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At The Money: What Does it Take to Buy Your Own Jet? · Masters in Business

• 0:08
  Speaker 1: I wish the packet fla and to this cat, just
• 0:15
  Speaker 1: like the dragonfly.
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  Speaker 2: On the cheets, over the seats on the grease, to
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  Speaker 2: anywhere up.
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  Speaker 1: Please, have you ever wondered what it was like to
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  Speaker 1: own your own private plane? It may not be as
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  Speaker 1: out of reach as you imagine. Sure, some people spend
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  Speaker 1: fifty million dollars or more, but there's a plane for
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  Speaker 1: nearly every budget. Let's speak with Preston Holland. He's the
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  Speaker 1: founder of Prestige Aircraft Finance. He also hosts a weekly
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  Speaker 1: private aviation podcast called the VIPC and his author of
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  Speaker 1: the newsletter Private Jet Insider, which provides advice and straties
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  Speaker 1: to help clients navigate private aviation. All right, so let's
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  Speaker 1: just keep it simple. Do I need to be a
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  Speaker 1: billionaire to own my own plane?
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  Speaker 2: Berry? You don't need to be a billionaire, and actually
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  Speaker 2: most of my clients are not billionaires. In order to
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  Speaker 2: own an aircraft, one that you're going to sit in
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  Speaker 2: the back and you're going to have flown professionally for you. Typically,
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  Speaker 2: what I'm seeing is a net worth is somewhere between
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  Speaker 2: one hundred and two hundred million dollars as kind of
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  Speaker 2: the starting point, and so not only is net worth
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  Speaker 2: something to consider, but also what does this do for
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  Speaker 2: my tax strategy and tax planning? How am I going
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  Speaker 2: to use bonus appreciation to my benefit? There's a lot
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  Speaker 2: of other things that come with this, and how much
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  Speaker 2: cashload does my business spin off? But generally speaking, when
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  Speaker 2: we're thinking about that, it's really in one hundred to
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  Speaker 2: two hundred million dollar mark before you're starting to buy
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  Speaker 2: something like a light jet or maybe a mid sized jet.
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  Speaker 1: There are a handful of watches you can buy in
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  Speaker 1: a handful of very specific sports cars that sell for
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  Speaker 1: more on the secondary market than MSRP. My assumption with
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  Speaker 1: jets is that there's depreciation in the used market, not appreciation.
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  Speaker 1: Is that a factor here or do most of these
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  Speaker 1: jets go through the normal straight line depreciation process like
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  Speaker 1: a boat? As the hours head up.
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  Speaker 2: The answer is generally yes to that. Let me add
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  Speaker 2: two caveats. One is coded and if you watch the
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  Speaker 2: valuation of aircraft between twenty eighteen, twenty nineteen and twenty
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  Speaker 2: twenty one, they appreciated significantly. So there's a lot of
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  Speaker 2: people that were selling their airplanes in twenty twenty one
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  Speaker 2: for what they bought or more than what they bought
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  Speaker 2: in twenty eighteen twenty nineteen. So general market trends definitely
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  Speaker 2: matters in this scenario. Generally speaking, over a lifetime, there
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  Speaker 2: is a real depreciation factor. You sell for less than
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  Speaker 2: what you bought it for, and the only nuance to
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  Speaker 2: that is in a few make and models and in
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  Speaker 2: a very short period of time post delivery. So right now,
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  Speaker 2: if you look at the overall ecosystem, I can think of,
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  Speaker 2: off the top of my head three models in which
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  Speaker 2: that's happening, and they're driven by a few kind of
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  Speaker 2: different forces. One is the Phenom three hundred. The Phenom
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  Speaker 2: three hundred is an excellent light aircraft, and it is
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  Speaker 2: loved by charter operators, it's loved by owners, and the
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  Speaker 2: contract price that you bought it for two years ago
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  Speaker 2: while you waited in line. Oftentimes you can take possession
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  Speaker 2: of it and you flip it immediately and actually get
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  Speaker 2: a premium above and beyond that market. Specifically, it's happening
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  Speaker 2: a lot. The Prader five hundred and the Prayder six hundred,
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  Speaker 2: which are also Number A product, are experiencing similar but
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  Speaker 2: not quite as dramatic to that. The PC twelve market
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  Speaker 2: has experienced that over the last couple of years. The
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  Speaker 2: wait list for a lot of PC twelve is five years.
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  Speaker 2: If you wanted to buy a brand new PC twelve
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  Speaker 2: right now and you've got in line, you'd be waiting
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  Speaker 2: for five years. And so for the first couple of
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  Speaker 2: years you may be able to fly for a little
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  Speaker 2: bit and then get out of it a little higher
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  Speaker 2: than what you have.
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  Speaker 1: I imagine the range of private aircraft is very different from
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  Speaker 1: what I see in luxury automobiles. The sizes vary a lot,
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  Speaker 1: how many people they can carry, how far they can fly,
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  Speaker 1: how fast they can go, How broad are the ranges
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  Speaker 1: of private planes, and how big is the price range
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  Speaker 1: from small regional planes to cross atlantic type jets.
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  Speaker 2: Yeah, Barry, let me start with the ratio of size
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  Speaker 2: to range, because those two things actually play with each other.
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  Speaker 2: You have light jets, which are usually really good for
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  Speaker 2: regional travel. So this is for people who are flying
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  Speaker 2: from Atlanta to Charleston, West Virginia, or the people flying
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  Speaker 2: from New York to Chicago. Right, not terribly far as
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  Speaker 2: the crow flies. Those light jets, you know, are not
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  Speaker 2: necessarily going to do cross country type activities, but they're
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  Speaker 2: going to be really good for that. When you're thinking
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  Speaker 2: about how much am I going to spend? There's also
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  Speaker 2: a very wide range. I would say, just to give
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  Speaker 2: you a really broad range, your kind of get in
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  Speaker 2: price for a jet, and this is you're talking pretty old,
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  Speaker 2: pretty small, is going to be around a million to
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  Speaker 2: two million dollars, and the top end of the market
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  Speaker 2: is going to be what Jeff Bezos just took delivery of,
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  Speaker 2: which is a G seven hundred at seventy five million
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  Speaker 2: dollars sticker. And it's everything in between.
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  Speaker 1: What are the other costs and responsibilities beyond the purchase price?
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  Speaker 1: What do people who purchase a plane what do they
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  Speaker 1: need to think about and budget for.
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  Speaker 2: So the framework to think about this is the difference
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  Speaker 2: between fixed costs and variable cost In the same way,
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  Speaker 2: if you're going to draw the boat analogy, whether you
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  Speaker 2: vote one day a year or three hundred and sixty
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  Speaker 2: five days a year, there's a certain set of costs
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  Speaker 2: that are constant and you're going to have to pay
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  Speaker 2: them whether you use it a lot or you don't
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  Speaker 2: use it. We refer to those as fixed costs, right,
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  Speaker 2: So whenever you see somebody say what's the fixed costs
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  Speaker 2: airplane that is typically CREWE expense, so that is your
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  Speaker 2: pilot expense. That is your training expense, because your pilots
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  Speaker 2: have to be trained in the aircraft. There's aircraft management,
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  Speaker 2: which is you're paying a company, a third party company
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  Speaker 2: to basically it's a property manager for your jet. That
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  Speaker 2: is the best comparison. It's not a one for one comparison,
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  Speaker 2: but it's pretty close. The hangar cost. So you're in
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  Speaker 2: New York, I'm sorry to break it to you, but
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  Speaker 2: hangar cost in your neck of the woods is very expensive.
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  Speaker 2: But hangar costs you got to pay it whether you're
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  Speaker 2: whether you're flying the airplane or not. Your insurance cost
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  Speaker 2: that's going to be a percentage of full value, liability value,
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  Speaker 2: things like that, and then there's some other miscellaneous fees.
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  Speaker 2: There's subscriptions, there's naves, there's things like that. That fixed
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  Speaker 2: cost will range in the kind of light jet world
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  Speaker 2: four hundred to five hundred thousand dollars a year. And
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  Speaker 2: then when you get up into the large aircraft, you
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  Speaker 2: may have fixed costs north of a million dollars. If
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  Speaker 2: you have to have multiple captains for your aircraft, fly
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  Speaker 2: a lot things like that.
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  Speaker 1: What are the variable costs?
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  Speaker 2: Like, So, when you talk about variable costs, you touched
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  Speaker 2: on an important fact, which is the fuel. There is
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  Speaker 2: jet a fuel which is much more expensive than what
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  Speaker 2: you put into your car. And there are ways to
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  Speaker 2: mitigate that. You can get fuel contracts to get you
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  Speaker 2: a discount, but it kind of is what it is.
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  Speaker 1: You actually pay six seven dollars a gallon something like that.
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  Speaker 2: Somewhere in there. Depends on what part of the country.
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  Speaker 2: It can be as low as five and a half.
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  Speaker 2: It can be as high as eight and a half.
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  Speaker 1: Five and a half, I'll put it into my car.
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  Speaker 1: So I mean, I'm okay with that. People don't realize
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  Speaker 1: when you're flying a jet, even regionally, you're burning through
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  Speaker 1: hundreds of gallons, if not thousands of gallons of fuel.
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  Speaker 1: What is the hourly fuel cost for a mid sized jet?
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  Speaker 2: Yeah, So I actually I have a tool that a
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  Speaker 2: friend of mine build is called Obvia cost, and I
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  Speaker 2: use that to do all my calculations. So the citation XLS,
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  Speaker 2: which burns two hundred and twenty seven gallons per hour,
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  Speaker 2: you give this CJ four which burns one hundred and
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  Speaker 2: ninety eight gallons per hour. The Challenger three hundred, which
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  Speaker 2: burns two hundred and eighty gallons per hour. Once you
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  Speaker 2: start getting up into your large aircraft, let's say your
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  Speaker 2: Global five thousand, which is an aircraft that can easily
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  Speaker 2: do New York to London. They can do New York
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  Speaker 2: to Paris, you're burning four hundred and ninety gallons of
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  Speaker 2: fuel per hour. So it ranges significantly on how much
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  Speaker 2: fuel you're burning. There's also in the fuel burn. It's
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  Speaker 2: not a one to one you're not going to save
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  Speaker 2: a lot of money. But if you're going faster and
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  Speaker 2: burning more fuel, like there's a coefficient there. There's some
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  Speaker 2: math to do. But for instance, right if we assume
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  Speaker 2: six dollars and twenty five cents per hour, the Global
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  Speaker 2: five thousand is burning three thousand dollars of fuel per hour.
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  Speaker 2: Very where do we want to travel on our Global.
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  Speaker 1: New York to ls What New York to la.
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  Speaker 2: All right, So we're going to leave out of Teeterborough
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  Speaker 2: Airport because we are not going to deal with the
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  Speaker 2: port authority and we're going to go to John Wayne
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  Speaker 2: which is SNA YEP because we're also not going to
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  Speaker 2: deal with LAX. We're going to take four people with us.
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  Speaker 2: We're going to fly the globe five thousand. It is
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  Speaker 2: twenty one hundred miles nautical miles. It's going to take
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  Speaker 2: us four hours and forty minutes approximately in the global
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  Speaker 2: five thousand, and we are going to have seven thousand
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  Speaker 2: dollars of variable costs per hour. Our total trip variable
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  Speaker 2: cost is going to be thirty eight thousand, two hundred
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  Speaker 2: and eighty one dollars to go from New York to.
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  Speaker 1: LA We're talking about fuel costs. We haven't talked about
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  Speaker 1: maintenance costs. If you're flying one hundred hours a year
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  Speaker 1: and you have a jet, what can you expect in
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  Speaker 1: maintenance expenses assuming nothing goes wrong.
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  Speaker 2: Yeah, so a lot of times maintenance is actually calculated
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  Speaker 2: on an hourly basis, So you're buying into a program.
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  Speaker 2: There is not a direct correlation to this in the
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  Speaker 2: real world. The closest it would be is to an
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  Speaker 2: insurance product, but you're paying on a consumption basis. So
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  Speaker 2: let's say I am signed up for a maintenance program.
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  Speaker 2: A maintenance platform them is called JSSI Jets Services Solutions, Inc.
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  Speaker 2: They have one hundred percent coverage for my engines. That's
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  Speaker 2: going to amortize my overhaul costs, which can be a
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  Speaker 2: couple of million bucks that has to happen every twenty
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  Speaker 2: five hundred or five thousand hours. It's going to amortize
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  Speaker 2: it on a per hour basis, so I pay per
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  Speaker 2: hour I pay to the service, and then they pay
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  Speaker 2: my chunky maintenance bills. Those engine programs very pretty significantly
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  Speaker 2: depending on how much coverage. You can also put coverage
• 10:29
  Speaker 2: on the parts on the aircraft program called pro parts,
• 10:33
  Speaker 2: where you're paying an hourly cost. And then they're basically
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  Speaker 2: they're taking the other side of the bet that you're
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  Speaker 2: going to have less maintenance, and you're taking the front
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  Speaker 2: side of the bet that says I'm going to have
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  Speaker 2: a lot of maintenance and they're going to pay for it.
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  Speaker 1: Or just that I want to have a fixed set
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  Speaker 1: of costs and don't have to worry about the you know,
• 10:49
  Speaker 1: possible surprises, and willing to pay a little more upfront exactly.
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  Speaker 2: Yeah, you're willing to pay kind of stretched out over
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  Speaker 2: time as opposed to large chucks. So instead of paying
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  Speaker 2: your two million dollars over halls, you're going to pay
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  Speaker 2: you know, let's say one thousand, two thousand dollars per
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  Speaker 2: hour so generally speaking, if you were to amortize your
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  Speaker 2: maintenance expense over your hourly, which is typically how everybody
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  Speaker 2: calculates us on the Global five thousand that we're talking about,
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  Speaker 2: it's going to be around forty one hundred dollars per hour.
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  Speaker 1: Let's talk a few minutes about jets. If you want
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  Speaker 1: to go across the Atlantic, what sized jet are we
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  Speaker 1: talking about?
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  Speaker 2: Yeah, you're going to have to go into the large
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  Speaker 2: cabin range. You're going to be looking at the gulf
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  Speaker 2: Stream G four fifty to unlock kind of London. I
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  Speaker 2: think it's going to be on the fringe for Paris.
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  Speaker 2: The G five point fifty gets it with no problem,
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  Speaker 2: the gulf Stream G six fifty, the Bombardier Global five thousand,
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  Speaker 2: six thousand, sixty five hundred. There's a lot of numbers
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  Speaker 2: and so that you're really gonna have to get into
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  Speaker 2: that large cabin to comfortably get NonStop from New York
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  Speaker 2: to Paris. And that's gonna, you know, possibly have a
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  Speaker 2: flight attendant. It's going to have at least two pilots.
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  Speaker 2: You're going to have at least one nice sized restroom,
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  Speaker 2: maybe a small rest in the front. So that's really
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  Speaker 2: getting up into your larger cabin aircraft. But that's really
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  Speaker 2: how you're going to be able to get transpontent.
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  Speaker 1: I recall a few years ago there was a commercial
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  Speaker 1: pilot shortage. I have a buddy who I grew up
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  Speaker 1: with who flies Detroit to South Korea, and he was
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  Speaker 1: telling me they just can't find enough pilots. Does that
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  Speaker 1: same shortage of qualified pilots exist in private aviation as well?
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  Speaker 2: Yeah, So the pilot situation in private and business aviation
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  Speaker 2: has undergone some similar pressures to what it has in
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  Speaker 2: commercial aviation. The price has gone up, the price of
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  Speaker 2: pilots has gone up, the price of training has gone up,
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  Speaker 2: just everything associated with the pilot has gone up. When
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  Speaker 2: you look at kind of the shortage, you have to
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  Speaker 2: remember that every pilot has to go through what's called
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  Speaker 2: a type rating, and every pilot has to go through
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  Speaker 2: what's called recurrent training. So, Barry, if you are qualified
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  Speaker 2: to fly the Gulfstream G six fifty, you have gone
• 13:01
  Speaker 2: through the initial training, the initial type training, and you
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  Speaker 2: keep that current because you have a client that is,
• 13:06
  Speaker 2: you know, kind of running through find that aircraft, and
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  Speaker 2: then you have one of his buddies that calls and
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  Speaker 2: says Barry, can you come find my Global five thousand.
• 13:14
  Speaker 2: You would have to go through the initial type training
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  Speaker 2: and do the recurrent training. Right, every pilot can only
• 13:19
  Speaker 2: fly so many types of aircraft, and so as you
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  Speaker 2: look at kind of the the quote unquote pilot shortage,
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  Speaker 2: which there's a lot of debate in the industry whether
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  Speaker 2: it even exists or not. If you look at that,
• 13:30
  Speaker 2: you have to look at type ratings. Now when you're
• 13:32
  Speaker 2: looking at buying an aircraft. One thing that I advise
• 13:35
  Speaker 2: clients to do a lot of times is follow the
• 13:38
  Speaker 2: big dogs. Okay, you've got the big dogs, which is
• 13:41
  Speaker 2: net Jets. They're the largest Flexjet, which is second largest
• 13:44
  Speaker 2: Vista Jet, which is pretty large, and then a lot
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  Speaker 2: of the other operators if you follow their make models,
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  Speaker 2: kind of their fleet composition, they train so many pilots.
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  Speaker 2: I mean to put into a perspective for those that follow.
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  Speaker 2: Publicly traded company Berkshire Hathaway owns NetJets and flight Safety.
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  Speaker 2: They just reported an up quarter eight percent revenue growth.
• 14:07
  Speaker 2: NetJets owns its own training facility. That's how much. That's
• 14:11
  Speaker 2: how many slots that they were buying in the training facility.
• 14:14
  Speaker 2: So they will actually leak out pilots for people that
• 14:17
  Speaker 2: are like, you know what, I don't want to do
• 14:18
  Speaker 2: the seven days on, seven days off thing, So you know,
• 14:21
  Speaker 2: feed on three hundred pilots relatively easy to come by.
• 14:24
  Speaker 1: So someone's thinking about buying a private jet and they're
• 14:28
  Speaker 1: saying themselves, Gee, this sounds like a lot of responsibility
• 14:32
  Speaker 1: and a lot of cost, and maybe it's a little
• 14:34
  Speaker 1: out of their budget. How significant is fractional ownership to
• 14:39
  Speaker 1: the experience of owning your own jet?
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  Speaker 2: So fractional is similar, but it sometimes from time to
• 14:47
  Speaker 2: time will feel a bit more like chartering than owning
• 14:50
  Speaker 2: your own aircraft. Now, every fractional contract has a slightly
• 14:54
  Speaker 2: different language in their contracts of what's called all out hours. Barry,
• 14:59
  Speaker 2: I'm gonna come to me York, and you and I
• 15:01
  Speaker 2: are going to go for a sushi dinner in La
• 15:03
  Speaker 2: I know this great spot. We're going to go out there.
• 15:05
  Speaker 2: If we wanted to leave in two hours. We are
• 15:08
  Speaker 2: not guaranteed availability on a fractional if we want to
• 15:11
  Speaker 2: leave in twelve hours. So let's say we want to
• 15:13
  Speaker 2: leave tomorrow morning, guaranteed availability. And sometimes they will be
• 15:17
  Speaker 2: able to swing something through and actually get you there.
• 15:19
  Speaker 2: When you own an airplane, it is waiting for you
• 15:23
  Speaker 2: at the hangar, and you determine how close your pilots
• 15:26
  Speaker 2: have to be so that if you want to leave
• 15:27
  Speaker 2: in twenty minutes, you can do so right. And so
• 15:31
  Speaker 2: that is the biggest difference in the experience. The other
• 15:36
  Speaker 2: piece is the hassle that comes with hiring pilots and
• 15:40
  Speaker 2: managing stuff. I have a lot of billionaire clients and
• 15:43
  Speaker 2: billionaire friends that say, look, I don't want to mess
• 15:46
  Speaker 2: with this, I just want the easy button. Fractional is
• 15:49
  Speaker 2: the easy button. Like, at the end of the day,
• 15:52
  Speaker 2: you're paying somebody to deal with all the headache, and
• 15:55
  Speaker 2: you show up and you get on the airplane and
• 15:57
  Speaker 2: you go You're not having to say, ah, I've got
• 16:00
  Speaker 2: pilot turnover. It really is the easy button, which is
• 16:03
  Speaker 2: where that fills in the market. Not only can you
• 16:06
  Speaker 2: save kind of on your gross cost, but even if
• 16:09
  Speaker 2: you're flying where it makes sense to fly private, you're
• 16:13
  Speaker 2: you're negating a lot of that stress.
• 16:15
  Speaker 1: So our last question. Someone reaches out to you and says, hey, Preston,
• 16:19
  Speaker 1: I'm thinking about buying my first plane. What sort of
• 16:23
  Speaker 1: advice do you give to that person.
• 16:25
  Speaker 2: Assemble a good transaction team. That is the number one
• 16:29
  Speaker 2: thing that you have to do. Your transaction team typically
• 16:32
  Speaker 2: looks like person number one is your broker. They're going
• 16:35
  Speaker 2: to be your quarterback. It's not dissimilar to buying a
• 16:37
  Speaker 2: commercial property. If they're going to find the aircraft, they're
• 16:40
  Speaker 2: going to manage the process. They're going to do all
• 16:41
  Speaker 2: your pre buy inspections, everything like that too. Your attorney
• 16:45
  Speaker 2: is probably pretty good in house. They know nothing about
• 16:48
  Speaker 2: FAA law, So you need to get an aviation specific
• 16:52
  Speaker 2: attorney the grand scheme of things. That's going to be
• 16:54
  Speaker 2: similar pricing to any other specialized attorney, but it's going
• 16:58
  Speaker 2: to make sure you're in how attorney is going to
• 17:00
  Speaker 2: pull their hair out trying to figure out how to
• 17:02
  Speaker 2: do this where the aviation attorney's going to be easy. Third,
• 17:06
  Speaker 2: aviation tax consultant of some sort. There's a few different
• 17:09
  Speaker 2: firms that specialize in aviation tax. Your CPA probably knows
• 17:13
  Speaker 2: how to run your books and make sure that everything's good.
• 17:16
  Speaker 2: They don't understand the concept of truth and leasing and
• 17:19
  Speaker 2: subleases and leasing between all of the known entities, and
• 17:22
  Speaker 2: how do you not get flagged by the FAA To
• 17:24
  Speaker 2: illegally charter to get a tax consultant. That just makes
• 17:27
  Speaker 2: your life easier. The last one is a financier. So
• 17:30
  Speaker 2: that's what my firm does. If you're paying cash, we're
• 17:33
  Speaker 2: not necessarily the equation. But if you're going to finance
• 17:36
  Speaker 2: your aircraft, you may call your bank and they may
• 17:39
  Speaker 2: do it for you. They may not. Some of the
• 17:41
  Speaker 2: larger banks don't necessarily want to do older aircraft or
• 17:44
  Speaker 2: smaller aircraft, and so then you're kind of left wondering
• 17:47
  Speaker 2: what am I going to do? How am I to
• 17:48
  Speaker 2: finance this? We basically run an RFP process for you
• 17:51
  Speaker 2: and make sure that we can kind of drive your
• 17:54
  Speaker 2: rate down, stretch out your amortization, drive your down payment down,
• 17:57
  Speaker 2: whatever your goals are. We work with family offs CFOs
• 18:00
  Speaker 2: to make sure that the proper leverage amount at the
• 18:04
  Speaker 2: right cost is put on the aircraft for whatever your
• 18:06
  Speaker 2: goals are.
• 18:07
  Speaker 1: Hey, you could save money with fractional ownership or with
• 18:11
  Speaker 1: jet memberships, but for some people the only way to
• 18:14
  Speaker 1: go is by owning their own private aircraft. I'm Barry
• 18:19
  Speaker 1: Ridults and you're listening to Bloomberg's at the Money