BATTLE OF THE BOOM
Mapping the top operators
US operators are seeing record demand and this is also encouraging record investment and a battle for talent. Words: Alasdair Whyte
LOTS OF THINGS unite CEOs and senior managers at across the biggest US aircraft Part 135 charter companies and aircraft managers at the start of Fall 2021. They are all concerned about keeping standards high and finding talent. Most significantly they are all exhausted. They, as the British say, are knackered.
You can see why. First, in early 2020 they had the stress of Covid. Fleets were grounded. Then, when they could fly, managers had to create ways of making flying safe. Just as they had managed to solve this they were hit by, a much more welcome, but just as tiring, wave of new customers.
“It's just like everybody's been going nonstop. I've done pitch after pitch and a lot of travel. While on one hand, I'm energised by it on the other I'm ready to spend a week at home, that's for sure,” says the CEO of one operator.
On top of this, they are also seeing their market change faster than at any time in the last 12 years. It is not just charter passengers and new owners that have discovered business aviation. Private equity investors are also keen to get onboard.
The past 12 months has seen billions invested across the industry. Millions have gone into operators. In June 2021 Wheels Up became the first US operator to go public on the New York Stock Exchange. In June 2021 KKR lent Jet Edge $150m to help it keep growing. In September, KKR announced that it was now buying a $40m stake in the company. Other deals are being worked on now some have closed without publicity.
“Activity leads to both investment and innovation,” says Bill Papariella, founder of Jet Edge. “We are going to see a lot of consolidation and change. And the crazy thing is we have not even seen business travel fully return yet.”
Operators can be split into three different ownership groups: listed companies – NetJets/Executive Jet Management (owned by Berkshire Hathaway), Jet Aviation (part of General Dynamics) and now Wheels Up; privately owned companies Clay Lacy Aviation, Priester Aviation (now a third-generation managed family business), flyExclusive and others; and private equity-backed like Jet Edge.
Jet Aviation went through the transition from private equity to becoming part of General Dynamics in 2008. So what does the influx of new capital mean to Jet Aviation now? “For Jet Aviation under the ownership of General Dynamics, it doesn’t change our outlook,” says David Best, senior vice president Regional Operations and general manager, Americas, Jet Aviation. “We remain focused on providing the service and assets to our customer base, as we continue to grow our fleet of some 300 aircraft [worldwide] and drive our global infrastructure.”
Others operators are more cautious. “God help us from the irrational but well-funded competitor,” says one operator. “Some of the decision makers behind the so-called ‘smart money’ got out of college five years ago. They have not been through the cycle and seen what we have seen.”
Privately-owned businesses still account for the vast majority of US Part 135 companies and aircraft managers. “Being privately-owned, not beholden to shareholders, allows us to be flexible and make long-term decisions that are in the best interests of our customers and employees,” says Scott Cutshall, senior vice president, Development and Sustainability. “This approach combined with our 53 years in business also helps attract top-tier talent in a very competitive market.”
While Clay Lacy is not for sale, other privately-owned companies are examining options. “We are being approached by a significant number of operators with 15 or 20 aircraft,” says one CEO. “They have worked hard for years and are looking to exit. They are tired and looking to get out.”
The past two years have seen significant mergers and acquisitions. JetLinx acquired Meridian Aircraft Management and Jet Charter in July 2020. Since 2019 Wheels Up alone has acquired Mountain Aviation, Gama Aviation Signature, Delta Private Jets and TMC Jets. Buying aircraft management companies is not without risk. “You are basically buying 30-day contracts,” says one operator. “It is all about the people who have relationships with customers. If you can get them to stay you may have a chance.”
Buying an owned fleet is different. Wheels Up, XOJET, flyExclusive and Las Vegas based Thrive Aviation (which buys new aircraft) all have significant owned fleets. Before its IPO, Wheels Up told investors that its plan was to migrate away from dependence on owned aircraft, but with charter demand high it is benefitting from having access to its own fleet.
“If you find the right candidate hire them as soon as possible.”
Mergers and acquisitions are set to remain a key theme for the next 12 months. This does not always lead to consolidation. A significant number of new aircraft operators are started by people whose companies have been acquired. The other big trend is the search for talent. Like all American industries, business aviation is desperate for people.
Jet Aviation has a staffing division that works both for its own company and others. “Having this resource in-house is helping us ramp back up in a challenging labour market and is really very helpful,” says Best. “Our staffing business also has a large pipeline of jobs to fill for several operators in the industry. The only advice I have is to act quickly and decisively; if you find the right candidate, hire them as soon as possible. If you don’t, someone else will!”
Solairus Aviation – Dedicated to management
Business jet fleet: 245+ | First half 2021 hours: 16,763
Founded: 2009 | Services: Management, charter
Headquarters: Petaluma, California | Core types: Large cabin
BACK IN 2020, Dan Drohan, founder and CEO, Solairus Aviation, set a target of adding 12 managed aircraft to the operator’s fleet in 2021. This was quickly forgotten. He’s added 12 in the last six weeks alone. “We signed five management deals last week, and that's unprecedented,” says Drohan. “OK, we didn't do five this week. But literally every other day we're getting an inquiry on a mid or large cabin aircraft.” Since Covid hit, the operator has added more than 60 aircraft.
While he is enjoying the boom, he is concerned that there is too much pressure on different parts of the industry. “We have airplanes that are flying more than they've ever flown on an annual basis and crew working harder than they've ever worked in their careers,” says Drohan. “We're seeing ground handling error rates are up and service issues are up dramatically with support services like limousines, catering and FBOs. But private aviation has finally got its day in the in the spotlight, which is great.”
Drohan is a straight talker. He says he is disappointed that some business aviation companies took government grants in 2021. He also believes that companies should focus on their core skills. “There are management companies who have Part 135 certificates that are supportive of their management product. And there are charter companies who manage airplanes in support of their charter company,” says Drohan. “You cannot be both.”
Solairus is arguably the most pure-play aircraft management company. It outsources all maintenance, does not own any FBOs and is not involved in aircraft sales. “While our team is very good at selling charter it's ancillary to our primary line of business: Aviation Asset Management,” says Drohan. “I'm proud of that. I like being a management company, not a charter company. And I don't see that changing at any point.”
Dan Drohan, Solairus Aviation founder and CEO.
Dan Drohan, Solairus: The operator market may become more fragmented.
Dan Drohan, Solairus: The operator market may become more fragmented.
He also feels that this neutrality gives Solairus an advantage when dealing with brokers and consultants. “From an advocacy perspective, we really have the attention and the ear of the important people in our industry that are working with our clients to make the decisions,” says Drohan. “That is bringing a level of support from their end that that is probably not seen elsewhere, because I think we're delivering that transparency better than anybody.” Solarius launched a customer account portal several years ago to allow owners to get real time accounting for their aircraft. As well as reporting, owners also have segregated accounts, online employee expense reports, automated audits and electronic invoice validation.
Solairus has not taken part in the recent round of consolidation, but Drohan is always looking. “We want to continue growing and we believe that the industry needs consolidation. We believe that the industry needs a thousand pound gorilla, we need a big brand,” he says. “The top 10 biggest management and charter companies in the industry combined still only have something like 15 or 20% of the market share.”
This fragmented market is also attracting investors from outside the industry. But he warns new entrants that integrating operators is hard. “Investors look at the industry and say, ‘there’s an opportunity to fix that’,” he says. “But they need to realise the difficulty in growing these businesses, how tough the service side of the business can be, how hard it is to build a brand and a reputation and how challenging the regulatory and operating environment can be. These are lessons we have learned over the last 30 years.”
In the short-term he also believes we may see the operator market become more fragmented. “We are doing management proposals on a lot of older jets. The used market has been absolutely on fire and somebody's got to handle those airplanes,” he says. “Unfortunately, it's giving birth to small one, two, three, four or five aircraft management companies, which purely by the virtue of scale, can't deliver the same service that we deliver. We will see some consequence of that in the years ahead.”
“The industry needs a thousand pound gorilla, we need a big brand.”
He is also confident that the business can grow organically from new deliveries. “Anyone taking delivery of a large jet in the US is pretty much going to call Jet Aviation, EJM, Solairus and one other,” says a competitor.
Like all operators, Solairus is competing hard for pilots. Drohan says that the Client Aviation Manager (CAM) model it uses, where the pilot acts directly for the owner, helps with this. “You have to trust people. We work in a very command and control industry that historically has been very low trust, which is ironic when you think about what we're really doing, which is flying these airplanes for people in the back. The best results come when they trust each other,” says Drohan.
Drohan says that the CAM model also attracts owners. “Our model is built around the notion that we provide our teams with the equipment, the resources, and in some cases the scaffolding that is required to get the job done,” he says. “Then we take the most important step, which is backwards, away from the situation to let them care for our clients in the way that the client wants. It is not a square peg, round hole approach.”
He is also keen to keep hiring to match the growth. “We have the systems we need, but to continue growing like we have, we also need the next generation of leaders. This is not just having them in the company, but really fostering their growth and encouraging and mentoring them as they climb through their career. The culture of the company is very entrepreneurial. I love the energy of the company and the brand we've built around it.”
flyExclusive – Going for 300
Business jet fleet: 80 aircraft | First nine months 2021 hours: 29,500 Founded: 2016 | Services: Charter, membership
Heaquarters: Kinston, North Carolina
Key types: Cessna Citation Encore, CJ3, Excel/XLS, Sovereign X
Recent acquisitions: Sky Night (2020) | Ownership: Private
JIM SEGRAVE AND his flyExclusive management team have a couple of corporate sayings they like to use. He stresses that they are not just slogans but things that they really believe in. One is “minutes matter” something that every company involved in charter understands. Another, that everyone would agree with, is “adding talented staff”. The last is “staying humble.”
Segrave, the founder of flyExclusive and owner of its parent company LGM Enterprises, believes that staying humble is key for fast growing companies. And with his ambitious plans it is a word he is going to have to keep saying.
By the end of 2021, flyExclusive aims to have around 100 aircraft. An amazing fleet for a six-year-old company. He is looking to add another 30 jets in 2022. Segrave is confident that the company could eventually have 300 aircraft. The company already has 500 staff at its Kinston, North Carolina headquarters. In 10 years, he says they will have more than 2,500 employees.
flyExclusive is Jim Segrave’s second business jet operator. He sold Segrave Aviation to Delta Private Jets in 2010 and launched flyExclusive in 2016. “When I sold it, I did not realise how much I would miss the business family, so I am lucky to have had the opportunity to build over again,” he says.
While Segrave Aviation focused on third-party aircraft management, the flyExclusive fleet is much simpler: he owns most with a few on triple-net leases (where flyExclusive is responsible for maintaining and flying the aircraft). “Because I own or lease the aircraft we can keep them all identical and have full control,” says Segrave.
Jim Segrave: Staying humble is key for fast-growing companies.
“The pre-owned aircraft market is on fire – with few to none available.”
The company focuses on pre-owned Cessna aircraft. It then refurbishes them at a sister company (also owned by Segrave) in Kinston. It’s core fleet comprises Citation Encore, Citation Excel, Citation XLS, Citation Sovereign, and Citation X aircraft. Segrave also acquired seven Gulfstream GIVs when it acquired Sky Night in March 2020. He also sees growth opportunities.
But how can he keep finding aircraft when few pre-owned aircraft are available? “It is simple. We are paying too much for them,” jokes Segrave. “The pre-owned aircraft market is on fire – with very few to none available – but so is charter.”
Most of the fleet is financed and all are on engine maintenance programmes. “We have been consistently profitable since 2020 and were one of a couple of business jet operators that flew more in 2020 than 2019,” he says.
The company’s Jet Club programme, which it launched in May 2020, is different to most jet cards as it is modelled after flyExclusive’s highly successful aircraft partnership programme. First, it charges a daily and hourly rate. Second, members need to give four day’s notice before booking – owners actually have to give five – to provide the consistency, dependability and experience of the flyExclusive fleet and service. “This is a major differentiator. It means that 99.4% of all booked flights actually take place on our aircraft with our pilots. It also means that we can scale our memberships provided we keep adding aircraft.”
Less than 30% of flights are from members. The rest are sold direct or through brokers and other operators. Many of these are struggling to find aircraft. “We have great partners who appreciate our standardised high-quality product,” he says. “We are always looking to work with others.”
The company is attracting interest from potential buyers, but Segrave is not looking for investors. “We don’t have a dime of private equity and I am not looking to do a pump and dump. The right investor would need to be long-term and wanting to build a legacy,” he says.
Any partner would also have to respect flyExclusive’s commitment to North Carolina, Segrave’s home state. “If we are buying operators we would also want them to move to our primary location. It is really powerful having dispatch, sales and maintenance all in one place. It is a big part of who we are.”
The company invested $8m in new facilities this year, following on from a $10.5m investment in 2018. It already has its own electrostatic paint and coating facility, and an interior refurbishment workshop.
“We continue to be enthusiastic with the increasing footprint of flyExclusive,” said Jim Perry, a state senator. “Their investment and corporate partnership in our community play a vital role in the growth of Lenoir County and Eastern North Carolina.”
Segrave is confident that demand will continue in the near term. Having run a business jet charter company during the Global Financial Crisis he also knows that markets can turn. “We have been super, super fortunate with the way the market has turned so quickly,” he says.
He is being humble.
Cutting edge: The opening of flyExclusive’s new North Carolina facility.
Jet Edge has a business jet fleet numbering more than 90 aircraft.
Jet Edge has a business jet fleet numbering more than 90 aircraft.
Jet Edge – Ready for the boom
Business jet fleet: 90+ (80 floating fleet)
First half 2021 hours: 14,762 | Acquired: 2011
Services: Charter, jet card, management, aircraft sales
Headquarters: Columbus, Ohio and Van Nuys, Los Angeles
Key types: Gulfstream large cabin, Bombardier super-mid
Recent funding: KKR (2021) $20m equity, $100m debt; Solace Capital $60m (2019) | Recent acquisition: Jet Select (January 2020)
BILL PAPARIELLA, CEO of Jet Edge, admits that back in Spring 2020 he did not see the sudden uplift in demand. But his company was ready for it. “Our senior team sat down in April last year and we decided to invest going into a down market to build market share,” he says. “But then the boom came and we saw huge demand.”
In 2021 it formerly launched two new programmes: Advantage Edge, a floating charter fleet programme targeted at owners who want charter revenue; and Reserve Jet, a jet card programme using the fleet. The company added 27 aircraft to AdvantEdge in 2021 bringing its floating fleet to more than 80 aircraft. Reserve Jet. It has sold $100m of Reserve memberships since September 2020.
Jet Edge also benefitted from its pre-pandemic acquisition of Ohio based Jet Select. Before this, the company was focused on large cabin Gulfstream aircraft. Jet Select gave it access to Bombardier super-mid-size aircraft.
With AdvantEdge, owners agree to make their aircraft available for charter for a certain number of pre-arranged hours a year. If their needs change, they can also charter other aircraft from the fleet. “It is like AirBnB,” says Papariella, CEO, Jet Edge. “Tell us when you are not using your aircraft and we will charter it.”
The AdvantEdge programme has three tiers. It starts with Edge 250+ where owners make their aircraft available for 14 weeks. Jet Edge then guarantees to sell more than 250 hours of charter. The next level is at 28 weeks and 500+ hours. Finally, there is the 52-week, 900-hour programme – Edge 900. “With Edge 900 we are writing cheques to owners each month,” he says.
Bill Papariella, Jet Edge CEO
Jet Edge has some traditional aircraft management contracts, but most of its fleet is now on the AdvantEdge programme. Owners have access to the entire fleet, so may rarely fly on their own aircraft. Jet Edge Partners – the operator’s aircraft sales division – helps buyers select aircraft. The company manages all aspects of ownership including crew and maintenance.
The Gulfstream aircraft are typically older than 10 years old so Jet Edge Partners vets all aircraft. “We only recommend aircraft that we are confident about and that have had great maintenance and technical records,” says Jonah Adler, chief commercial officer of Jet Edge. “But by buying good pre-owned aircraft we can give owners a really economical way of owning a jet.”
Jet Edge then adds new refurbished custom interiors. The GIV-SPs have intricate quilted leather seats, for example. Unlike most floating fleets it does not brand the outside of aircraft – which makes the aircraft more attractive to other operators buying charter when they are available.
The Challenger fleet is mainly newer with a significant number delivered from Bombardier.
Most aircraft management companies only give a percentage of the charter revenue to owners – but do not share on extras like ground transportation or catering. Jet Edge shares a percentage of all revenue and shows all of the costs involved. “This may affect our margin, but it is worth it to simplify the business in a very big way,” says Papariella. “Owners appreciate the transparency, and it means that everyone is completely aligned. We saw how it worked at Jet Select Aviation and have been delighted with how it has been received by Jet Edge customers.”
“We are seeing periods consistently where our fleet is sold out.”
Papariella says that AdvantEdge works because they built the infrastructure, have a floating fleet (without owner approval), and because they have invested heavily in yield management and fleet optimisation. He says that picking the right aircraft types matters. “You can definitely make money from charter, but you need to have the right model and right infrastructure,” says Papariella. “Most aircraft management is still antiquated.”
The launch of its Reserve Jet card is a major shift for the company which historically relied on charter brokers. Members have access to exclusive benefits, including bonus flights, catering and benefits through partnerships with Montage International, Discovery Land Company, and Four Seasons Hawaii Collection. Jet Edge says its members have access to the largest combined fleet of Challenger and Gulfstream jets in the world.
“This last quarter, the industry saw unprecedented charter demand. We are seeing periods consistently where our fleet is sold out,” says Jonah Adler, chief commercial officer, “even for September – typically a shoulder month – we are seeing high demand so far without business flying fully starting again.”
Clay Lacy – Keeping new entrants
Business jet fleet: 130+ | First half 2021 hours: 7,591
Founded: 1968 | Services: Management, maintenance, charter, FBO
Headquarters: Van Nuys, Los Angeles
Key types: Large and super-mid size | Ownership: Private
In the more than 50 years that it has been in business, Clay Lacy Aviation has never seen such a sudden influx of customers to the industry. But its team is now looking to the future. “’The question everyone asks is “will they stay?,’” says Scott Cutshall, SVP, Development and Sustainability. “We think they will and in the next five years we expect to see dramatic growth.”
Cutshall says that aircraft management is a strong sell to new owners. “We can bring so many benefits to first time owners. Our focus is on minimising costs, while maximising utilisation and efficiency. Managing costs and providing transparency through analytics is extremely important.”
He says that the Clay Lacy team is spending a lot of time thinking about how to retain new owners. “Our relentless focus is on adding value to customers. It is on how we can make everything seamless, and enjoyable for owners? We want to make owning a jet the most enjoyable experience in travel, something they would never think of living without.”
One way that it is trying to simplify ownership is by providing more information. New buyers know little about the costs involved and Clay Lacy wants to educate them. “A stable relationship is one that is completely transparent. Before Covid we created a Financial Planning and Analysis or FPA team,” says Cutshall. “This sits above our finance and accounting group. The FPA is focused on providing data, analytics and insights into the operation and performance of the aircraft which delivers transparency. Today’s aircraft owners – and, definitely, tomorrow’s aircraft owners – want access to information, with informed decisions based on facts and figures not gut feel or emotion.”
The company also uses separate accounts for all owners. “Clients no longer wire deposits to us. They send it to a segregated business banking account that also pays interest and is FDIC insured,” says Cutshall. “Clients have online access 24/7 and can see all deposits and withdrawals from the account for their aircraft expenses.”
Clay Lacy offers owners a range of services. “Aircraft management is a hard business. You must be focused on it to do it well. Our charter, management, maintenance and FBO businesses all complement each other well,” says Cutshall. “Owners are under no obligation to use us for maintenance, for example, but having that service in-house provides them greater choice and faster access to those resources and expertise.”
But the company is not looking to diversify further. “We are very focused. If we can’t be the best at something we do not want to be in that business. That is why we moved out of aircraft transactions – there are lots of extremely talented and professional aircraft brokers, individuals who are 100% dedicated to transactions. We would rather partner with them than do it ourselves to deliver the best value and experience to our mutual clients.”
Scott Cutshall from Clay Lacy.
The California headquartered company is taking sustainability seriously. Clay Lacy’s facilities have been operating carbon neutral since 2019 and they have introduced programmes to help clients reduce or offset their emissions. All of the FBOs now offer sustainable aviation fuel. The company has also agreed to provide electric charging for the new Eviation Alice electric aircraft. “Clay Lacy has long prided itself on industry firsts and we are now adding yet another through our partnership with Eviation," said Brian Kirkdoffer, president and CEO, Clay Lacy Aviation. "One of those firsts was introducing the first carbon offset programme and a robust sustainability strategy in the aircraft management industry. We are proud to take that a giant step further with charging the zero-emission Alice at our FBOs."
In the short term, Cutshall believes demand will stay strong. Particularly as commercial airlines take time to bounce back. “My wife jokes that I am always smiling when we are stuck in a TSA [security] queue,” he says. “It is not because I enjoy it but because it gives me and everyone in business aviation tremendous job security.”
Fuelling growth: Clay Lacy has never seen such a sudden influx of customers.
Fuelling growth: Clay Lacy has never seen such a sudden influx of customers.