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Private Jet Insider

Welcome to the fifth edition of Private Jet Insider. Yesterday, I got tagged in a post on X that I was quoted in a Yahoo Finance article about Jeff Bezos' G650 being for sale. Well, one of his G650's being for sale. He has a primary and a backup, and then a PC24 that gets flown hard as his family's personal suburban. Oh, the challenges of the super rich and famous (he has great hair though). Anyways, that was a pretty surreal moment for me getting quoted in a major news outlet like that. Its really only thanks to people like you who support me and cheer me on, so for that, I am incredibly grateful.

Today, we're going to address hidden costs when flying private. Joe Biden's X-posting intern has decided to go after some very specific things in his final days, and hidden fees is one of the top issues. Airbnb, Uber, UpWork, shoot, even my dog groomer, have hidden or surprise fees. The same happens in private jets, although sometimes you can see them and sometimes you can't see them. I'm going to uncover both. And if you're not careful, those hidden fees add up quick because the dollar amounts are much higher. If you don't have a good view into your expense management in your private jet, or across your whole business, you may need to have a conversation with today's newsletter sponsor (bet you didn't think this was an ad read!)

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The Hidden Costs to Private Jet Flying

One thing you can always count on is that I'm going to be fully transparent with you, and give you the inside scoop. I will admit, with the Flexjet article last week, I have a lot more "industry" people that read this now than before, and some of them may get upset that I'm revealing some of this. My job is to bring you transparency in a world where opacity is often at someone's benefit, and its not the clients.

Fees Everyone Gets Hit With

Whether you are chartering, flying fractional, or flying your own aircraft, these are the fees that anyone flying private will likely get hit with at some point or another. Fly long enough, and you'll likely get hit with all three.

Deicing

It's that time of year where you have to be aware of the need to deice, and if the aircraft has accumulated ice or snow it is unsafe to take off and therefore must be deiced. Doesn't matter how you're flying either, the price is the same.

To put into perspective, I text my friend Michael O'Reilly at Leviate Air Group, and asked him what the range of deicing can be. He said he just had to deice a client at $2,000, but has seen upwards of $10,000-$15,000. The deicing providers charge by-the-gallon, so the larger the aircraft the more expensive the bill when it comes due. In addition, the airport must have a runoff plan for the fluid when the deicing takes place.

There are some ways to mitigate the cost, for instance if you have a jet card they may offer deicing insurance. At the end of the day, you're going to pay it.

Special Event Landing/Parking Fees

At most every airport and FBO, there is some sort of fee to land or park there. Depending on the chain or how much traffic there is, these fees can vary greatly. These fees tend to go away if you buy fuel (hint: FBO's make almost all their money on fuel.) But when there's supply constraint and everyone wants to fly their private plane in, these fees can go through the roof. I DM'd with Malachi O'Neill, a charter broker, about this.

Malachi told me that there are certain events that you can know there are going to be fees. Some of those are:

• SuperBowl
• F1
• Kentucky Derby
• Masters
• Some holidays at some airport

Now, there's extra staff and overtime and a lot of other costs that justify these fees, because there are a lot more private aircraft on the ground. Where its creeping up is in events that wouldn't have traditionally had fees.

One shocking example: The Inauguration at IAD on January 20th. Historically, it was just politicians that went and therefore no sense in fees. Now, there's no more overnight parking so it has to be a drop-off and reposition to the nearest airport with availability.

But don't worry, just because you're dropping off doesn't get you out of fees! It's $10,700 per stop so doubled puts you over $21k JUST IN FEES! That's insane. Charters that were quoted are going to increase 30-50% for fees and repositioning charges.

It is also becoming more popular in rivalry college football games, where previously fees were only charged for the championship. At South Bend for a Notre Dame football game, there was a $2,850 FBO fee plus a $135 airport fee. For UOX Oxford Airport for Ole Miss and Miss. St., $440 fee.

Catering: Everyone Wants a Fee

Folks: eat before you get on the plane, bring snacks with you, or door dash ahead of time and let me save you (not exaggerating) thousands of dollars. Catering gets marked up to high-heaven, and then the FBO is going to charge a 25% fee or more to help administer the catering. Kenn Ricci last week said catering is something he is focusing on, because it has become such a problem. You will get feed if you do traditional private jet catering (and there's probably a few others on the take as well.)

Costs Fractional Owners Get Hit With

Up to this point, the costs have been for everyone. Now, we're going to dive into the real costs people don't consider (or even know about) in ownership, and these can get to 6-7 figures very quickly. In case you missed a few weeks ago, you should check out this article about hourly cost for a deeper dive.

Residual Values: They Matter

When you sign a fractional ownership contract, there is a number called "residual value." Taking tax depreciation on the asset is cool, but when you consider that there is an actual depreciation, that tax savings gets wiped out quickly.

I have a product offering where we do a custom analysis across 6-8 different programs for clients to help them determine the best choice for them (it's like a 60 page investment-banker style presentation, reply to this email if you're interested). We analyze the full 5-year baked in cost of the contract.

With one program, real depreciation represented 22.73% of total cost over the 5 year contract, a real cost of $661,126. Something to consider.

Opportunity Cost

One cost that you may roll your eyes at, but I want to point out, is opportunity cost. The fractional ownership initial capital can be as low as $1m and goes up from there. There's an opportunity cost on that capital. The 5 year treasury rate as of this writing is 4.248%. That means, over the life of a $1m, 5 year fractional share, you have a risk-free opportunity cost of $233,894. Or, about 23 extra hours of flying private over that 5 year period. Something to consider.

Whole Aircraft Owners: Get Hit at Every Turn

I am going to preface this with a statement. My primary business is aircraft finance, and therefore relies on people buying whole aircraft. This entire next section is going to sound like an argument against buying an airplane. There are many factors outside of cost, such as convenience, familiarity, flex-factor (it's a thing), flexibility. Those you can't put a price tag on.

That said, there are a lot of hidden costs that many don't consider when owning a whole aircraft. This is why its important to have a team of "good guys" on your acquisition team and select a good aircraft management company that will help you plan for these costs (and won't rip you off along the way.)

Acquisition Team: Know How Everyone Gets Paid

One thing that drives me nuts is when someone tells an owner that they're doing something for free. No one works for free. Show me the incentives, I'll show you the behavior. Be sure, to the best of your knowledge, that you know how everyone is getting paid, and this will save you from overpaying for a service. I have seen people work for "free" and then fleece the transaction (buyer or seller or both) for hundreds of thousands of dollars. Pay your acquisition broker. Pay your finance company. Pay your management company. No one will work for free, and when they do they may actually be taking way more than normal.

Management Company: Keep Them Honest

Not all management companies are created equal, and for better or for worse they may have fees that slip through the cracks. Be sure that you have someone, whether on your team or an outside vendor, audit these companies. Especially the larger ones, its usually an accounts receivables person that is simply pushing paper and doesn't audit your invoices. They can sneak things in on accident that aren't actually your charges, so always be diligent on your audits.

Charter May Offset Costs, but...

Yes, I know, I've heard the guy who owns a jet on TikTok and tells you how he pays all of his fixed costs of his jet with chartering it out to celebrities and athletes and other rich people. Great for him, he flies at variable cost only.

What he hasn't done yet: sell an aircraft.

Aircraft value is a function of many things, but one of the big determining factors is wear-and-tear measured in time, cycles, and landings. For every additional hour put on an aircraft, there is some sort of value degradation of value when you go to sell the aircraft. Its not a perfect science, but there is a correlation here.

Walk with me through this thought experiment (these are not exact numbers nor are they representative of exact value, but it proves the point.) Thanks Aviacost for the operating data.

Consider this where over a 4 year period of time there is 2,000 hours flown. Let's say for illustration purposes, the 300 hours of charter create operating margin of $1,500 per hour, thus leaving $137k of fixed costs left after charter contribution, $548,000 over the 4 years. The residual value of the aircraft takes a $3m hit based on the time on the engines, maintenance intervals, etc. This leaves a total cost of $3.548m over the ownership life (before variable costs).

Now for scenario 2.

The owner flies the same amount of hours at 200 per year, with the same $671,600 of fixed cost per year. The total fixed cost over those 4 years is $2.68m, but the resale value holds strong because it isn't running into a major maintenance event. That's a total cost of $3.68m, leaving it essentially a wash with a lot more risk, a lot more wear-and-tear on the aircraft, more risk, and likely a lot more maintenance. Which brings us to...

Maintenance Events

The last hidden cost that many aircraft owners severely underestimate is the maintenance cost, and the subsequent downtime that comes with it. A scheduled maintenance bill can easily get over $1m for heavier aircraft, and not covered under program maintenance. I saw a Gulfstream GIV recently bought for $5m a year ago that was in for maintenance, and the maintenance bill at the time was already at $1.5m with a lot more to go.

Another instance, I had a client last week that had a solenoid go out on their aircraft that cost $107,000 to fix and wasn't covered under any warranty or any parts program.

This is to say: maintenance events can be very pricey and can make whole aircraft ownership a lot less appealing. When I calculate hourly cost in any of my X threads, there is an allocation for airframe maintenance and engine maintenance. Aviacost (and other data sources) calculate based on maintenance programs and engine programs the real cost amortized over number of hours flown for you to put back for future maintenance events. Just be aware that they are coming, and new airplanes break as much as old airplanes.

When your airplane is down for maintenance, and you're counting on the charter revenue to offset your costs, its not flying and making money and it is also likely costing you in charters as well while you're not flying on your own aircraft.

What's the Point

Be on the lookout for costs that aren't advertised (even by me) in the headline numbers. Flying private is expensive, but it is the only way that you can buy your time back. It is important to have a team assembled around you that you can trust, and make sure you know how everyone is being compensated. There are also checks and balances that you can put in place, to make sure you're holding everyone accountable to their cost centers. Have your chief pilot reviewing your maintenance bills and your invoices from FBO's to make sure that you're not missing something or getting charged for something you didn't consume.

I'll leave you with this, from my friend Kyle Patel.

The craziest charge he ever heard was a $15,000 bill for a wine spill on a Gulfstream GV. An entire bottle leaked across two sections of carpet. I hope that at least covered the bill to clean it...

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.