. 

Chris Powers: Holy cow. You are now an advisor and chief commercial officer, and you're the CEO of another company that has been bought.

Preston Holland: So we bought an aviation finance brokerage, and after. We ran, call it, private equity, but we weren't synergy hunting and the traditional private equity stance.

We bought flying and then started looking around the industry. Look, all these little tiny publications have micro-like. Okay, aviation's a niche. There are niches within the niche. There are kit planes, light sport, and business aviation, which are different.

There's all these little ass, tiny pockets in aviation. We started by saying, look, okay, we only have a little good coverage here: a small mom-and-pop operator or a small publication inside a larger organization. And once you buy two or three, everybody is for sale.

We started looking at everybody who still needed to call a private equity event, which we'd have taken a look at. And so our inbound went from outbound prospecting for deals to flooding in suddenly, and we're fielding.

So I ran the company day by day. Craig was the CEO. He was also still CEO of Freightwaves, still is CEO of Freightwaves. He's Craig is a man of many talents and wears many hats. But I was running day to day at flying. I was also fielding. A lot of inbound M&A requests, and Craig would get the inbound.

He'd have an initial call, and then, suddenly, it'd fall into my team. We'd be operating the business and fielding inbound. So we ended up hiring ahead of M&A, which was my favorite day because I no longer had to handle the inbound with an M&A guy who had structured the deal close.

My team would take over, and we'd integrate. When we acquired an aviation finance company, we essentially financed airplanes. It's a financial services business—the negative CAC concept.

Chris Powers: Yeah, That's Craig's deal.

Preston Holland: It's Craig's thing. I don't know if he coined the term, but he might as well have every beat that drum. And so, we have an aviation real estate play, which our group runs, and I've been involved tangentially with that.

And then, when we acquired the finance business, Craig came to me and said, all right, we've got all the media companies. Now it's time to run the commerce side. He asked me if I wanted to step into that role, and here I am. And it's a lot of fun. 

Chris Powers: Okay. Let's spend more time here because you opened some doors here.

So, M&A, you all bought the first flying magazine, and then you were looking for niches within the niche to add to the brand's media properties. 

Preston Holland: So, to be fair. Craig is a visionary through and through. There've been very few situations where I've been in a room where we've talked about this offline.

It's like he makes you want to run through a wall. Right. But he came to me and said, look, this will be a lifestyle business. It is a side hustle. Like, I don't want to go too crazy, which is the biggest understatement of the century.

And so Brought flying. And then we saw like, okay, there's an opportunity here, and you can buy media businesses for multiples. Media businesses could be higher, especially print, and you have a lot of overhead. So, you're almost trading off contribution margin more than true post-SG&A like EBITDA because there's a certain scale inflection, and Craig's talked about this a couple of other places publicly. So I'm not spilling any secret sauce, but you hit a scale inflection point where, as you add contribution margin, your fixed overhead cost doesn't go up exponentially; it goes up incrementally, but you have to get to a scale point to get there.

In the early days, everybody was doing everything and burning out, which was funny. So we launched this. Craig called me. My daughter was born three months later. We had our virtual event the day before she was born. Much to my wife's chagrin, I was answering emails in the delivery room. I took three days off. She was born on a Friday, so I took off Saturday, Sunday, and Monday, and I was back working on Tuesday. We launched a brand new website 14 days after she was born, which was my project. That was my project, too. That was what fell in my lab.

And so, we didn't have a Big tech development team. I had a team of outsourced, and I had never built a website. So I'm sitting here going; I like how that looks. I don't know how to fix it, but I don't particularly appreciate how it looks. And so we launched that, but as we started to build skill, we started to be able to have specialized; you could have snipers as opposed to just like Bulldozers.

I'm my nature and who I am as an operator and builder; I'm not a sniper. I'm a bulldozer. I will do it, and We'll figure it out if it breaks. But when you hit a certain scale, you can't break things. We tried to do a code update a couple of weeks ago and had to run it through a whole process.

I would have been like, hit go. If it breaks, we'll fix it. But as you hit scale, you have these operators with capacity. So you think about like a print production team; we had an outsourced print production team for the longest time. We now have a full team internally that handles all of that, which cuts our expenses.

We had an agency expense, so we swapped one for one. And we were able to quadruple the workload into that pod. So you have this scale inflection point, which is hard to get when you have one magazine, but when you have 40, something.

Chris Powers: You have 40 magazines.

Preston Holland: We've got 28 aviation media brands.

We have 10 Marine brands, freight brands, four e-commerce brands, and three two-sided marketplaces.

Chris Powers: And a lot, all that roll up into one.

Preston Holland: That roll up into fire ground. I'm glad I work in finance now. It's a lot.

Chris Powers: Okay, all right. We could go here briefly and weave that back into the story.

But you immerse yourself in the private aviation industry. Let's begin this episode by articulating the cost of private aviation and how the industry works. I'll pepper you with questions. Feel free to Fill in gaps of things I don't ask, but let's give the guests something that when they are the listener when they leave, they're like, man, I know about the aviation industry now.

The first thing to start is how somebody knows they should start thinking about flying private. 

Preston Holland: It is my number one question on Twitter and Twitter DMS. I started writing a newsletter or anything because I kept getting the same question repeatedly. So I said, okay, I'm writing a newsletter. And then when somebody asks me, I'll send them a link, like, here you go, read this, and then come back to me with questions. It depends. So you call it two buckets. You have high-net-worth individuals, and this is a convenience factor.

I'm either a high earner W two or have sold out of my business. So that is its bucket. The threshold is much higher because all those expenses come out post-tax. There's no Advantage, no tax advantage, no business expense advantage.

So that's bucket number one. Bucket number two is the business owner, operator, or business entity using private aviation as a tool. So much lower threshold. Traditionally, when we see somebody who's chartering, you hit the net worth of one or 2 million. You may take a private charter once a year, twice a year if you're an individual, but if you're a business entity that has needs and call it that has needs, call it in the geographic location. So, this is great for big franchise businesses. So, the guys who own a bunch of Taco Bells use private aviation more than most people. Regional car dealerships are another big one. You're talking about service businesses.

I know a guy who owns a bunch of Surf Pro franchises in really random parts of the Southeast that you can't Fly to commercially; he'll fly something on the turboprop side. We'll see what it looks like regarding which type of airplane we buy. But revenue businesses are the lowest we've seen that regularly use charter; call it 20 million in revenue.

And then, up from there, once you start talking about needing depreciation, you start buying or flying for a certain amount of hours. But those are the two buckets. For this podcast, it probably makes more sense to focus on the business folks because, ultimately, you're going to do this so that you can ultimately be the high net worth that's charting all the time.

And you've likely already figured it out. 

Chris Powers: Yeah, okay. So, all right. My business is looking good. Why wouldn't I charter? So, what is chartering? 

Preston Holland: Yeah. Okay. Chartering is, at its very core, like an Uber. You get on your phone and push a button.

And a person driving a car is going to come pick you up. They're going to leave from where they were. They'll come to where you are, pick you up, and drop you off where you're going. And then they're going to the next wherever they're going. That's the best way to frame a charter. So, You're paying for the uber black, the Suburban, you're paying for the driver, and you're paying for the gas and all of that in one transaction, right?

So it's a one-flat fee based on mileage, time, or whatever, called chartering. You're going to pay. It is the most expensive way to fly private on a per-hour basis, and a framework is everything that we're going to measure over this next conversation. I'm going to use the work hours.

The airplane's speed affects how many hours it takes to get somewhere. So that is a lever. If you fly citation X, X amount of miles, it will go faster than if you fly a King Air. A citation act may need more legs for one hour. But when you measure costs and maintenance intervals and everything, almost everything's measured in the hour; call it hours.

Okay. So, you'll pay the most per hour, but charter is the least committal way to fly private. If you and I wanted to meet him and go to Vale, we called a charter broker and said, Hey, We're going from Beecham to Vail. We're going to leave in 12-24 hours.

It would help if you gave him a heads-up. He's got to move an airplane to you. It'll be there. We get on, we get off, and veil. That's it. You're done. In all the other ways you're committing, you're committing a level of commitment. So, chartering is the least committed way to fly privately. It's also the least, the most expensive, and you're going to pay seven and a half percent federal excise tax on top of that.

Chris Powers: I know we'll get deep into it, but generally speaking, it's two times more per hour, all plane equivalent, or three times per hour. 

Preston Holland: yeah, ownership is the least on a raw per-hour basis. Owning the airplane is, let's call that one fractionally.

You'll pay, call it 1. 5 to 1. 7, depending on the operator, and then the charter will be two or three dollars. So if an airplane costs $3000 an hour to fly the hard cost, you'll pay $6,000 to $7,000 an hour.

Chris Powers: Okay. But you said charter customers have been feeling pain on their current rates.

They have at the same time we have, we had a rapid increase in demand. We have also had a pilot shortage when operators can only operate at 80 percent capacity of the metal because the humans up front need to sleep. There's even more pressure to put on the system. So, explain more about what's happening in the charter market.

Preston Holland: Yeah, Charter has experience. There's been an insane demand for private aviation space since about halfway through 2020. If you follow any charts, one of my favorite charts is a data company called Wing X. They put out a bulletin while I was on my way to the studio.

You watch this. There's an absolute cliff drop off, like March of 2020, and no one's moving, right? You see it in almost every chart that you look at, right? Yeah. You see this cliff, and it's like no one's flying. No one's doing everything, anything. No one knows what's going on. Well, about halfway through 2020, everybody figured it out.

It's going to be okay. And everybody's more confident. But what you have is, is you have, there's, there's an echelon of people that Never flew private, but now they're like, well, I don't want to get COVID, but I do want to go on vacation. Do you want to go wherever? I want to go on a business trip, but I'm very conscious of how many people I'm interacting with on the way said, well, I'm going to fly private.

And we had so much free money in the system that it's like, whatever. Right. So you have this: supply and demand equalized, 2017, 18, 19, 20 drops off. And then all of a sudden, it's like, I'm trying to fire hose on, and everybody's flying private. And so operators are charging whatever they want to for you're seeing 40, 50 percent premiums.

One of the interesting parts is that I get to be the curator of people's stories anonymously who fly private. So there are a couple of accounts out there that you and I know on a first-name basis that will send me direct messages. They're never going to tweet publicly that they fly private, but they've said, Look, my charter rate has gone up 40 percent since 2019, 60 percent on a phenom 300.

They were used to paying 6, 500 an hour. And now it's like, can only get something for 11. So it's like you had all of this. Everybody's throwing up numbers, whatever we'll take, right? Law of supply and demand. It's quite a simple concept. A finite number of airplanes can fly in charter, and the manufacturers can only create so many more.

But then there's all this demand: the price will go up, and it did. And I think we're fine. In the last 90 days, we've finally seen Charter show signs of chilling out a little bit. There are a couple of things that you can look for if you're chartering pretty regularly that indicate that we might be getting prices that are a little bit more reasonable.

It was inflated for so long because he had all these new entrants into the market. You have guys who flew first class or comfort. Guys from Comfort Plus went to Wheels Up, and guys from First Class went to Net Jets and the upper echelon charges, but people were taking whatever capacity was available.

At the same time, we have a macroeconomic problem or a macro problem in the pilot industry. So you have Aging out pilots. You have all of the GI bill pilots who have aged out. And then you have that next wave: the baby boomer pilots, a huge generation.

They're all hitting; you don't want your guy up front 90 being 90 years old. If your pilot is 90, I suggest not getting on the airplane. It's a cognitive thing. It's not ages. And that's just.

Chris Powers: We'll let him run the country, but we won't let him fly our planes.

Preston Holland: Exactly. Two of them. We've got two of them going against each other, and we'll see who stumbles off the stage first, but you don't. I'll tell you what: neither of them when they fly on their planes. Neither of their guys is upfront or 90. And so you have the baby boomer generation aging out, and there's not enough people to backfill it.

You've seen this in airlines, but it's the same in private aviation. You've still got a problem. One advantage of private aviation is that the airlines have no brick walls. When you turn 64, you're done. In private aviation, you can stretch it to 67 or 68, but at a certain point, they want to retire.

And so you have this pilot shortage. So you've got, that's one. And then the other pieces are. If I was typed in a Honda jet, qualified and certified to fly a Honda jet, and you own a Gulfstream, and you call me and say, can you find my Gulfstream? The answer is no, I can't fly it.

So, you have a finite number of people who can fly these airplanes, and they've been flying, the wheels off, these airplanes. They need more pilots to fill that demand because the airplane, the metal, may be able to move more and stretch it to 650 hours a year. But you don't have.

For pilots on staff you've got two pilots on staff. Two pilots can realistically fly 400 hours a year. So you have all these little macro forces pushing at each other, which drove the price of charter through the roof. 

Chris Powers: So, due to the lack of pilots, were you seeing many people who own jets that previously weren't chartering them out, entering them into, or putting them into charter fleets?

Preston Holland: Yeah, because I mean, you've got charter operators running around the airport going, Hey, does your airplane meet one 35 conformity standards? Put it on my charter, and you'll make all this money. One of my more popular newsletters is You Can't House Hack a Jet. I don't know.

The guys with bigger pockets talk about house hacking, right? Yeah. I'm going to buy a duplex. I will live in half, get the other guy to pay my rent, and then live for free. 

Chris Powers: You're answering my next question. Go with it. 

Preston Holland: Yeah. So you can't house it. The math doesn't matter.

There needs to be more margin in the trip, and you can only fly it for a short time to cash flow positive and fly for free. But just like, Even if you were promised that during 2020 through 2023, which a lot of guys were, you'd be able to fly 50, 75 hours a year for free. Then you have a 500,000 hot section or an engine replacement coming up.

That isn't free, and you don't have 500,000 sitting in the bank because of all the margin you've been making on your charter legs. So you can offset your cost. And yes, you can put your airplane on charter, and now your hanger, insurance, database, pilot cost, and much more.

You can reduce that fixed cost. I was having a conversation today at lunch with a guy, and he said, well, I don't see that as a fixed cost. I was like, well, it's fixed costs in the way. It doesn't matter if you fly 400 hours a year or 20 hours a year; you're going to pay insurance.

Insurance is flat, not variable. You don't pay hourly for insurance, hangar rent, office rent, log books, or pilot recurrent training. All that fixed cost is what it is every year. You can charter and make, let's say, you charter out for, we'll use super round numbers.

These are not real numbers, but I couldn't get my calculator out for mental math for those who like to listen to your podcast while driving. You can charter for 10,000 an hour. So it's 10,000 an hour for the client. So we're going to get Johnny on a jet.

He's going to pay 10,000 an hour. A charter broker takes a portion. It's a five—to seven percent mark, call it. So they're going to get paid. Then you have the management company; management company contracts range between 20% and 25%, probably the steepest 25 percent rev share, and a 10 percent rev share. So the management company that takes care of your airplane and cleans it ensures that all your Logistics are taken care of.

They will take a rev share, so that's 70 percent of the 10,000. So you're getting 7 000 an hour. Flying that airplane costs 5,000 an hour, so you only make 2,000. The top line number's 10 000. You're only making 2,000. You must fly many hours to cover your 300,000 insurance and hanger bill.

Oh yeah. You have to pay your pilots. It will cost you 150, 170, 220, 000 a year plus benefits. Plus, their insurance. There are all these fixed costs. So if you have, if you're making 2,000 an hour, you're going to fly that thing for hundreds of hours on a charter. To cover your fixed costs, that's before you ever step on the airplane, the owner.

So it's like, there's a lot of TikTok guys that get out there. There's one in particular, and I talked in another podcast about this, that he talks about, well, let me show you how I fly my jet for free. Cause I rented out to P Diddy and whoever else when I'm not using it. But actually, he sells a mastermind course that is 30,000 a year, which includes a ride on his jet with him. That goes into it. 

Chris Powers: This is a meet, Kevin. Is this meet Kevin? 

Preston Holland: I respect the hustle. I like, I'm dissing what he's doing. It would help if you publicly said you could fly for free. Like you're not, you're doing funny math, and it's misleading for the guys who are not selling a course. It's misleading for the real estate developer not to sell a course. He had no platform to sell a course, do, or rent a P Diddy.

P Diddy is not flying on a CJ. For P Diddy, he isn't flying. 

Chris Powers: Anything that has been closed on that account.

Preston Holland: We should end up with the part. I was thinking, like, Rick Ross or, I don't know, some big rapper, right? Or he was like, LeBron rents my plane. I'm cool. LeBron's seven X and larger, right? Like, not everybody's flying around and calling three G six fifties. 

Chris Powers: Okay. But generally speaking, the average person who owns a plane and puts on a charter probably gets flown a couple hundred hours a year.

It could reduce their expense base. 20 percent a year. 

Preston Holland: In the best-case scenario, you'll cover your fixed cost. I won't catch on to certain models I coined this term for, but it's the charter cost spread. The citation XLS is a great example.

It's very efficient to fly. But it's a midsize cabin that, from here in Dallas, we're touching all four corners of the country. So it's in high demand in many places. Thus, the market rate is higher than the spread between the market rate for the charter and the cost basis to fly. It is higher than a G 450, which is less favorable.

Or a citation X, a citation 10, a citation 10 is not as favorable in that spread as an XLS. So, there are certain niche markets where you can make a few bucks. The Lear 45 is another example of that, where you can charge enough in the market, and the cost is slightly lower.

You can make a few more bucks, but the best-case scenario is that you offset your fixed costs. So I don't have to. I'm not responsible for insurance, the hangar, or the pilots. Your charter margin covers all of that.

In the best-case scenario, you pay only for fuel and direct operating costs when you board the airplane. 

Chris Powers: Okay. Then you just led me to the next question. We don't have to go into each one, although I might ask you how much it would be. Thereplanes, so I might wait to go there.

What falls in your fixed cost category? 

Preston Holland: Yep. So, Insurance hanger management. That is, you're going to pay 10,000 a month to a company to air share. For instance, I am still determining the air share management fee, but let's say it's 10,000 a month. You pay them that, and that keeps them Keeping your log books up and ensuring your pilots are scheduled correctly.

And they do your in-house corporate flight department. It's outsourced.

Chris Powers: If you're chartering and own it directly, that's not part of your fixed costs. 

Preston Holland: Not necessarily. I know some folks who pay a management company to handle it because they don't want to. There's a lot of nuance to keeping your airplane, and you'll have to pay. In the best-case scenario, you have a chief pilot whom you overpay compared to a normal pilot, and your chief pilot acts as your in-house flight department.

But with the management company, you get fuel discounts. You'll get a dollar off fuel wherever because you use the management's volume buying power. You've got salaries, and that's a pass-through. So, the $10,000 a month you pay to the management does include your pilot salaries.

Chris Powers: Okay. And, relatively speaking, how much more do you pay a chief pilot than your, than another pilot? Assuming there are two.

Preston Holland: I don't know, probably 30 percent more. 

Chris Powers: Okay. And then you said the word database. What's a database?

Preston Holland: You have to deal with a ton of software. So, you've got avionics databases to which you've got subscriptions.

So, let's say they moved to  Teterboro. The Teterboro sign that was alpha one is now alpha one square alpha two or whatever, and it has to get updated in all of your airplanes like that: plug a thumb drive in. It updates everything like you that you've got maintenance tracking, so there's the software you plug your tail number into. It ensures that for about 10 hours, you'll need this maintenance event or check your oil levels or whatever.

So those are all computer databases. They're a couple hundred bucks a month. I mean, it's not. You're not talking about anything crazy, but now, okay, I'll give you an example. I don't know. Can you name your favorite business jet?

Chris Powers: A challenger 350.

Preston Holland: Challenger 350 is a beautiful airplane and a good choice.

These are all estimates, rough numbers. I use a service called Confident to Decker. It's a subscription service. We've got a partnership with them, and it's what I use all of my data on. So if you read numbers in my newsletter, 95 percent of the time, they come from this database, which is up to date, and they update it quickly.

Like twice a day, captain salary, two 17 copilots, one 58. You don't need a flight attendant on a three-50, so I will skip the flight attendant but add 30 percent for benefits, right? I usually do the 1.3, 1.5 times calculation, 75 000 in insurance. 

Chris Powers: Real quick insurance is covering, like a plane crash? 

Preston Holland: Yes, that's the worst-case scenario, but it also covers hanger rash. So I don't know if you've ever seen this. There was an incident in the DFW area where someone had a global 6,500 and didn't have wing walkers. They did have wing walkers, but the wing walkers looked away, and they pulled the wing through somebody else's airplane.

Both are on the ground, and these are like 60 million. That's not a cheap whoops. The hanger insurance covers some of that, but there's still got to be more, or you're out there, and you hit a bird or, I don't know, your pilot lands a little too hard.

It's that stuff where it covers the stuff on the outside. And then there's some liability for the inside. What a lot of our high net worth clients will do is they have to up their insurance and all that stuff. There's a big insurance play, depending on how old the airplane is, but just talking about the airplane insurance, 75,000 a year.

And then, if you wanted to say, like, Hey, every couple of years, I will want to redo the interior. I will budget 100 000 a year for 5 or 6 years. I will do a full interior upgrade, a new paid upgrade, or whatever. So, nautical charts, 14 000 a year, and computer programs, 10 000 a year, are expensive. That's not even Wi-Fi. 

Chris Powers: What's Wi-Fi cost? 

Preston Holland: I just heard a story about a guy with a G5 50. It is an extreme example. But their G5G5 50 costs $30,000 every time they cross the pond in their airplane, just for Wi-Fi. To get a Star Link, it's like two or 300 grand to install it. That is not per month. It's like $10,000 a month. 

Chris Powers: So when all these JSX planes—I know that's a charter server—get a little volume discount, they all have Wi-Fi. I will say this: The Wi-Fi on a JSX flight is better than at home. How much does it cost? We'll stay on the chart.

We'll talk through multiple planes throughout the episode, but what would it cost to paint a Challenger 350 on this one? It’s like needing to paint a house or, no, more. 

Preston Holland: I figured you would say that. I've got a quote because I have a client who got his 300, which is the same airplane as Duncan.

Now he's doing interiors. Interiors cost about $ 500,000, including leather, carpet, and some hard surfaces, but only a little. I don't know, but it's a couple hundred thousand bucks, three or four hundred thousand dollars, depending on how elaborate you'll get. 

Chris Powers: Is there anything else in fixed costs?

Preston Holland: No, that's your fixed cost. So it's primarily salary, insurance, and hanger. And then the management company, if you want to.

Chris Powers: The cost of a hanger is market-dependent. It will be cheap, like Ville, Alabama, if you're out in nowhere. It will probably be expensive outside New York City or Miami.

Preston Holland: It also depends on how big your airplane is. You're paying by the square foot. So if you can only fit three Challengers or three hundred, you could fit five TBMs. 

Chris Powers: As a real estate guy, I'm starting to see many of these funds either buying or building hangers.

One of the things that surprised me was that they had this slide that I just wouldn't have thought was the building's building. But the planes are getting bigger wing tip to wing tip. And so part of the bowl case is the wingspans will keep getting longer, and they'll just be able to fit fewer planes in these things.

So rentals go up, and the availability goes down. I thought, Oh man, I never would've thought of that. 

Preston Holland: I talked to a client a couple of weeks ago, and he was like, well, I've got an order on a, I've got a contract on a global 6,000 call my hanger and realized I'm eight feet too long. He's like, it's not going to go.

Either build or find a new hanger. And it's like, those are the kinds of things where it's like, there's just so much nuance to it where it's like, you think about like, okay, light jet versus medium jet. I mean, you can. One of the things that I love to do is see the difference in size between a 737 and a 777, even at DFW or a big airport.

Like it's, you think like, Oh, it's bigger. No, it's astronomically larger. Yeah. Same with business jets. The difference between a Gulfstream G650 and a Challenger 300 is that the Challenger 300 will look like a toy. So much smaller. So there are all these nuanced things. How big of an airplane are you buying?

And then, okay. Four types of pilots exist in the premier one in the Dallas, Fort Worth area. I just learned this at lunch. Two of them are in a corporate flight department, and they won't share. Then, the other two must support their seven or eight people in the area. So people are flying their pilots from Las Vegas, North Carolina, and Oklahoma because you have to have tight pilots.

So, if you narrow in on a model, you need to build a team around you. We're on the finance side. So, if you want to buy it, we'll help you get money, and we'll help you find debt, but many other variables happen. And if you're doing this by yourself.

You think you can back off the napkin like a pro, but you can easily make half-a-million-dollar mistakes. 

Chris Powers: Real quick, what are direct costs? We talked about the fix. What goes into direct? 

Preston Holland: So, direct costs. You've got fuel and additives. So, there are additives like fuel additives or oil or that stuff.

So fuel, on the feet, or we're talking about the Challenger 350, 1800 an hour in fuel, assumes a market average of about six 25 for jet a. It's what it is. It has been in maintenance reserves for a while. On airplanes, you put away money essentially, but you buy an insurance product.

It's called an engine program. You have engine programs, parts programs, avionics programs, and APU auxiliary power unit programs. Every hour you fly, you'll bank a certain amount of money because you'll be hit with a half-million dollar bill at the end of your life.

Unless you're super liquid and can self-insure, it's always better to be on programs. And if you want to finance, the bank will want it on programs. They want to avoid getting back at the bucket of bolts, and there are many reasons your resale value gets maintained if you're on programs.

As you depreciate the airplane, if it's on programs, it depreciates less hard than those not because the next buyer may want to be on programs. So, maintenance reserves, for instance,  are 1300 an hour on this one. And then engine reserves, nine 56, and then miscellaneous is like crew expenses, which is like, I'm going to fly to Teterboro.

I'm going to stay for a week. I have to fly my pilots home for the week and then back, either for lodging or meals or whatever. So add another 663, and it will cost 47 96 an hour to fly a Challenger 350. 

Chris Powers: On the program thing, do you, is the program with, who's the program with, the bank? 

Preston Holland: There are a couple of providers; it's a third party. It operates more like an insurance than a financing product, so you're banking. 

Chris Powers: If you're getting a loan, they require you to get one. 

Preston Holland: Yeah, exactly 90. If your loan-to-value ratio is over 50 percent, you've got to be on edge.

Chris Powers: If you pay all cash. You don't have to, but you probably would.

Preston Holland: But you're going to pay all cash. And then every hour you fly, like you've got, your depreciation curve will go way steeper. If you go to resell the airplane, the average life of an airplane is about three years.

People, it's a trade-up market. It's like most clients that we deal with. All my broker buddies are about 36 months to 48 months. I usually get a phone call saying, Hey, I'm starting to think about it. You know what I want next: bigger, faster, stronger. I saw my buddies, and I saw my buddy's got. Here's the craziest; my buddy's got a story.

I heard this. I've got a friend who lives in California, and he's got a client who was in the country club, and his friend was sitting next to him at the bar, and he said, I've got a global 6, 500, and he had at the time, like a legacy 500 great midsize airplane. He went out and bought a 6 500. He flies it 40 or 50 hours a year. That is like a 45 million airplane that could take him from California to Europe nonstop, and he could sleep in the back and shower. My friend, he was like, yeah, we went from California to Oregon. And he said this is the longest trip I've taken in about six months.

It's just nuts. America's awesome, though. That is your big American exceptionalism. Where else in the world can you do that? 

Chris Powers: Yeah. Nowhere else. Let's talk about dry leases. 

Preston Holland: This is very popular on your Twitter, and honestly, I don't know why. 

Chris Powers: But you also said that your favorite aviation company on the planet is the non135 aircraft dry lease company. So what are dry leases, and why is that your favorite company?

Preston Holland: Okay. To understand dry leases, we must understand the two rules of flying a business jet. So you have part one 35, which is an on-demand charter. There is a giant list of rules. It's FAR 135, like a big regulation book that says these are all you can do.

But in essence, they've got some restrictions on pilot duty time. For instance, you can't fly in when you take off if you're flying 135. If we're leaving here from Dallas and we're going to ship back to Chattanooga, and Chattanooga is fogged in right now and below minimums, you can't fly in when you take off.

Okay, part 91 is the best way to think of it. In part 135, you're calling an Uber in part 91. It's more like renting a car. Or if you own the car. So, I will operate the car how I want to. I'm going to fly how I want to fly. I'm going to go where I want to go. There are a lot fewer rules and regulations in part 91.

Under 135, you're paying federal excise tax. It's very scrutinized. The airplane is held to a high maintenance standard. There's a certain amount of checks. Your pilots have to get trained every six months instead of every 12 months. If you're flying part 91, for instance, right in most airframes, part 91 is you fly it as if you own it or you're renting it.

So, a dry lease is like renting a car from your friend or somebody else. That's how the FAA explains it: 13:5 is like calling a cab or an Uber, and part nine is, and a dry lease is, and under 135, you're wet leasing. A. A common misconception is that wet-lease means gas. That's not true. They both come with gas, but a wet lease includes crew. And as part of the crew salary, you're paying for the entire trip. Under part 91, you pay the crew separately. And then you rent the airplane. So, I will say Turo is a great example, right? I'm going to let you rent the car that you own.

 I will have a dry lease to operate your car in that situation. If I want to, I may hire a driver. That's fine. It's acceptable. But I'm going to fly the airplane however I want to. So, dry leases are exactly how dry leases work in aviation. And there's a company in Austin called Lift Aviation. I wrote about it in my newsletter, saying it's interesting. They're doing it the right way, which is important because there are a lot of really shady dry lease pools all up and down the Midwest. I know of a couple probably breaking some rules according to the FAA, but this one is doing it right where they're brokering.

Essentially, they're brokering dry leases between end consumers and the airplane owners. So we have a friend from Twitter who owns an airplane. At Lyft, and so he sent me, he said, Hey, this is a cool company. Let me tell you how it works. And so I wrote it up, and it worked.

There are a lot of people in Austin who are flying at Lyft after they read that newsletter, which is pretty cool. 

Chris Powers: If you're listening to this fly at Lyft. 

Preston Holland: All right. And tell him Preston sent you for 0 percent off. 

I do not get a kicker. I'm super; I'm super transparent. If I'm ever making money on a transaction in my newsletter, I am like, I will make money here, or Hey, I have nothing to gain here. Just tell him I sent you it because it'd be fun. 

Chris Powers: Jet card memberships are quick. Let me ask you one more thing about a charter. If you enter, you own a plane but put it in the charter fleet. So, some charter companies own planes and charter wheels per flag.

But let's say I owned a plane, and I said I wanted to charter it out 300 hours a year. One thing I'm giving up is that on demand. Ability to get on my plane whenever I want because who has the priority? To use it in most cases.

Preston Holland: Whoever booked it first. It's, so let's say you said, okay, I know for spring break, and I know for the annual meeting, I'm going to the Berkshire meeting, I'm going to Capitol camp, and I'm going to All these events that we all love to go to the S and B bash and get to go see Moses out in California.

You put that on the schedule as soon as you know, so they won't schedule it like you get to take priority as the owner. A good management company will prioritize you as the owner; you're the guy who owns the airplane. But if you and I decided that we wanted sushi, right?

We want to eat San Diego sushi. My mom went to SMU and had that story. She was on a date. The guy was like, I want sushi. So they got on the oil jet and flew to California. It's, but Let's say we were privileged enough to where that's what we wanted to do. Well, guess what?

It's out making money. Tough luck. So that's the part that you give up. You give up a little bit of that spontaneity. It might be sitting there. You don't know.

Chris Powers: That poor kid didn't get sushi in San Diego. I mean, my heart bleeds for him. I know.

Preston Holland: That was before the oil crash, too; it wasn't just a double whammy. Now he's four. 

Chris Powers: We'll have to wait two more years. It'll come back. All right, jet card memberships. You don't have to spend a lot of time here. They're pretty self-explanatory, I think.

Preston Holland: What you're buying is convenience. 

Chris Powers: I'm buying a gift certificate.

Preston Holland: Yeah. So what you're doing is a Magellan card. A Magellan card would be another friend in private aviation with a Magellan card. You're not going to; they tell you you'll get a discount.

You're paying open market rates. You might save 5%. You might pay 5 percent over; you're not saving a lot of money, but what you're doing is you're buying a convenience factor. So you put money on a deposit, and anybody can start a jet car. There are so many places where this industry is regulated and other industries, other parts where it's like, Do whatever you want to, right?

So you and I wanted to start CP, Chris, and Preston jet card service. So we call all of our wealthy friends and say, Hey, we're going to start this card. You're going to get all these perks. You'll get whatever, send us a 300,000 wire, and burn it down over time.

Right? So they send in the 300 000 wire, then take ten trips that cost 30,000 each, and now their account is empty. The risk that you're taking on when you buy a Jet Card is you better know who the operator is, and you better have Confidence that they have staying power because, on the balance sheet, you are way in the back and receivership, like if they go bankrupt, like if wheels up was to go bankrupt, they didn't Delta came in and save them if they were to go bankrupt, there are so many people in front of you, the people who had 500, 000 in deposit with wheels up, there are so many people in front of you in that receivership, you will probably never see it, but if you do, it'll be in five or six years, and you might get half of it.

Chris Powers: So that's a risk: You put all this money upfront, and the company goes under. 

Preston Holland: Right. Now, some will offer to put in an escrow service. They may charge you a thousand bucks. It's worth it. I would rather preserve, like, the company is bankrupt. We'll call it my deposit sitting in escrow.

If it's not, if you have it in there, if it's in their bank account, and there's a lot of, there's the private aviation has a littered past with companies that will use customer deposits to go then and try to fuel business growth. That's how you look at any big company that's ever failed in private aviation.

That's exactly what they did. That's why the NetJets are different. They don't practice those kinds of business practices. That's why it's a great business, but it's those guys who it's like. Oh, I've got 10 million in cash on the balance sheet on the asset side, but they were like, Oh yeah.

That deferred liabilities line doesn't look at that. Or I will use that cash I now have to buy an airplane, fuel growth, or whatever. Well, eventually, there's a chance that runs out. So you want somebody who stays powerful and will be around for a long time.

If you're going to buy one of those prepaid memberships, that's my big warning. And anytime I talk to somebody, there is something to be said that I have my guy at Magellan that I pick up the phone, or I have my guy at Sentient, or I have my guy at Wheels Up, or whoever, that I pick up the phone, and the airplane's going to be there tomorrow.

There's something to be said about that. You might realize some discounts, or they'll save you on an empty leg, but ultimately, it costs what it costs. You may not save money and have some cash at risk. 

Chris Powers: Is there a website or anything where people can go on and look for empty legs that are happening?

Preston Holland: Yeah. The empty leg is one of my—I geek over my headlines or subject lines. One of them that I wrote was about empty legs, like Bigfoot. Many people have claimed to have seen him, but you've probably never seen him. There are websites like Wheels Up, which has its syndicated empty-leg platform.

The lotto has one called font. The bigger operators will have them. About 40 percent of advertised empty legs are charter brokers trying to get you to buy it on a full-price leg. So it's not empty. I saw one on LinkedIn that was Orlando to Miami; I don't know, CJ four for 18 grand.

I'm like, that's just full price. That's not a deal. So you fly private because you can go when you want to. And when you get on an empty leg, you're at somebody else's luxury. So it's like the stars have to align for you to get onto an empty leg.

And then, hopefully, you get somewhere close to regional air service because you probably need to catch what's backward. 

Chris Powers: It's probably hard to start, but you could create a marketplace where people could book an American Airlines flight, get on, and look for empty and discounted legs.

Preston Holland: Yeah. There's a two-sided marketplace that many brokers and operators use called Avanode. It's really interesting software. If anybody's got a chance to figure it out, it's them. They just had a big giant exit, so I don't know. You'll see what the future is on that Fractional.

I love fractional. It makes sense if there's a charter, which makes sense for most anybody, and people who own airplanes or charts or have fraction fractions are still charter, right? Supplemental lift is what it's called. So, you know, you're buying a portion of the airplane on fractional. So, up to 1/16th is the regulation. You can sell a 32nd, or two guys can buy a fractional together. There's a whole LLC structure, not tax or legal advice, but like you can figure some of that stuff out, but you're buying a portion of the airplane up front and, then, you're paying per hour, usually 20 to 40 percent over cost.

So, it's not as cheap as if you own the whole airplane, but it's not as expensive as if you chartered, and there are tax benefits to a fractional cause your own; you own part of the asset. So, if you have a net jet fractional, you own an airplane somewhere. You probably have never gotten on it, but you own one of them out there.

My airplane is somewhere in the net jets fleet. You know your tail number, but it's out there somewhere. You own the airplane part, which is different from a jet card. If the operator goes under, you still own that part of the asset. You end up being a one-sixth owner with five other strangers, but you're still secured on that.

Chris Powers: You would do that because you get depreciation if buying that fraction is a business. You're probably paying some fixed annual or monthly operating costs, and your hourly rate is probably lower. 

Preston Holland: Yep, exactly. So, your blended hourly rate. I talked about this: What is my actual all-in cost?

To fly it because if you take your fixed cost, let's say you're flying 75 hours a year, take all your fixed costs divided by 75 plus your actual direct hourly cost. That's your real cost, and different programs are structured differently. And they're structured to fit their target market.

I use an example. You have net jets and air share, and they compete in two classes of airplanes: the Challenger 3500 and the Phenome 300. They both have both in their fleets, and you can buy a fraction of them. Pricing is comparable. I mean, they're close. It is a market.

You can't charge 40 percent above market and expect everybody to come to you. So, it's all relatively the same. You may pay higher fixed costs and lower hourly costs. But I looked. A subscriber got quotes from NetJets and FlexJets on a Phenom 300.

And the difference, like all in hourly, was about 83 bucks. It was all kinds of the same. So, air share uses a day's base model. At the same time, net jets are a straight hourly model. So, on-air share, you've got the plane for the day, so fly it for as long as you can during the day. It is great for road shows, like fundraising, and people who fundraise.

It's great for them. It could be better if you're flying and their sales guys are good. They'll tell you exactly. For example, I'm friends with a few sales guys at Air Share, and I had a subscriber with whom I connected. His trip was under two hours, and he usually went out one day and then back another day.

They said we will be the least cost-effective use for you. But if you're trying to go out and back today, let's say I was coming here to record the podcast and leaving in Chattanooga. Will we record this in the afternoon? I'll leave there after breakfast, sometime before lunch, arrive here, do the podcast, and get back home.

I'm out and back the same day, two hours each way, four hours total on my one day of flying because their hours are lower. Whereas, there's a little bit of like product, and your demand fit to match those two things together. 

Chris Powers: Yep. Is there a certain amount of hours a pilot can fly in a day?

Preston Holland: So, in part one, 35, it's four. What does it do today? I think it's 14. 

Chris Powers: 14 total from when you take off to when the wheels are up. 

Preston Holland: From when he hits working to when he has to be off. 

Chris Powers: But what is it working? What's the definition of that? 

Preston Holland: Clock in. 

Chris Powers: I know, but you can clock in and not fly for seven hours later.

Preston Holland: So, on these fractional, you're working, like, call it work. So, duty day would be like, if you think about like an hourly employee, when do you say I need you there at this time, and then you're going to work through. So, I'm, we're leaving at 10 in the morning. Your pilots are probably getting there around 8:30 or 9; depending on what you're saying, you'd have the ground guys bring the airplane out, but the pilots can walk around; he shows up at 8:30.

He's on the clock at 8:30. He's got 14 hours, okay? So, at the end of those 14 hours, you're stuck. Let me make sure that it's 14.

14, I was right. You're right. Good for me. Flight times within the duty day are restricted to a maximum of eight hours for flight crews with one pilot and 10 hours for flight crews with two pilots. So it's, it's a total of 14 hours. Two pilots can only fly 10; one pilot can only fly eight. So, flight time is restricted.

Duty is also restricted. Part 135 is a brick wall. It is 13 hours and 59 minutes, with minute clicks overdone. You can do nothing, like get to the ground. And if you get busted, it's very expensive. 

Chris Powers: How do they determine when you can start again? You have to wait 10 hours or something.

Preston Holland: Yeah. It's a 10-hour rest period. But it's like, so 13 rest periods of 24 consecutive hours in each quarter, 12 hours, less than 48 hours. Like there it's, I don't know if you ever like, if you know how like railroaders work is it's like. If you fly for this long, then you have to be on rest for this long.

But if you work overtime or cross over the 12-hour limit, you don't want your pilots to be sleepy, so it's ten consecutive hours.

Chris Powers: Partnerships, I've never heard of this. Yeah. How do those work? 

Preston Holland: Chris, you and I are business people, and we live here in Fort Worth. We want to, okay? I have heard of these. I'm going to fly a hundred hours a year. You're going to fly a hundred hours a year. Why don't we go 50-50 on this thing?

So, in a dry lease situation, one person owns the airplane, and the other rents it. In a partnership situation, we both are 50 50 owners. And you can structure this; it depends on your corporate structure. And there are a couple of guys out there; there are a couple of companies out there that will help you create a tax structure for this.

You may both own the LLC. For example, a single LLC may own the airplane, and you're both 50-50. Or there may be two LLCs that own the airplane, and one's in the lead. So, the FAA has to have a lead registered. So I've got a client with three guys: one 50 percent owner, one 25 percent owner, and one 25 percent owner.

So, they all contributed 50 percent of the purchase price at purchase time, 25 and 25. Then, on the monthly fixed costs, they split all those fixed costs we discussed. The one guy gets 50 percent of the bill. The other guy is 25%. The other guy gets 25%. And then, when they fly it, they all fly at the straight variable cost. So that's a partnership. 

Chris Powers: Okay. We're bringing this topic home, which is the most fun but maybe a little more fun. We'll see. It's time to buy one. Before we get into the actual planes, a couple of questions: How do you find a? How do you even buy a plane?

Let's start there. Yeah, you do hire brokers. How do you test planes? It's different from going to a car dealership, driving ten cars, and picking one. I found tons of brands that all have similar types of planes.  

Preston Holland: Well, I mean, it's like, am I going to drive a Yukon or a Suburban or a Cadillac or Expedition, like they all so you've got, you've got a couple of major categories of airplanes.

The very smallest is the very light jet. Then you have the light jet. Some people try to say there's a super light jet. They're all light jets in their category. Then you have midsize. If you are super-midsize, you have heavies in an ultra-long range. So those are your general categories.

So, the ultra-long range is your global 7, 500 Gulfstream G 700, soon to be the Falcon 10 X. There are only three players up there, and that's about 75 million. Then you got, okay, you can get a 737 and an executive cabin. It's just like a Saudi prince.

The only people who own 747s are Donald Trump or Saudi princes, so you've got to get them. The ultra-long range is called Fortune 50, and Fortune 25 might have two or three.

 Then, oil is big for oil and gas. Cause you want long legs, right? Houston to Saudi Arabia, right? You're a top dog at BP. That's a common leg. So, and then you've got celebrities, right? Kim Kardashian with a G6 50 or Jeff Bezos with two.

Chris Powers: Don't the big corporates. They'll fly two or three because they don't want their executives all sitting on one; spread them out.

Preston Holland: So somebody runs a corporate flight department for a Fortune 50 insurance company. And, if you're a chief executive or a chief officer, you cannot fly on the same plane. It's company policy. And you have to fly five years and newer, and you can only fly certain brands, and you can't like you can't fly.

They have rules that say you can only fly Gulfstream and 550 and up. So, if they have a flight department and need supplemental lift because they have an airplane down, they can't fly. There's a finite buyer pool, which must have operators. When you get into that upper echelon, the rules get rigid.

We exist, and 99 percent of people who fly private exist in a different world where it's like, 

Chris Powers: Okay, keep going down the list. 

Preston Holland: All right. So you've got heavies. So you have ultra-long range, and then you have heavy jets. Heavy jets are going to be like the G four 50. It's not ultra-long range, but you can jump the pond.

The Global 6,000 has a large cabin but doesn't have long legs like the ultra-long range, right? So, it's cousins. A lot of times, it has the same fuselage. It's just that it can't go as far. It may have different engine technology. So then you have super mids. Super mids are like, call it, the workhorse.

Depending on the configuration, they're coast to coast and easily seat somewhere between 8 and 12. They're not going to be super wide, but they're also not going to be narrow, stand-up cabins most of the time, or almost like I'm not 6 feet. So I can stand up in them. But Nick Huber, who's a giant, could not, right?

So that's your super mids, super mids, and midsize again, in the same way that heavies and ultra-long range often share fuselages or are close to each other. Midsize is the citation, and XLS is midsize. They can usually coast to coast.

They can get from Atlanta to San Francisco but need help to do New York or San Francisco. It's just barely out of range. So, midsize and down are popular in the middle of the country, and midsize and down are popular in Texas and the Midwest. It's easy to get to both coasts.

They often don't need to go coast to coast, so it's midsize. You got light jets, Phenom 300 PC 24. Try to think of others in the. Lear has a couple in that, straddling the midsize to light jets. They'll be cost-effective for flying citations, CJ4, CJ3 plus, and light jets. They are. They are cost-effective, often single pilot, but only sometimes.

But they are often certified to fly with one pilot instead of two midsize and up two pilots, no questions. Then, you've got very light jets, which are tiny ones. So, the Vision Jet, Honda Jet, Phenom 100, and then the citation M two or Mustang. So that's your light, your very light jet. And then there's like a prop. And then you've got turboprops, multi-engine turboprops, King Air, Piaggio, a boost airplane. It's a very polarizing airplane. I think they're ugly. But their performance is great. So multi-engine turboprops and single-engine turboprops are going to be.

PC 12 is going to be the largest. Then you've got TBM Piper and 600 and 700. And then the, the, the. TBM 960, 910, 860, 700. There's a bunch of lines inside that, but those are going to be like, call it sports car turboprops, single, single prop, four in the back, two in the front, real tight, zippy, speedy, retractable gear, you know.

There's also the caravan, which is super useful, but those are all single-engine turboprops. Then you get multi-engine pistons and then single-engine pistons. And then you get the guy with the leaf blower on his backpack with the parachute up top. 

Chris Powers: So, assuming where you are in the country can dictate what you buy.

If you're in the center of the country, you have more options for what to buy. If you're on the coasts, and you have the budget, and you don't want to have to stop and fuel, there's only a certain number of planes that you can buy. 

Preston Holland: Yeah. You got to go. You have to go super mid, and today, in the current lineup, how everything sits, you have to go super mid or up.

Chris Powers: Okay. So, I want to buy a plane. What process would I go through to buy one? 

Preston Holland: So I tell people that when considering buying a plane, buy the airplane that fits 80 percent of your mission. So, let's say we're going from Fort Worth. What's, let's experiment, and let's buy Chris to power a plane.

I'm not saying this is not investment advice, so let's buy a plane. You want to sit down with a broker. That is, it is done through brokerages. You can do it through your chief pilot, but I have seen some very poor business decisions because pilots are exactly what they are: checklist guys.

They care about the airplane but must think through all the different ramifications. So, I always suggest people work with a broker. I've seen brokers save people millions of dollars in transactions and collect small brokerage fees. So, it's an outsized return for using a really good broker.

The other thing is a disclaimer there: anybody can be a broker. So there's a lot of crappy brokers. It's like real estate agents, or it's way more complex. You may buy if you're a mover and shaker; you might buy 20 airplanes in a year. These guys are helping people buy 30 or 20 airplanes in their lifetime.

These guys are helping people buy 20 and 30 airplanes a year. So it's like, they know the market. They know what, they know what models not to touch. They know what transacted when all of that stuff. So, engage a broker and buy an airplane that fits 80 percent of your mission. So we're going to buy Chris an airplane.

So Chris, what's the furthest property that Fort Capital owns right now? What's the furthest property that you've got to reach, Orlando? So, Orlando, you can get there in a light jet or by airplane. Your family vacations or your other executive, like your family vacations, your principal, right?

Do you guys like to ski? Do you go to New York? Do you go to Canada? What is your favorite vacation destination? 

Chris Powers: Florida or Colorado

Preston Holland: Florida, Colorado. So, all of those were still within the light jet region. We will start in the light jet, but you may also have preferences.

So I tell people, if you're getting into it, save money and charter several different types of airplanes to see what you're most comfortable with. Because you may say, I don't care if we're in a PC 12. I love the PC 12. My wife looks at a PC 12 and freaks out. She's like, there's only one engine.

I'm like, well, it's a PT 6. It's not, it's fine. We've got a big glide range. It's like, no, it's got one engine. That freaks me out. You're not going to, if you, if you come home and say, honey, we just bought a PC 12; guess what? You're stuck. Charter first, right? So, charter a couple of times for your mission.

A light jet fits that category. You're going to make it to Orlando, I don't know. We're going to look at the CJ three or CJ four market. How many kids do you have? 

Chris Powers: Three. 

Preston Holland: You have three kids, so you need five seats. If you visit the property in Orlando, how many team members will you be bringing?

Chris Powers: In most cases, Six or seven, 

Preston Holland: So six or seven at most, can you fit six or seven? Yes. Are you most likely four to one? That's because most people fly with two people. I mean, even on, I know guys that own Global 7 500, and it's normally two people, right? They've got a shower in the back and a full-size, queen-size bed, and it's two guys.

So, we're looking at a light jet, and we're going to leave from, I'm going to assume, your nearest airport, probably Meach, Texas jet. We're going to go to Meach, Texas. All right. So the CJ four will get you as far North as Maine, as far West as Oregon and Washington, Florida, Cuba, and Puerto Rico. You might have to stretch to go into the extreme Eastern Caribbean.

For example, if you can't get to St. Lucia but get to, would you get to the Dominican Republic? You get all of Mexico and Central America and sit on this. On the CJ four, you're going to see seven at most. If you wanted to max it out, you'd see it seven, but six very comfortably. And you're going to fly it for 2,300 bucks an hour. That might be interesting.

 Chris Powers: And what are my fixed costs going to be?

Preston Holland: Your fixed costs will be 600,000 a year. That includes captain co-pilot insurance, training, and miscellaneous reserves. Et cetera, et cetera. So, if you're flying, let's say you'll fly 400 hours a year because you're aggressively acquiring in Orlando.

You've got one, you set your pin, and you said, we love Orlando, Baltimore bridge crash. So we're bullish on Florida ports. So we're actively acquiring in Florida. So you're going to be flying the plane a lot. You're going to fly 400 hours this year. So you're going to Florida, seeing your other properties in Texas, and coming to Chattanooga to look at the new enterprise parks they're building up there.

You'll fly 400 hours a year. Operating that airplane for the next year, for the year you own it before buying it, will cost you around 1. 5 million.

Chris Powers: So you're telling me I've gone through that process. I've hired a broker and said, I want a light jet. And then, as far as determining which light jet I want, it's like, do I want a Chevy? Do I want a GMC, or do I want to escalate? 

Preston Holland: Yeah. One thing to consider is that there are some nuanced aspects.

Here's the reality. Mark-to-market is nearly impossible in private aviation. You're just not; you're not going to find an exact comparable if you're going to buy an airplane. So you won't have two 2022 CJ4s with 3128 hours transacting the same year. So, you've got market factors that are going on.

You want to buy something with good maintenance support. Consider buying a Pilatus. Cutter is in Dallas, so you've got maintenance support. If you need a part down the street, the cutter can send somebody in the truck to come over here and fix your PC 24.

Pilatus may make sense for you here in this region, or you're considering overall network support based on where you're going. If you're always going into Orlando, think about the citation. There's a CJ four facility in Orlando or a citation facility.

There's a Cessna citation facility in Orlando. That may make sense. You want to think through those things. You want to ensure you're buying into a model family company that is still around. They're still producing parts. You can still get maintenance support without buying something experiencing rapid market depreciation.

Or you're trying to make a deal and catch the bottom. It depends on your risk tolerance. 

Chris Powers: But a lot of it's preference. How far back should you go in an age? Is that just, too? It's assuming it's been in a plan, and it's, and it's been maintained. Is that just? Too nuanced of a question?

Or is it like buying something that is only ten years old, or is it hours? 

Preston Holland: You've got a couple of breakpoints. You've got age, and then you've got hours. And landings are associated with it, too. But you don't want something that only flew 30-minute flights. Every time that gear hits the ground, a little pressure gets put on it. 

But generally speaking, you've got some breakpoints. You've got ten years. Ten years is a breakpoint. For instance, Bank of America won't touch anything older than ten years. You're going to, the depreciation similar to in, in a similar way to a car, you eat a lot of the depreciation the first ten years, after that, it starts to flatten out after 20 years, you've got another breaking point where, and this is in the financial markets is a lot of banks will say ten years are cut off.

Other banks will say 20 years are cut off. 25 is some others. And, but, but. I mean, I don't know. I know a guy who's about to buy an early 1990s Astra that doesn't have a lot of hours on it, and it's got decent support and cheap. He's buying it for about a million dollars. Cheap

Compared to a brand new Citation M2 for six and a half, right? So, I would stay away from anything older than 1990 parse. That's when you're starting to get like, yeah, it's pretty old. Were you born in 90? 

Chris Powers: I was born in 87. When are you born?

Preston Holland: 93. 

Chris Powers: So you're a young guy.

Preston Holland: But I'm bald. You've got better hair than 

Chris Powers: I've got grey hair. And it is just Carfax or something for airplanes. So you know where these things stand, or would you say, like, don't buy a plane that you don't know how it's been maintained or get an inspection or something?

Preston Holland: Yeah. You would think there was a Carfax because it's a multi-million dollar asset. The reality is there's a whole lot of stuff that's regulated. There's a lot of stuff you need to learn about. So you've got log books. So everything that gets done, every screw that gets changed, every wrench that turns on that airplane has a maintenance event written into it. And you can; there are software you can scan and say, like, find me the problems. A good broker will have a log book review team that will be like, Hey, by the way, stuff to look out for. And you might get nit-picky on the inspection, but you'll do a pre-buy inspection before you buy it.

So you'll have a licensed mechanic out that does pre-buy inspections. Look over the entire airplane and ensure nothing is blaring, right? Or had nothing terrible going to happen, and there is stuff that slips through. It's just the reality of it. 

Chris Powers: Okay, smart friend, off a Twitter direct question. What is the right way to think about the best value? Of a plane by its age. In other words, is there any rule of thumb for the sweet spot where the plane has depreciated meaningfully but is still very reliable and needs relatively little maintenance? 

Preston Holland: If you're between 10 and 25 years old, that's your sweet spot.

You've depreciated most of you have the asset itself, eaten most of the depreciation, the first ten years, but 25-year-old airplanes are still workhorses. In today's market, it's a 99, and 99 will still be cranking, so if I were going to say that's what you're trying to frame, it should be between 10 and 25 or 10 and 20.

If you want to say I want to, I want a two zero on the front of my, on the front of the edge of the airplane. 

Chris Powers: And I’m assuming most people like this are in an industry where most planes are purchased or used. In the car market, there are a lot more used cars. There are car dealerships and things like that, but most plane sales are happening in the used market. You're not buying something right off the factory floor. 

Preston Holland: Yeah, you've only got. The number of new planes delivered across all brands is about 400 annually. I can pull up the exact report and tell you. 

Chris Powers: While you're looking at that. I've found my plane. Are most people paying cash for this stuff, or are most people financing them?

Preston Holland: Yeah. It's funny that my number one competitor is the balance sheet in the aviation or aviation finance business. It's not other financiers. I'm very rarely in competition with another aviation finance person. I'm sitting down with the CFO. If I get brought to the table and they're going, I may pay cash and finance it.

The reality is that on many of these airplanes, relatively liquid folks are buying them, and they're saying, look, I'm just going to pay cash because it's a depreciating asset. And that is true. It is a depreciating asset, and it's tough to finance depreciating assets.

The reality is that If you want to secure it, if you want to secure your credit against an asset, putting, I advise people, look, if you're going to pay cash, you should consider putting 50 percent LTV because, at 50 percent loan to value, you're going to get some pretty aggressive rates, like in today's market, depending on how old it is. Mid-sixes, which is like unsecured debts in the nines.

Chris Powers: Is it floating or fixed? 

Preston Holland: It depends. It depends on what you're trying to optimize for. A lot of times, we'll sit down with a client. There's a myriad of options in today's market. Almost every client's taken a floating rate because they're saying, look, we'll go ahead and bet it will go down.

And if it goes up 50 basis points, we'll go ahead and lock it in and be safe. Prepaid penalties are standard in today's market, anywhere from a three-to-one prepay on a five-year term. So 3 percent in the first year, 2%, 1 percent, or 1 percent in the first year depends and the banks will converse with you.

They'll work with you, especially if you've got good credit and a good asset, something that calls it 20 years or less, and you're not levered to the teeth as banks will work with you. You can get pretty aggressive. The lowest I've seen is a five-year treasury plus 120 basis points. That isn't very nice.

Chris Powers: And the term is usually five years or seven years.

Preston Holland: Five years is standard, especially now because many banks have funny balance sheets. So five, everybody's saying five years, seven, you can squeak out a seven-year term. Realistically, the average life of aircraft ownership is three to four years, and you're 10 is a trade-up market.

So you find your Phenom or your CJ four. We put you in a CJ four. And you go to an event, look out the window, and see someone with a sovereign, and you're like, it's pretty sweet. I might call my CFO to see if I can get a sovereign.

There's a ramp thing, and it can be fleeting. You can have it and have difficulty keeping up with the Joneses, but there is a five-year term. By the time you get to five years, you refi it. If you're going to keep it and refinance it, lower the interest rate.

Chris Powers: So, what would you guess is the percentage of people who buy for the flex rather than the actual need or what they need? 

Preston Holland: It depends on which part of the market you're in. So if you're getting up, you're starting to get flexing.

The majority of business aircraft flights don't happen in Gulfstream G 650s. They happen in Citation jets. They happen in XLS because it's a utility tool. And so, yes, my jet is a utility at the end of the day, and you're looking to use that asset to produce more outsized outcomes.

You're a little Debbie, and you're a great example. Little Debbie's in college, Dale, Tennessee, outside of Chattanooga. 

Chris Powers: We're talking about the little Debbie and Davey. 

Preston Holland: This is wild. They have a scheduled airline service that goes between their factories every day. It's a regional jet they've outfitted like JSX, and they just run it daily for employees to move back and forth because your commercial alternative could be better. You live in DFW.

DFW is in a unique situation. It's Atlanta, LAX, DFW, New York. You have airline service everywhere. I live in Chattanooga, Tennessee. I've got Atlanta, Dallas, and Chicago—that's about it. And we have three flights a day. If I wanted to go anywhere else, I've got to connect through one of those cities, and it's a whole day of travel, right?

And when you start thinking about the value of your time as a principal or your and your team's time, the equation is not, Oh, I'm super rich, and I'm flying my private jet. More: This business tool allows us to increase our time capacity. Or you talk about.

Getting to your next deal. You're in Orlando. We're not in a competitive market today. But let's say we are in a competitive market. The difference between you being in person today and you being in person tomorrow might mean that your competitors there today haven't shaken hands, eaten lunch, or interesting sellers are starting to get to know them because you've got stuck by American Airlines saying, Oh, we're not flying today.

Chris Powers: okay. And if I'm buying it for business from a tax implication standpoint, assuming I fly the plane more than 51 percent a year for business, I can write the entire thing off in year one. 

Preston Holland: This is not tax advice, and you should not consider it such. Please call your tax professional.

That's the disclaimer that I'm sure my attorney would like me to say. Now, let me tell you what all of our clients do. Okay. Yes. Yeah. Write the whole thing off. You could depreciate the bonus if you have a liquidity event. So it's great when you have some capital event and need depreciation.

In a hundred percent bonus depreciation, the like back of the napkin math says you're 20 percent down is now that, if you're going to get 80 percent LTV On the airplane, your 20 percent down is taken off of your taxable income. Many people take straight lines if you do rough numbers to write 6%.

The NBAA sets a schedule that allows you to do 20 percent of the first year and 40 percent of the second year. And then it trails off from there. But yeah, you can write so that you can depreciate that. And then not only do you depreciate the purchase, but then all of the hourly costs. A lot of our clients will open an airplane LLC.

The airplane is bought by Airplane LLC, a wholly owned subsidiary of company X. Operating company X then leases the airplane from Airplane LLC. But because of the ownership part, they get to depreciate it. So, if you're a Senator and listening, we would love 100 percent bonus appreciation to come back. Please don't exclude private aviation, as was said in a bulletin that came out a couple of weeks ago.

Chris Powers: Okay. So I now know how to finance it, I now know what I'm buying, and I've learned how to buy it. All that to be said, how should I know it's time to buy? All things being equal, I can afford it. Chartering sounds good. It could be fractional. How do I get to a spot where it's like, okay, the smartest thing would be to buy a plane?

Preston Holland: Yeah. If you need a depreciation in your business, that's for our clients, Number One. You say you're in an asset position where you've run out of stuff to depreciate. You called Mitchell Baldrige, and his cost is soaring for everything. And, you're like, I need depreciation.

I could charter, and that's just going to be an operating expense, but you need a little more. That's where owning makes sense. Then the other piece is that if you want to fly the plane right now, you should own it. If you fly on net jets, you can't fly; we're not flying until tomorrow.

Chris Powers: But it's not about hours. If I fly 300 hours a year, you should start owning a plane. 

Preston Holland: Yeah, your breakpoint is about 300 hours if you own it and look at it like your blend. It's an hourly cost. 

Chris Powers: So, except for your buddy who owns a Global 7500 and flies 60 hours a year. Right. 

Preston Holland: Exactly.

Yeah. Those guys—I need to figure out what math or graphs they're looking at, but they're different from the one you're looking at and the one I'm looking at. But, comparatively, I ran an analysis that was dependent on all supermodels. It's also market-dependent.

Right. We're entering a situation where the charter markets are cooling off. Those numbers could get slightly different, but they're somewhere between 200 and 300 hours a year, depending on what model you choose from a cash standpoint.

But you have to think about it: if you own an airplane, it flies empty if you keep it at your house or home airport. 

Chris Powers: Right. So what does it mean if you're in a market like you're saying, it flies empty a lot because the pilots have to get back home?

If they're going to work, didn't you fly them commercially home and park the plane? 

Preston Holland: It depends on many factors. A lot of it's quality of life. Your pilot is going to become, often, your pilot's going to know more than your CFO does because they're there for many moments, especially if you have somebody for a few years. It's like they become both employees and part of the family.

So, if you want your pilots to have a better quality of life, you're tired, you're going to Teterboro, and you're tired of paying 1,500 a day to park it, you may fly it back home to sit at home while you're wherever you are for a week. It depends on your mission profile, which is engaging somebody early in the process.

If you need a recommendation, I'm happy to give you some recommendations on the good guys. Right. But they'll sit down with you and go unless you want to own it. It doesn't make sense to own it yet. Right. But I've got a subscriber who lives in a remote area of Colorado. The origin-destination is very remote.

And the commercial airliner service, every time they're passed to be on a 12-hour flight, Day back. Well, they're having to pay duty days. They have to pay. There's all of these, like the soft skill part. Like having and taking care of your employees and not making them fly you 10 hours and then get on a 12-hour flight home or get them a hotel.

Now they're away from their family for three days instead of it. They could be home that night. It's like, and ramp fees. So, what's a ramp fee? So, for the ramp fee, when you land, you have to pay; it's like you are just stuck. And then overnight, like detention or hanger fees or whatever, wherever your destination is.

So, I know of one, I know of a principal out of North Carolina. He likes to sleep in his bed. And so his pilots have probably the best gig in any part 91 operator. They said we hadn't slept in a hotel in three years. He flies like 400 hours a year. He does; he does a speaking conference in Colorado, speaking in Colorado.

He likes to sleep in his bed, so they come home. The next day, he needs to go back, so he goes back. 

Chris Powers: Oh, that's what you're talking about.

Preston Holland: Like sleep. He likes to sleep in his bed. 

Chris Powers: I needed to find out where you were going with that. So he'll do the thing rather than return to a hotel, fly home, and then return the next morning.

Preston Holland: Yeah. If he's got to be there for two days or he'll just be like, I'm going home. See you. 

Chris Powers: If you're flying a dead leg, you're always flying two dead legs. Yeah. Because you take me, you take me to Colorado; then you fly it back, then a week later you fly to come back to get me.

So, for every flight, there are two dead legs. 

Preston Holland: Exactly.

Chris Powers: Do you know the percentage of dead legs flown to normal, like with people in seats? 

Preston Holland: It depends on whether you own it. It's somewhere between 25 and 40. Forty-five percent, it depends. So, the 25 percent mark, 300 hours a year, are your breakpoints.

If you're flying 25 percent empty or so, it's about 300 hours. If you're flying 50 percent empty, it's never going to be cheaper to own, but you cannot; if you fly every time you're going to fly out, it's going to drop you off, and they're going to fly back and come back and get you and fly back. You're doubling the cost of every hour flown, every occupied hour flown.

Chris Powers: All right. I think that. It covers it. It has been awesome. I sent Johnny a link to your newsletter that anybody here could listen to. It goes way more in-depth on price points and things we discussed today. 

Preston Holland: and even better for subscribers only. You can subscribe to my newsletter.

I have free 15-minute calls. I'm still waiting to charge. We've got a friend on Twitter who charges about 200 bucks. So, I'm still waiting to charge. It's free. But if my calendar gets too full, I do free 15-minute calls. And I mean, I've made calls from. Hey, I've never flown charter before. How much should this cost? I own a midsize and think about what a heavy looks like.

Like, or Hey, I'm a wheels-up flyer. I'm thinking about moving to net jets. Right. It's 15 minutes, and the advice is worth it, especially about what you pay for it for free. Right. I hope it's more informed than some guy off the street or on TikTok. So instead of watching all the TikToks and Go and Instagram reels in that, call me.

We'll talk for 15 minutes. I'm happy to give advice or give my opinion on stuff. 

Chris Powers: You’re the man. Thanks, Preston. 

Preston Holland: Awesome. Thanks, dude.