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Private Jets, Hot off Pandemic Surge, Face New Hurdles and Fewer Customers

Despite others shelving their SPACs, flyExclusive is moving forward with theirs, valued at $900 million.

(Bloomberg) -- Jim Segrave has provided private jet services to wealthy clients for decades. He chartered flights through the financial woes of 2008 and through hurricanes that slammed his home state of North Carolina, forcing him to salvage equipment from his flooded office building using a canoe.

But Segrave’s biggest test yet may come this summer as he pushes forward with a public listing of flyExclusive Inc., which operates more than 90 private jets, through a special purpose acquisition company that values his business at $900 million. Private flights in the US have declined from their pandemic highs, with takeoffs and landings dropping 4.5% in the first quarter from a year earlier. The drop accelerated to 9.3% in April compared with an 8.6% decrease in March.

Besides the demand decline, the industry is also grappling with inflation, especially around a lack of maintenance technicians and pilots. The aircraft market remains tight as a lingering supply-chain shortage impedes planemakers from ramping up production faster. Over the long term, the industry is under growing pressure to mitigate or offset its greenhouse gas emissions. 

Flexjet, the second-largest US operator of private jets behind NetJets Inc., shelved its SPAC listing last month, paying $30 million to call off the deal. Wheels Up Experience Inc., which went public in 2021 via SPAC, has struggled to turn a profit even as sales have grown.

Segrave said he isn’t worried. FlyExclusive does its own work on airplanes except for engine maintenance, and is investing in simulators to train its own pilots.

“Our customer base is fairly insulated,” said Segrave, who founded flyExclusive in 2015 after selling his first private-jet business to Delta Air Lines Inc. in 2010. “They generally are going to continue to travel.” 

Private flying is still more popular than in 2019, according to US Federal Aviation Administration data. While many first-time private fliers return to commercial airlines, others are sticking around as they get a taste of the speed and convenience of private travel. Those new customers, often described as the frugal wealthy who before never had motivation to try private aviation, will result in a slight increase of private fliers compared with the pre-pandemic market, said Brian Foley, an industry consultant. 

There’s also evidence of stable demand for private aviation. Aircraft makers, which underpin the health of the industry, have raised prices ahead of inflation and deliveries are expected to increase to 722 business jets this year, up from 614 in 2022, according to JPMorgan Chase & Co. Next year, those deliveries are expected to rise to 750, the highest level since the 2008-2009 financial crisis, according to JPMorgan data. 

Still, the mood at the annual European corporate jet conference in Geneva, which begins May 23, may be tinged with trepidation that the industry could be rocked by a recession. Planemakers continue to face production delays, and a deep recession could throw the whole market off kilter, Foley said.

Segrave, who is an active pilot, said flyExclusive wants to buy more of Textron Inc.’s Cessna planes, but the wait time is three years or so from order to delivery.

Flexjet, a larger competitor, is also seeking to increase its aircraft orders from Embraer SA and Bombardier Inc., but production is being held up by jet engine supplies. 

Changing Winds

The end of the flying frenzy is a major headwind for charter companies that match available aircraft to passengers in the spot market. But for companies like Flexjet, which own their own fleets and cater to more stable customers who buy chunks of flight hours, the surge during the pandemic brought new problems, including having to purchase expensive aircraft capacity from other operators to meet clients’ needs, said Kenn Ricci, chairman of Flexjet.

“Thank God it’s not what it was last year,” said Ricci, whose company saw annual flight hours under management jump to 145,000 from 90,000 before the pandemic. “It’s hard for me to see anything bad in the market right now because I’m so looking forward to it slowing down.”

That surge tightened inventories and sent used-aircraft prices soaring. Less than 3% of pre-owned aircraft were up for sale during the height of the pandemic. The market has loosened up but is still tight by historical standards, with about 4% of the fleet up for sale, less than half the rate before 2020.

The average asking price for used aircraft fell 1.2% in March from February to $12.8 million, according to a JPMorgan Chase report, showing some easing of the tight pre-owned market. Still, that average asking price was 7% higher from a year earlier. 

Companies, especially smaller ones, are slower to pull the trigger on plane deals now, said Janine Iannarelli, who helps clients buy and sell planes. 

“The winds of change in our economic and political environment are making people maybe step back a little bit,” she said. “We’re in this period where people are wait-and-see.”

Investors may be wary after private-jet operator Wheels Up reported rising net losses in 2022 even as sales have grown. The stock has plummeted more than 95% since going public in July 2021 through a SPAC and company founder Kenny Dichter stepped down as CEO on May 9. 

Kinston, North Carolina-based flyExclusive is expected to have operating cash flow of about $64 million this year and sees that doubling to $130 million next year, according to a May proxy filing. The company’s sales jumped to $320 million last year, almost triple its sales in 2019. Segrave expects to double last year’s sales to almost $730 million in 2024. FlyExclusive plans to begin trading as early as this summer. 

“We’ve grown it in a very methodical, smart, disciplined way and now we’re taking this company public,” Segrave said. “We’re going to continue being disciplined.”

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