The G400 Flies, and an inflight Wifi provider goes out of business

Jessie Naor (00:00)

Good morning and welcome to the VIP seat. Today is August 22nd and today's top stories in private aviation. We're covering Gulfstream's first flight of its G400 and Smart Sky Networks is out of business. I'm your host, Jessie Naor and I'm here with Preston Holland.

So sit back, buckle up, and let's take off.

right, Preston, so the FAA just released $291 million in grant funding under its fueling aviation sustainable transition program, 244 .5 million of which went to the production of sustainable aviation fuel. We reported this on our newsletter last week, but...

right after Virgin Airlines put out an advertisement last week that its first flight conducted with 100 % SAF, which is the Sustainable Aviation Fuel, the watchdog in the UK made them immediately take the ad down because unfortunately, even though SAF is supposed to be better for the environment from the production standpoint, on a tailpipe emission standpoint, it actually produces the exact same amount of carbon emissions. So this is kind of throwing into question.

What's going to happen with SAF when that day comes that, okay, we're all going to magically transition to it? Is this the panacea that the whole industry is actually looking for? Or are we going to have problems here?

Preston Holland (01:28)

Yeah, think, I mean, look, there is, here's an interesting stat. 65 million gallons per day of jet fuel consumed. That's according to the US Energy Information Administration. That is a lot of fuel. So $291 is not even a drop in the bucket of a week's worth of fuel, right? So we're gonna have to throw so many more dollars at this that it really needs to be

Jessie Naor (01:44)

Thank you.

Preston Holland (01:56)

the huge win that was promised in my opinion, when kind of SAF was announced, it needs to be the huge win that says, hey, look, this is actually sustainable on a tailpipe basis and on a production basis. If not, I'm not sure that we're ever actually gonna get.

Jessie Naor (02:11)

Yeah, and mean, how much it's going to cost. think, you know, at least $10 billion has been thrown into the industry at this point. And, you know, we're really not that much farther than we used to be. I think in the US, there's still only two refineries you can get it from. And, you know, the other part, too, is I was reading some of these companies and I do understand conceptually, OK, you're not using fossil fuels, you know, from the ground, but some of them are like taking tires and turning tires into sustainable aviation fuel.

It just doesn't have the marketing buzz that I think a lot of people were looking for. Like, okay, great, yeah, you've reduced emissions from creating the fuel and we're not actually drilling it out of the ocean, but our customer's gonna be happy and environmental is gonna be happy with the fact that we're taking used tires and breaking them down into jet fuel. I just don't know.

Preston Holland (02:59)

Well, think about the optics problem that you have around ethanol. mean, very similar concept you had in the consumer facing space. You had, ethanol. And there were promises, if anybody remembers when ethanol first came out, is we're to be 100 % ethanol in 10 years. It eats through every conventional. We didn't know at the time, but now we know that ethanol gas eats through and corrodes engines.

and it's the reason I don't put ethanol in my lawnmower, right? Problem number one. Problem number two. Right, exactly. mean, boaters, you know, there's a reason there's no ethanol in your Avgas, right? So that's problem number one. Problem number two is there's an optics issue where we are a civilized society burning our food for fuel. Like at a certain point, there is a problem with like, yes, maybe it's more sustainable to have ethanol, but you still have...

Jessie Naor (03:31)

Yeah, and most boaters won't put it in either. Yeah. Yeah. Yeah.

Preston Holland (03:57)

the tractors that have to go harvest it and the trucks that have to transport it. And you have the refineries that are still totally not carbon neutral. there is a whole systematic change that needs to happen if we're going to get to climbing fast, going to net zero, right? So I hope that SAP is the way to the future, but frankly, I start to wonder if we need to start thinking more seriously about alternatives to SAP.

Jessie Naor (03:58)

Okay.

I think we do. you know, I also think we don't, we don't give ourselves enough credit sometimes. We're so focused on staff right now. But I mean, talk about the 80s. We've we're we're burning 40 % less than we used to, you know, the original business jets that were out there. And I've always said airlines and private flyers, we have the most incentive to reduce emissions because fuel is very expensive. It's the most expensive area of our businesses. I just, you know,

I do think we need to think more outside the box in terms of technologies, because I just don't know if SAF is like the end all be all. And I know that just seems like so much of the focus today, but where's the magical winglets that someone came up with? There's got to be something else in the pipeline from a technology perspective that we could just beat this issue a little better.

Preston Holland (05:11)

Yeah, mean, think hydrogen's super interesting, right? I mean, obviously, the speed that these companies are publishing about, you know, with their hydrogen powered airplanes probably don't do it for the G650 flyer, right? But for the King Air flyer, or for the, you know, even for the midsize jet flyer, right? That, you hey, you can fly hydrogen and have zero emissions, right? That's going to be something that you get to write about in your company press release. That's a net positive, right? So,

I think there's other viable verticals and then we need to do a better job as an industry for both of us as industry folks and celebrating that. I put something very similar on LinkedIn the other day that said, look, we really stink at talking about how great it's been. We're really good at talking about, woe is me. We're really bad at, we're admitting and taking responsibility for a lot of carbon emissions. Whereas, like you said, we have done a much better job than we have in the past.

Jessie Naor (06:05)

Yeah, and we're trying to fight this environmental argument with SAF at this point.

which most environmentalists are gonna accuse you of greenwashing. know, it's like you really, if you're gonna come up with solution, it's gotta be a real solution. And I hope that we can get there, but you know, questioning just a little bit, that's all.

Preston Holland (06:22)

Well, and a little bit of a news flash, environmentalist groups really don't like our industry. And that's not even necessarily because of the carbon footprint. has a whole lot more to do with feeling like the private aviation industry is full of entitled rich people that shouldn't have the luxury to fly private. it doesn't matter which side of the aisle that you fall on when it comes to politics, at the end of the day,

Jessie Naor (06:27)

All right.

-huh.

Thank you.

Preston Holland (06:51)

The reason why people fly private is to save time and ultimately produce more economic value that impacts positively an environment when a private aircraft comes in and is based there. you know, I think that we've got to do a much better job and, you know, shout out to Ed Bolen you know, for really, you know, taking charge and being in DC. I'd love to hear Ed's next speech be, hey, look at all the things that we've done this year and let's celebrate that.

Jessie Naor (06:57)

Right.

Yeah.

Yeah.

Preston Holland (07:18)

And then say, here's all the things that we are doing, not here's the pie in the sky, way in the future, we're going to be all staff because at the end of the day, like you said, that may not be enough.

Jessie Naor (07:29)

Yeah.

Preston Holland (07:30)

So speaking of SAF, that takes us to our next conversation. Gulfstream has officially test flown the Gulfstream G400, which was powered with sustainable aviation fuel. The G400 completed its first flight this week in Savannah, first announced in 2021. It's touted as Gulfstream's most affordable private jet with a price tag of just $34 .5 million. What a bargain. We should order three.

Jessie Naor (07:44)

Thanks.

Preston Holland (07:55)

They're planning deliveries in 2025 after the first test flight, which took place earlier this week or last week. Today's Thursday, so try to remember which day of the week it is. Closest competitors are the Global 5000, which is around 32 million and the Falcon 2000 XLS around 36 million. Now, neither of those manufacturers break out individual delivery models by make and model.

Jessie Naor (08:02)

Yeah.

Thank you.

Preston Holland (08:24)

as reported by GAMA, but the G400 is entering what already seems like what might be a crowded category. Jesse, what do you think about the G400? Are you lining up with your deposit in hand to go place an order on a G400?

Jessie Naor (08:37)

Yeah, you know I'm like a light jet kind of girl, so I don't know. I mean, yeah, what if I could, I guess. Well, I mean, that'd be great. I would love that if someone wants to buy me one. That would be wonderful. Now, I think, you know, it's tough. It is a crowded market. I think Gulfstream still has this kind of this name, you know, that everyone still associates with quality.

Preston Holland (08:41)

You're graduating from the Phenom 300 to the Gulfstream 400, right?

Jessie Naor (09:02)

It's made in the United States. I think for US customers, for corporate flight departments here, people just love Gulfstream and a lot of pilots are very familiar with it. So I don't know. Yeah, it's probably gonna be pretty competitive, but at the same time, it's a solid name.

Preston Holland (09:20)

In my opinion, it's a large cabin super mid, right? At the end of the day, performance specs look a whole lot more like a super mid than it does like an ultra long range. It's got more space, which is great, right? You know, for those people that are flying coast to coast, but it's at the end of the day, it's, it is an airplane that's touting a 4 ,500 nautical mile range, it's between 4 ,000 and 4 ,500, which is.

Jessie Naor (09:23)

Mm

record.

Preston Holland (09:47)

almost useful to get across the pond from the United States, right? Very useful to get coast to coast. If the US is your core target. Now I can see, I could totally see it being very successful in a place like Dubai for those folks that aren't necessarily making the jump from Dallas, Houston to Abu Dhabi, right? But those that are making the jump to Western and Eastern Europe that are going through Southeast Asia.

Jessie Naor (09:59)

Right.

Preston Holland (10:14)

I can see that being attractive there, but I don't know. I think the big problem with the G400, and this is what I've seen a lot of comments, is I don't know, I don't have a, here's who the customer is. For the G650 and the G700, you know exactly who that customer is. For the SuperMid, you know exactly who that customer is. I don't think anybody has a picture perfect example of who the G400 buyer is.

Jessie Naor (10:25)

yeah, yeah.

Well, I think too though, know, sometimes like people put these numbers out there of like, okay, what this airplane can do and what it can't do. And oftentimes flyers and buyers are extremely surprised that it can't do all the things that they said it was going to do. I mean, you talked about Europe, you know, a lot of times you're going to have to have a stop, you know, I mean, most of the time you're to have to have a stop even in airplanes, you wouldn't think that you would. So I do think people need to be realistic about, okay, you know, really talking to a

pilot and crew member that can run the numbers and understand it. But I think the alternative side of this, and this is what I would question if I was a Gulfstream executive, is are you cannibalizing your own customers too by saying, okay, here's this more affordable, affordable, I love that word in the press release, smaller aircraft.

Preston Holland (11:19)

Yeah, just a smooth $34 .5 million.

Jessie Naor (11:25)

But that's why it's Gulfstream, man. It's only like top end. But they can't potentially cannibalize a customer, but at the same time, hangar space is an issue. So for people who want a Gulfstream, I mean, I remember a neighbor years ago in the hangar, they had literally cut a hole into their office just to get the nose of the aircraft. I think it was a, I want to say it was a GV

Preston Holland (11:45)

Mm

Jessie Naor (11:49)

You know, I mean that 20 feet shorter that they're talking about, I for a lot of people with existing hangars or corporate flight departments that have had a hangar for years and years, being able to fit it into an area, you know, there's so many ways, there's so many areas of competition for airplanes and use cases that I assume that they've done their due diligence and they know the market and they've got an idea of who they're looking for.

Preston Holland (12:10)

Yeah, that's the thing is Gulfstream has such a deep penetration into the Fortune 100 market that they aren't going to come out with something that they haven't had at least enough customers for this to make financial sense for them to develop this, right? That have asked. you know, we, we, think about how in a lot of ways, this industry is a little bit behind the times for as technologically advanced as it is.

Sometimes there's not a whole lot of data and decision making. Well, company like Gulfstream makes data back decisions. I mean, they're publicly traded. have Gulfstream, you know, they have general dynamics backing behind them. They're not just throwing caution to the wind and saying, let's see. In as much as there have been manufacturers that have definitely done that where you throw, where they come out with something and you say, I genuinely don't think that they asked any of their customers if they wanted this. Gulfstream, I,

Jessie Naor (12:39)

No.

Yeah.

Preston Holland (13:02)

They are tight enough with it and have enough market penetration in the corporate flight departments that I doubt that they're doing this just based off of a whim. So maybe they deliver 12, 14, 16 airplanes in a year and maybe that makes it viable or maybe it's a loss leader so that they can actually go sell the more profitable G700 after the corporate flight departments now in the family and I'm tired of stopping on my way to Eastern Europe.

Jessie Naor (13:22)

Right.

Yeah, well, and that brings in this, there was a debate on LinkedIn early this week. I think a lot of us follow a lot of different people. And the debate between, okay, Gulfstream is, and this is not my words, lazy for not creating a clean sheet aircraft. They just keep kind of going back to the same design and just modifying, modifying over time. And I was thinking to myself, I mean, I guess there's some points there, but at the same time, like,

know, it's pilots like what they like. They get used to a cockpit. They get used to how an airplane's designed. Customers like the name, especially, you know, when you're talking about a safety, something related to safety. So I don't know. What's your take on clean sheet versus just continual modification of types?

Preston Holland (14:10)

mean, look, the G-IVSP is still a popular airplane, surprisingly, right? Even after it's been out of production for I'm not sure how long, right? So, Gulfstream obviously has a platform that works. And as you look across, the interesting piece about Gulfstream is when I analyze their lines. I think Gulfstream more so than anybody else, you have the G280, which is the...

which happens to be a golf, it happens to have the Gulfstream badge, but you know, and be sold by the Gulfstream family, but that's about it, right? And then you have the whole rest of the set, right? The oval windows, what you come to expect. I mean, I was at the airport taxiing in 172 on Sunday night and there goes a 550 and you can close your eyes and you know exactly what's taken off, right? The only difference is your count in the windows to figure out is it a 550 or a 650.

Jessie Naor (14:44)

Yeah.

Preston Holland (15:04)

Gulfstream has an equation that works. I think that if it's not broke, don't fix it. One, two, if you can bring an airplane to market that's actually profitable, that is net positive for the rest of the industry. As you look at some of these manufacturers, I think I look at Bombardier specifically, part of Bombardier's troubles, call it five, 10, 15 years ago, was that they tried to do too much, too fast, know, totally horizontally integrate. We're gonna do clean sheet designs. I mean,

Jessie Naor (15:09)

Okay.

Preston Holland (15:33)

When you're talking about a clean sheet design that may cost a company a billion dollars or multiple billions of dollars, like the triple seven or all these clean sheet designs, sure, that's great, but it's not great for the long term longevity of the actual company because they're gonna have to make a return on that investment. And what a lot of people miss, and I think that this is the piece that...

Jessie Naor (15:38)

Yeah.

Preston Holland (15:57)

you know, whether, you know, folks just out of business school are all the way up through this, you know, they forget that at $34 .5 million,

Jessie Naor (16:05)

Yeah.

Preston Holland (16:07)

Gulfstream is not making $34 .5 million. There is cost of goods sold. There is SG &A. There's a lot of costs that go into bringing that airplane to market. So if they sell 16 and maybe they make $5 million a piece, you know, you're talking about an $80 million just

gross margin, right? And that's, you know, that after you talk about all your costs of goods sold on a billion dollar project, the payback time is like 14 years, right? So like, yes, I get the I get being critical of Gulfstream for not doing clean sheet. But frankly, especially as we talked about at the top of the story, if you don't, if we're sitting here wondering exactly who the customer is, they're not going to sell 100 of them, right? Most likely in the first year.

Jessie Naor (16:36)

Yeah.

Right. Yeah.

Preston Holland (16:56)

They're not their order book is not full for six years So that's you know, that's that's that's my take on it I say keep keep on going Gulfstream and if you find an actual gap in the market, you know, maybe the You know G 300 or you know 295 or whatever, know, whatever it is. They're running out of numbers is their problem They've got nine. I think they've got 900 left and that's it. So

Jessie Naor (17:21)

Well, and I think too, I mean, the world's kind of changed. mean, Boeing has created certification problems for everyone. And I think, you know, we're probably going to see a lot more of this. You know, why would I start from scratch or from zero when I know it's going to take me years and years and years and years to get approvals? In some cases, rightly so. Like, you know, I can't slam the FAA for putting a little more oversight on folks.

But that's just going to be more of the reality of what we're dealing with in the industry is that we may not see as many of these designs just because the regulatory environment has changed for the good or worse.

Preston Holland (17:53)

Yeah, speaking of which, I've been told that the FAA 135 conformity in our neck of the woods were done for the fiscal year, right? The FAA is underfunded. They do not have the resources nor the talent nor the time nor the incentives even to do a lot of this stuff which would propel the industry forward, right? So I think it's gonna take a team effort and we're gonna have to fix it. STC's on the other hand.

like what they're doing for Starlink is I think what's really interesting and might lead us into the next story.

Jessie Naor (18:26)

smart skies out of business. And I'm really bummed because I've been covering this for a while. I've been doing a column in aviation week for a few years and fascinating times for in -flight Wi -Fi, especially if you're a space geek like me because...

Elon Musk, Intelsat , others are launching. And I'm going to get into some technical stuff here, but I think it's important that people understand kind of like what's going on competitively and why there are all the differences. So Starlink is a LEO constellation, low Earth orbit constellation of satellites that are beaming information down to the Earth and giving you Wi -Fi in your airplane and in your RV and everywhere else.

How SmartSky and competitor Gogo have operated is beaming that Wi -Fi from ground stations up to the airplanes called Air to Ground. SmartSky was an Air to Ground operation, but they closed their doors a couple days ago, completely unannounced. I don't think anyone knew anything about this and then all of sudden, boom, on the website, they're done. And my understanding is that, I mean, there's no signal. I mean, the equipment you invested in is now...

just a paperweight, which is very upsetting for a lot of customers.

Preston Holland (19:36)

You are S -O -S -O -L. S -O -L.

Jessie Naor (19:42)

Yeah, no, that's, I can't imagine being in that situation. And a lot of big fleet operators were equipping their airplanes with this equipment. I know fly Exclusive had announced doing that and others. And honestly, it was a big leap forward for air to ground because the GoGo network is pretty old. They've been upgrading and changing it over time, but I mean, you're talking about a much more older network versus SmartSky who got $365 million to build this network.

Boom, just going out of business one day. So that's very surprising But I think it just shows you there's more to come for this industry because people see the Starlinks and the others coming to market and going, this might not be the place that we need to be. Like eventually, you know, there's gonna be so many satellites beaming networks down that, you know, doesn't make sense to have air to ground anymore. I

Preston Holland (20:32)

And pretty soon we're gonna have Particle movement across. Thank you, Elon Musk. And then we're not gonna get any airplanes, right? That'll be even better. Yeah, I'll, beam me up. Beam me up, Scotty. Which apparently was never actually, one fact about that line, apparently that was actually never said in the movie exactly that. I learned that on Twitter last week.

Jessie Naor (20:40)

There we go. like beam me up and down somewhere. Well, and it's...

Preston Holland (20:56)

that the words beam me up Scotty, it was always variations of that sentence, but it wasn't actually said in those exact order of words. Anyways, side tangent, but relevant because we're talking about beaming stuff, you know, with satellites. Yeah, exactly.

Jessie Naor (21:03)

I'm going to keep saying it anyway. No, well, I mean, the thing is here, you know, we're not only talking about the Elon, like, first of all, these air to ground systems, they're competing with the billionaires. So you have the Elon Musk, you know, I think Amazon's got their own version that they're trying to put into the sky. And the entire Canadian government is funding one and the UK is funding one. I mean, they're

This is becoming so competitive on a global scale, it's going to be harder and harder for anyone trying to provide connectivity in this way. I know GoGo has actually been positioning itself with OneWeb, who is another low -orbit provider. I think they're making it to know what to earth.

Preston Holland (21:46)

Leer Earth, Leer Earth Herbert.

Jessie Naor (21:50)

So I think that's going be helpful for them and hopefully, you know, gets them into the right positioning for, you know, this and they're the exclusive distributor of the OneWeb system. So I think that's smart because obviously the tides are changing and the technology is changing and they're going to have to change with it too

Preston Holland (21:51)

Hahaha!

The big thing, I mean, as you talk about, if you remember back to business school, you remember about, you know, doing a SWOT analysis, right? So you have strengths, weaknesses, opportunities and threats, right? I think so many times, smart, I think SmartSky is a great example that they got way too focused in the O category. And they said opportunity, opportunity, opportunity. They did not have any consideration for the threats.

Or what are the weaknesses in our technology? It was, here's what we're really good at and here's what the opportunities are. Right. So I think this is a, it is a great example of the innovators dilemma, you know, where you really need to iterate, but at some point the eight tracks going to get replaced with the CD. Right. And so if you don't see that coming, you, the eight track was incredibly innovative at the time. And then it got replaced and it was no longer innovative. Right. This is the technology cycle.

Jessie Naor (23:00)

Yes.

Preston Holland (23:02)

that unfortunately we find ourselves in. And in the hardware business, it's so hard. The hardware, you talk to anybody in Silicon Valley and everybody says, hardware is, I would not ever wanna do hardware because it is, you have to be the winner. There is one winner, that is it, right? You look at Apple, mean, would not, Android is a winner internationally but not in the United States, right? So it's a duopoly type situation.

Jessie Naor (23:20)

Obsolescence.

Yeah.

Preston Holland (23:29)

or a monopoly, it's not, yeah, we can be a disruptor and a challenger here. I think the interesting thing too is that, I mean, $365 million is a bunch of money. then just to shut, that's raising, not including these Wi -Fi systems cost 100, 200, $300 ,000 to put on your airplane and then are 10 grand a month. Like we're not talking about like, like your lifetime value to customers way more than like cell phone.

So it's like, and then just boom, we're done, out of business, sorry.

Jessie Naor (24:00)

Yeah.

Yeah, well, mean, like the fundraising environment that we're in right now is hard, and I'm sure it takes a long time to profit out of building a network like that and the equipment. But I think investors, you it's not a good time for investors. And they obviously see that, you know, at some point, this technology is going to be obsolete and they're just not willing to pony it up anymore, especially in today's environment.

Preston Holland (24:23)

Yeah, I mean, you watch Starlink announcing that iPhone SMS messaging and iOS as soon as the next release of the iPhone iOS, and it's going to be hardware agnostic, right? You're gonna be able to send text messages anywhere in the world, pretty much, right, that you have Starlink access. That basically put multiple businesses out of business with that announcement.

technology comes at you fast and you have to be really entrenched. I do have a couple friends who fly their own SR -22s and I have seen lots of iterations of Starlink in the back of single -engine piston airplanes. Not STC'd, nothing's drilled, everything's temporarily attached and nothing has permanent power. So everything is kosher. They said that it works great. They texted me from the air and they're like, hey,

Jessie Naor (24:52)

Yeah.

Okay.

Preston Holland (25:16)

I'm texting you from the air, from 9 ,500 feet. And they'll send me a selfie with them with their oxygen. And it's like, all right, the future is here.

Jessie Naor (25:19)

Crazy.

my gosh, that's so, I mean, actually the same thing was happening in the yachting industry. They were taking the RV ones and sticking them on the super yachts because the super yacht version was like $100 ,000 to buy. That's probably a made up number, but it was expensive and they were putting the RV ones on. But eventually, know, Elon figured it out and he turned them off over water. So, you know, watch out guys, don't invest too much.

Preston Holland (25:38)

Probably not that made up though. It's probably not far off.

Yeah, yeah, yeah, he's gonna get you. He's gonna get you at altitude. Well, speaking of fundraising, there is a company in the charter space that has done a fair amount of fundraising, gone public, and this week had some interesting news. Quick disclaimer here. While we sometimes discuss publicly traded companies on the VIP seat, please note...

that we are not financial advisors. No recommendation or advice on investments is being made in discussing these companies and their performance. This is for entertainment purposes only. Please do not see this as financial advice. You're welcome, Mr. Lawyer. Anyways, there was a story that floated around, Flying Magazine broke, there is maybe trouble at Volato

Jessie Naor (26:28)

you

Preston Holland (26:39)

Basically, they're getting out of six of their more expensive leases on their leased Honda Jet fleet. They are furloughing some pilots. That has not been disclosed exactly how many pilots they're furloughing, but they are quote unquote, right sizing the business in order to continue operations. After receiving a non -compliance letter from the New York Stock Exchange in June,

Jessie Naor (26:55)

Nice job.

Preston Holland (27:01)

The company intends to fund its operations through a combination of issuing debt and equity as well as the sale of aircraft at a premium cost. That aircraft has yet to be determined which aircraft that will be. The first Gulfstream G280, which carries an average price tag of 25 million, was delivered last week. More Honda jet deliveries and G280s are expected through the end of the year. Jesse.

What is going on here?

Jessie Naor (27:32)

I think there are cracks. look, a lot of these, you know, a lot of these companies went public during this SPAC craze you know, and there are a lot of companies that probably went public prematurely. Even though they weren't really ready to do so, combined with the fact that we know charter is way down from COVID highs. You know, we all kind of, kind of.

sugar rush there for a while and now we're kind of coming back to reality. This is what happened to Wheels Up recently too. There were reports that it was anywhere from 11 to 20 % of their pilot team was furloughed. They also began reducing fleet size. We're seeing this happening kind of to everyone. And the thing that concerns me with them at this point, they ended Q2 with $5 .4 million in cash and cash equivalents.

that was inclusive of securing $4 million in debt financing. they are, I mean, living paycheck to paycheck in so many words at this point. They're still operating, you know, and they're publicly traded firms, so they do have options and things, but I think the stress is there for everybody, and they're the next one to kind of to see this right now.

Preston Holland (28:35)

And the options chain is not so much as that you can really speculate because it's, this is not a, look at the end of the day, this is a small cap company, right? I mean, it's, we, you know, maybe big in our world, but that does not make it big in the world of financials. You know, 5 .4 million in cash and cash equivalent. The other thing to point out is a lot of the deferred revenue, right? So on the jet card model, one thing to point out, I, get a lot of end clients that ask me about this,

Jessie Naor (28:45)

Yes.

to say.

Preston Holland (29:04)

pretty regularly and I actually wrote an article that says how to know if your charter operator is going to make it, right? And basically pointed out that there is this, there is a concept of subscription where you have deferred liability, right? So I'm gonna take your money today and then I'm gonna promise you something in the future. I'm gonna have to use the cash that I have promised you, or I have to use the cash that I have now to fulfill people that I promised yesterday and then tomorrow I'm gonna have to

use that cash in order to, or I'm gonna have to generate some sort of cash that I can provide for you in the future, right? And this is when you start factoring your jet cards and you start using some financial instruments that are designed to function like this, right? Factoring is not a nasty word, right? It is a financial tool that CFOs use often to increase cashflow. But when you start playing these games with, well, we're just gonna issue

Jessie Naor (29:37)

And.

Preston Holland (30:01)

debt in order to fulfill and continue operations and we have to grow at all costs. I mean, one thing that I think a lot of people forget is that NetJets was not a viable business when Warren Buffett bought it. He has said that multiple times in some of his annual letters and things. It was not viable. They had to put so much money into, Berkshire Hathaway, luckily they had the

Jessie Naor (30:06)

Yeah. Right.

Preston Holland (30:29)

giant balance sheet in the belief of Warren and Charlie that said, we're going to make this thing work. But it took a long time to get there. know, there's so like, it's really tough to make money, especially in the light jet market. mean, you know, a little bit easier than the heavier jet market. mean, you know, one thing that we saw on LinkedIn was the the AirX news.

Jessie Naor (30:38)

Yeah.

Yeah, AirX, and this is still not official, but according to a Sky News report, they're in talks to complete a sale of 25 % stake for $250 million, which is a nice billion dollar valuation if that goes through. But again, they are a different model than the Volato's small aircraft. AirX, sometimes they have large charter aircraft that they're moving sports teams on. It's a different...

different concept entirely, but that is kind of a silver lining right here is that, okay, even though the market's got a crunch right now, we've got financing problems, we have salary issues, all sorts of issues, I mean, somebody is doing well, so something must be going well out there. I used to run Grandview Aviation and a lot of people said, you can't make money with light jets. I can tell you you can, I can tell you it's extremely difficult and you have to be extremely disciplined and have a.

Solid business

Preston Holland (31:44)

One comment that I did see that was interesting on LinkedIn was that AirX is incredibly disciplined on their purchase. they really take more of a commercial real estate model where you're making money on the buy, not on the sell. And so they're buying really high pedigree used aircraft that have carried its own depreciation, but still have a lot of useful life left in them.

Jessie Naor (31:53)

Mm

Yes.

Preston Holland (32:10)

And so, you know, I think having that discipline, Volato is the other side of that equation, right? Taking delivery of brand new airplanes. Oftentimes, if you look at Volato's balance sheet, there's actually not a lot of airplanes on the balance sheet, right? So like, this is, a lot of this is unsecured debt, right? They're not necessarily holding, they're selling off fractionals, right? They have historically been a fractional business. They dry lease the airplane back from individual

Jessie Naor (32:12)

Thank

Mm

Mm -hmm.

Preston Holland (32:38)

you know, unique beneficial owners that are high net worth guys that need the depreciation. So a little bit of a different model.

Jessie Naor (32:45)

yeah. Well, we'll see how it goes. They are publicly traded, so we get to look at everything they do every three months. So not everybody has to go through that scrutiny, but it is interesting for us. Since and it's just, I like, we like the numbers. We want to read the numbers. So last story of the day. This is interesting to me. So the National Business Aviation Association,

Preston Holland (32:55)

Yeah, exactly.

Jessie Naor (33:08)

has always been a partner in the European Business Aviation Convention and Exhibition. That was a of words. EBACE So, NBAA has now sold part of its share, EBACE says sold its share back to the European Business Aviation Association because, you know, I mean, there are reports that there have been declines in exhibitors over the years. In 2019, there were 400 exhibitors at the convention that this May, that number had declined to 257.

Preston Holland (33:17)

E D A C E.

Jessie Naor (33:36)

So this news is coming on the heels of that decline and people kind of critiquing certain issues about the show. So I personally have never been to E BACE because honestly hotels in Geneva were very expensive. I could never justify the ROI, but I was a domestic operator. What about you, Preston? What have you heard out there?

Preston Holland (33:57)

Yeah, I mean, look at $800 a night to stay in a shack in Geneva and eat $20 tiny, tiny, you know, Belgian waffles. Tough, tough to make the argument that it that it had a lot of value. I think the other thing that this show really faces is a lot of headwinds in the general sentiment towards business aviation in Europe. There is a there is an underlying

current in that market that has a certain level of disdain for personal and business aviation. And I think that that is playing out in the amount of exhibitors that are at EBACE's. I think the other thing too is that these companies like so you have the OEMs which carry the show, right? And for better or for worse, we as an industry look up to the big dogs to make sure that we can all eat the

Jessie Naor (34:32)

Mm -hmm.

AVFuel party. Come back.

Preston Holland (34:53)

fancy food and go to the fancy parties, right? And then we go to the fuel party, the fuel company parties. And if you're an industry person, you don't know I'm talking about. If you're not an industry person, go to NBAA and get an invite to one of the fuel company parties. Yep, exactly. Yeah, if you're listening. But I think that the big problem is that these companies like Gulfstream and Bombardier that have pulled out of a place like EBACE

Jessie Naor (35:07)

Yep, yep, yep.

Preston Holland (35:19)

They're not seeing the value in these mass production shows where they can, for equivalent or lower cost, put on their own boutique events in which they can invite their very targeted prospects and say, because like, look, Gulfstream and Bombardier, I mean, they deliver like 60 airplanes a year. They don't, they're not wondering who their customer is, right? Like they're, they know exactly who's looking at their airplanes, right? So when they call Kylie Kardashian and say, hey, do you want to come to this like,

Jessie Naor (35:24)

Yeah. Yeah.

Preston Holland (35:49)

super exclusive thing, or do you want to come to like, Henderson airport and like sweat and look at airplanes, right? It's like, I think that a lot of these OEMs are starting to question and say, is this actually where I'm going to go have end customers or not, right? And so they're starting to ask, is there ROI there? And then with the OEMs goes the rest of the industry. Now, for me personally,

Jessie Naor (36:08)

Yeah. Sure.

Preston Holland (36:16)

I find huge return on investment for attending NBAA BACE because I'm an American, I'm in American business aviation, right? So like I get to see folks that I only get to see once a year. I get to make connections with those people. We get to go, I get to go watch some of the folks blow a lot of money at the blackjack tables, right? And there, you know, there's some value there, right? But for me to travel across to, you know, Europe and stay in an expensive hotel, just not sure it's there.

Jessie Naor (36:44)

Well, I mean America's the.

big market, you so I think NBAA is going to continue to be strong. You know, I think some of these OEMs though are missing out, you know, and it's not aspirational customers, you know, it's industry insiders understanding the different lineup of products. You know, they've gated things off now, so you can't necessarily go and see the airplanes. You don't know what you're looking at. You're just looking at it from afar. But you have to remember, I mean, the supply chain and the process that customers go through to buy your product. At the end of the day, it might be a charter broker that was like,

man, I was on this G400, this thing is awesome and it has this and it has that. know, those all little, voices in people's heads, you know, when you only sell that many airplanes a year, there's still like a community of people who need to understand what the products are to support that sales process. And you miss out when you don't get to go on them.

Preston Holland (37:15)

Mm -hmm.

Right. Well, yeah. I, yeah, yeah. Totally agree. I think that that is, I think if there's one message of like one thing to solve for this, the, for large OEM operators is that you like understand the value of the network effect and understand that, that Jessie and Preston have conversations with your end clients. We on a regular basis, right? I know you do. I know that I do.

Jessie Naor (37:55)

Yeah.

Preston Holland (37:58)

And us having to get gate -kept, we're industry folks, right? At the end of the day, and if you gate -keep folks like the influencers, if you gate -keep them, they're not going to have good things to say about your product. And they're going to say something really nice about your competitor across the field that welcomed them and fed them coffee and champagne and said, hey, we recognize that our industry partners, that this is a whole ecosystem.

Jessie Naor (38:01)

Yeah.

Right.

Right. Right.

Preston Holland (38:23)

And for us to sell the 40, 30 or 40 airplanes that we sell a year, like there's a lot of folks, there's a lot of management companies, there's a lot of charter brokers, there's a lot of friends, right? Insurance agents, finance folks, brokers, right? They're calling the folks like Johnny Foster and saying, hey, I'm about buying something new. What should I buy? Right? So like gatekeeping the whole industry, I think is not necessarily having the positive return on it, is hurting the positive return on investment.

Jessie Naor (38:53)

Yeah, no, get, I get the need to save money and I get you don't want, you know, a million people traipsing on your airplane, but at the end of the day, people in the industry need to understand the products at the same time. Give them a chance to touch and feel it at least once, at least some, you know, period of time of that day or something. But yeah, we could talk industry events.

all day long, but at the VIP seat, we're trying to keep these short and sweet so that you get everything you need to know for the week in a quick take. So with that, we will wrap up the pod. Thank you for joining us today. The VIP seat is the fastest way to get the top news on what's happening. And don't forget to subscribe to our weekly email digest in the show notes and click follow wherever you get your podcasts. Comments and suggestions on whatever we should cover next are always welcome.

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