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Private Jet Insider

This is the fifth edition of Private Jet Insider. Today, I'm going to tell you about one of my favorite aviation entrepreneurs of all time. He has built the only aviation-only Private Equity firm, and he started as a pilot. If you've listened to the Founder's Podcast (one of my favorites), David talks a lot about Warren Buffett and the lessons we can learn from him. Warren Buffet, if you didn't know, owns NetJets.

Netjets is the largest private aviation operator in the world.

The second largest operator is run by a guy named Kenn Ricci, and I'm going to show you how he's built an empire.

Today's newsletter is in partnership with

One of my favorite quotes this past year from CJI Miami (our big corporate aviation event) was from our subject today, Kenn Ricci. Today, he spends his time at Directional/FlexJet on capital allocation and fleet planning, keeping it high level.

Until he saw they were spending $43m on catering and the largest item: $6m per year on plasticware.

That’s right, they are spending $6,000,000 for plastic forks, knives, and spoons.

Watching your costs are so critical to running a successful business, whether you have 5 employees or 5,300 employees like Kenn. That’s why I’ve partnered with Ramp to offer readers of this newsletter a free consultation with their custom development team to learn about your business and see how they can help you save. Forward this to your CFO or controller if they champion your spend management, and tell them to make a new budget line for “private jet.” Sign up here.

Buffett's biggest private jet competitor you've probably never heard of

Aviation is one of those industries that is really sexy, people are very passionate about, and tends to have high price tags (see: my X account where I talk about how much it costs.)

This also means there are a lot of businesses that don't scale, or, they don't scale well (See what the heck happened to Volato). To put into perspective, there are 1,817 companies in the FAA Part 135 operators list, and of those 1,151 companies operate 3 or fewer aircraft.

There are two companies though, that have reached the proverbial "exit velocity" and have created really good businesses. That is NetJets and Flexjet.

Now, neither of these businesses report public financials and thus, we can't drill down into the numbers, but there is a sense from the capital community that these businesses have achieved some level of success.

We all read the Buffett shareholder letters and how they feel "NetJets is a wonderful business" but what about the other player, Flexjet?

I'm going to break down for you in this newsletter how Kenn Ricci has created an impressive, vertically integrated, private aviation empire. He's got some lessons learned in there, too.

Who is Kenn Ricci?

Kenn Ricci started as a pilot via the ROTC program at University of Notre Dame, and even flew Bill Clinton for a bit during his campaign. (I found a podcast interview where he went a lot deeper talking about those days.)

As happened with most of you reading this newsletter, he caught the entrepreneurial bug and wanted to do more. So while he was still flying 600+ hours per year, he launched Corporate Wings which managed aircraft and was a Fixed Based Operator.

I know a lot of entrepreneurs who understand that grind, where you're working in the business and working on the business at the same time.

After launching Corporate Wings, a few years later he started a fractional company called FlightOptions.

I've heard people claim on podcasts to be "serial entrepreneurs" or "deal guys" but frankly, compared to Kenn, they have nothing. Kenn has the ability to see the future state in a way not many can. With a portfolio that now does $4b+ a year in revenue, Kenn has done something few others can say they did.

The Evolution of Directional

We learned in business school that there are two types of growth: organic and inorganic. Organic growth being growing topline, making investments through capital expenditures, and growing the business that you have. Inorganic growth is almost always mergers, acquisitions, and partnerships. Directional capital has done all three, and they've done it a lot.

For instance, did you know that Flexjet was not started by Kenn Ricci? Instead, it was started in 1995 by a partnership between Bombardier and American Airlines Parent AMR. They merged with FlightOptions in 2013.

In the 90's and early 2000's, big corporates were making a move into private aviation. For instance, Delta bought Comair Jet Express in 1999. It was crazy times. (You can dive deeper in this article). With all of the activity and growth happening, there was a lot of opportunities for dealmaking.

And boy, did Ken Ricci deal make.

Here's a timeline of how Directional was formed today (and I even missed a couple but these are the major ones).

I know what you're thinking: "damn, I thought I was a deal guy. I am not a deal guy." Trust me, I thought the same thing.

I figured showing you all of that information in a nice infographic is much better than you hearing me drone on about the timeline, but I do want to call out a few turning points and tie them into lessons I learned while studying Kenn Ricci.

It's Sometimes Easier for the "Second Guy"

Another quote that stood out to me from CJI Miami was the fact that debt financing was so hard for Ricci until Warren Buffett bought NetJets, then it was much easier. In early 1998, Ricci could secure $10-$12m of debt financing for FlightOptions. After the Buffett transaction in mid '98, he could secure $175m in debt financing.

Sometimes, its easier to be the second guy.

Don't Sell Your Winners

Kenn Ricci has said a few times publicly that he regrets having sold FlightOptions to Raytheon (2002), but was glad to be able to buy his company back (2009).

I would argue that he wouldn't be the dealmaker he is now had he not sold his company. Up until that point, he was a 2x founder of similar businesses. Selling his company forced him to get into the FBO restructuring business, for instance, and grow his skills.

The second part of this lesson reminds me a lot of his competitor's quote, "be fearful when others are greedy, and greedy when others are fearful." He sold at the top (just after the Delta Private Jets transaction) and then bought back after the financial crisis (2009). In that time period, he also sold an FBO group for $615m in 2007, and the group that bought it had a tough time after that.

Once he bought his business back, it was off to the races. You get better with every deal. Ricci built on momentum.

Drive is a Gift

Ken had an interesting quote in the "Up in the Air" podcast where he said:

Can't argue this man's drive. I would describe his sentiment similar to business owners I work with in my aviation finance business. You are driven, and successful, and want to achieve a lot in the world, but you still have struggles.

Giving away the winnings can be a good healing point for that (see Kenn's $100m unrestricted gift to Notre Dame)

Leading Through Adversity

Kenn is on CNBC and Bloomberg from time-to-time, but his primary long-form conversations happen within inner aviation circles where he shares some of his struggles more candidly than most other big-time CEOs.

It's known that Flexjet doesn't have a pilot's union, where Netjets does.

The difference that made during the covid downturn was pretty huge. The private jet economy stopped on a dime, and everyone thought it was the end of their companies. Kenn offered his employees to voluntarily sacrifice whatever pay they could afford so the company could survive and wouldn't have to lay anyone off, and they gave up $27m of compensation in 10 days. He returned it a month later, but that is something that takes guts as a leader. You have to lead through adversity by getting down there and getting your hands dirty and knowing your employees. Leadership is earned.

He also went through a failed SPAC, although I am not sure if you asked Kenn he would call it a fail. He has publicly said many times that he is very glad that it didn't go through, and was an expensive mistake.

FlexJet/Directional Today vs. Netjets

FlexJet and Directional Capital today have rolled up companies in the charter, management, Maintenance (MRO), fractional, jet card, software, and training space. They've also built FBO's, and are considering taking on catering in-house (see above for how much they spend on plastic forks).

They compete on many fronts head-to-head with Netjets, but Netjets is just simply bigger. According to Wing-X, Netjets flies in the US alone 463,194.5 hours compared to Flexjets 182,560.4. And while Flexjet outsold Netjets 2 to 1 in aircraft in '23, it'll take 150 years to catch up.

So now that we know that its not a total comparison, we should take a look at comparing the two and how they compete directly on business and some of the takeaways.

This is not an exhaustive list of all of the business lines Directional is in, but it gives us a good look at where they directly compete.

Ricci had an interesting quote when he was talking about branding, where he said that Netjets will sell you a fraction, a jet card, or a charter all under the same name, which dilutes the brand and confuses customers.

I am not sure I'm bought in to that theory. If you look at the various "FX" brands, yes they are familiar but its not perfectly clear what the differentiator is. In addition, you can get a membership at FX Air which isn't a SentientJet jet card. There's some exclusivity that comes with FX Air, and you can fly on the Flexjet fleet when you charter, is it worth confusing the customer by splitting the brands? Not sure.

Where I do see the advantage is that you have distinct durable businesses and you won't have a customer think "oh, I won't call Flexjet because I can't get a jet card there, I'll call SentientJet." Where you could talk to three people at "@netjets.com" and get completely separate divisions of the company. I think its the classic "house of brands" vs. "branded house," and this becomes much more complicated when you're doing M&A.

Another Point of Interest

Kenn talked about their aircraft lifecycle stages, which I found very interesting. They look at their assets on a 15 year life cycle. They spend 5 years on the first turn of fractional contracts, 5 years on a second fractional contract, and then spend 5 years supporting FX Air and SentientJet and then they sell it. There's a whole newsletter in itself in that statement, but I found it interesting.

My Take

I think the guy is a complete badass. He catches some flack in the industry for being in unrelated industries and taking risky venture bets, but clients love the service and Flex is innovating in the space. I don't think its too risky, but time will tell ultimately.

One more quote I wanted to share with you from Kenn, is that it takes 150 airplanes to reach profitability in fractional. That means there's high barriers to entry in that space, and I'm not sure how many big providers there can be in the long run. This also explains why so many fractional providers go out of business, because they run out of runway (literally).

I hope you enjoyed this and now you feel smarter about private aviation and about Flexjet. I'll tell you today is December 12th, 2024 and clients have been telling me that Flexjet is cutting deals (way more than Netjets who are saying you gotta wait til next year) and I have heard raving reviews of the interiors, exteriors, customer service, and pilots.

Flexjet has a unique flair for style, especially in the interiors, which really sets them apart from their other (older) competitor.

Speaking of interiors, here's some Flexjet interior p*rn to end the email.

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Until next week,

Preston Holland

P.s. forward this to someone you know who owns a plane, owns a jet card, a fractional, or even flies private with one of their friends. I bet they'll like it.