The Whole Truth and Nothing but the Truth
You know how at the beginning of bad horror films there is always a disclaimer that it is based on a true story? I started with that screen above because the two stories I am about to share are, in fact, based on real events. The names are not real, and the actual aircraft are likely not real either.
Now, I know what you're thinking. You might be nervous that your provider or even your company is going to come up. I am not in the naming and shaming business, and I have no interest in getting legal nasty-grams from attorneys. That is why I have generalized some of the facts.
The important thing is that there are real lessons here. These stories can help you spot red flags when choosing a private aviation provider.
The Jet Card Dilemma
I've written about this in depth before, but non-owned fleet jet cards are essentially you pre-purchasing fixed hourly costs today for flights you plan to take in the future.
The upside for the buyer is predictable pricing and, in some cases, a tax strategy to spend the money in one year and use the hours in the next (not tax advice...talk to your accountant).
The upside for the operator is predictable future profit margins. The good actors will escrow this money and won’t touch it for operations. At most, they're earning 4 to 5 percent in a money market account or high-yield savings account.
Over the life of your jet card, your flight profile will usually look something like this:
The gap between the two is the broker's profit margin. Some flights will be thin because of a variety of reasons. Other flights will have good margins on them, because you have an agreed upon price and they're able to find something that satisfies your needs and is available for a cheaper cost.
When it goes wrong though, incentives can get wildly misaligned.
The Story of Joe's Jet Card
Joe reached out to me at the end of his jet card term as he was deciding what to do next. He had become pretty disillusioned with jet cards after a flight experience that didn’t sit right.
The trip was from Denver, Colorado to Portland, Oregon. It had been scheduled well in advance, and a few days before departure he was still waiting on final itinerary details. The tail number changed a few times, which is fairly common as the operator works out the schedule. The issue was that the jet card provider stopped giving updates and simply told him there would be a plane waiting when he arrived at the FBO.
When he got there, it was a Falcon 20 from 1983. He only discovered that after asking the pilots what year the aircraft was built. The provider had not been transparent about the aircraft, and if Joe had known in advance, he would have chosen another option altogether.
So why did Joe end up on a 1980s jet?
The jet card provider didn’t tell him the full story.
The only aircraft they could source for the trip under his guaranteed hourly rate was a 1983 Falcon 20. They could have sourced a 2018 CJ4 or a 2012 Citation XLS, but both options were priced at $8,000+ per hour. Joe’s fixed rate was $7,000 per hour, and they were unwilling to take a loss on the flight.
Had they been honest with him, he may have been open to a solution.
Instead, he canceled his jet card, and we built a new charter plan that gave him more flexibility.
The Tax Bait-and-Switch
It's no surprise that the 4th quarter brings frenzied buyers to the table. The tax person calls during your 4th quarter tax payment, and says you need to buy an airplane.
Buying an Inventoried Aircraft
Just like trading in your car, you can trade in your plane. You won’t get full retail value, but it allows for a quick transition and helps eliminate costly holding expenses.
Another way dealers take aircraft into inventory is by helping someone out of a tight financial situation. They solve a problem by making the jet go away. There is nothing wrong with that.
However, if you are buying an inventoried aircraft, you should hire buy-side representation. The person holding the aircraft on their balance sheet has every incentive to sell it for the highest possible price. That may not align with you.
Let’s take a look at what can happen when you simply trust the word of the dealer.
John's Lear 60 Debacle
I was introduced to John through a mutual friend who owns a heavy aircraft. He knew John had some questions about aircraft financing and connected us.
It turned out John had more than just financing questions... he had questions about nearly every part of jet ownership.
John already owned a King Air, so he wasn’t new to aviation. But what surprised him was how quickly his latest deal had gone sideways without him realizing it.
The Structure
John called a dealer in mid-December looking to move quickly on an aircraft. The dealer made him an offer that, on the surface, looked like a good deal.
Buy a Learjet 60 for $2.8 million in December to capture the tax benefit from 60 percent bonus depreciation in 2024, then trade it back in for a Learjet 60XR the dealer had coming in six months for $3.2 million.
The dealer also lined up financing. It was expensive, but it was an asset-based loan, so John would only need to put down $800,000 in cash.
A decent deal, or so it seemed.
The deal started changing over time. The Learjet 60XR (originally $3.2m) had about $500,000 of deferred maintenance that needed to be done. If the dealer did the maintenance, the price would be $3.7m, and the trade-in wouldn't be as valuable... more cash at trade.
Then, the price became $4.2m. Then, the trade-in contract was so favored to the dealer that he couldn't even look at other on-market Lear 60XR's.
Oh yeah, he Learjet 60 was actually worth $2.5m so he was already $300,000 upside down in the original purchase and the dealer had him in the corner.
The dealer had refused to tell him the whole truth and nothing but the truth. He arguable only told him lies, lies, and more lies.
How To Resolve It
The best option, in my opinion, is for John to market his existing aircraft and take the $300,000 lesson (plus broker fees to maximize his sale price) and then upgrade into a Learjet 60XR or other aircraft that might better suit what he's looking for.
Not all dealers are bad, but going in to a deal with zero representation on an aircraft where the dealer's incentives are not 100% aligned with yours can be a disaster. Those dealers that take a long-term view with clients to put them in the right aircraft at a fair price are different, but there are bad actors out there.
Be wary. I'm always here to help you gut check it, and for as long as I can, I do 15 minute phone calls for free.
And I do solemnly swear to tell you the whole truth, and nothing but the truth, so help me God.
Until next week,
Preston Holland
P.s. Send this to your friends that are about to fly private. It'll help them make sure they don't get ripped off! If you're a friend new to the newsletter... welcome!
