Investing in Private Aviation with Lisa Senters

Transcript TL;DR

Peter Harper: Hello and welcome to the Three Pillars podcast. I’m Peter Harper, the managing director and CEO of Asena Advisors. To those of you who are not familiar with the business, we’re a multifamily office advising foreign family offices and private clients on US direct investments and mergers and acquisitions. In this episode of the wealth management series, we’ll be discussing investing in private aviation with Lisa Senters. Lisa, it’s great to have you with us. Thanks for joining.

Lisa Senters: Peter, thank you so much for having me. I really appreciate the opportunity to help you out with this podcast. And it is an exciting topic, so I’m excited to talk to you about it. My name, as you said, is Lisa Senters, and I’m the CEO of a company called Jet Senters Aviation. I am a private aviation expert and I have more than twenty five years experience in the aviation industry. I began my career in this industry over two decades ago when I started a charter brokerage firm out of New York City. After a few years of doing that, I was recruited to NetJets and I became a salesperson for Marquis Jet and NetJets. I was there for over a decade as a senior vice president reporting to Warren Buffett, so that was a super thrilling, exciting part of my career as well. I became really well known throughout the industry during that time as a global specialist and now I’m running my own company. We help people buy, sell, manage, and charter aircraft. So thank you again for having me.

Peter Harper:  What I’d like to go through today is you cover off on industry updates, to give them a sense of what’s going on in the marketplace, and also for those who’ve gone through a process – maybe they’ve had a liquidity event – looking at private aviation for the first time, whether that’s buying their own plane, a part of a plane/a fraction of a plane, or they’re looking at some other form of jet card and understanding what that sort of means. Firstly, if we can touch on the past, what the industry looked like pre-Covid and what it looks like today.

Lisa Senters: Sure. It’s very interesting what’s happened in our industry over the past two years. Prior to COVID, at the beginning of aviation, obviously, you could purchase a plane, then you could charter your plane. A man named Richard Santulli came along and invented what we now know is NetJets. So you could buy a plane, get together with a couple of buddies, fraction it out: that became the fractional. Spun off of that, with the jet card, where you could buy twenty-five hours on the jet of your choice and/or you could still do fractional. So there was a lot of different things that you could do back then, in the industry. Obviously, NetJets being the nine hundred pound gorilla, there was a lot of flexibility. Prices were a lot lower than they are today, actually, and there was a lot more inventory, so if you went to go purchase a plane, I would say at that time it was a buyer’s market. There was a lot of inventory out to purchase and to pick from. There was a lot of activity, but the planes weren’t quite as old as they have now become mature. So, you know, in the past, it was just what it is. It’s very different than what it is today.

Peter Harper:  That was great. I mean, there’s a couple of things there that kind of stand out to me is that I think a lot of industries at the moment are have supply chain constraints. And so I imagine it’s no different for aviation – there was probably abundance of product in the marketplace, and then companies probably reduced construction. But as far as new planes coming to market, maybe people held on to ones that were going to sell. And then there’s also the issue of – OK – people that aren’t performing, aren’t hitting the mark that they wanted to get Due to COVID, very few people are traveling. That being said, I’m sure you experience this as well, in the high-net-worth/ultra affluent space, if anyone was traveling – that was part of a community that was still hopping on a plane and getting somewhere, if they could, other than home, what does that mean today for pricing? Imagine there’s increases in pricing both in the new and used market, what does that look like as far as optionality for people?

Lisa Senters: Well, Peter, it’s very interesting to talk about what has happened in my industry post COVID and to go back to the beginning of COVID, the perfect storm that was set up to give us the market that we have today. So that perfect storm that was set up when COVID hit was the tax break that the previous administration had for people that bought planes. The interest rates were at an all time low. Optics on flying private changed – there was no longer any private flight shaming because of COVID people didn’t want to risk their lives. It became a necessity so that all of a sudden anybody that could fly privately was flying privately. So the market could actually expanded twenty five percent with first time flyers. And in a recent survey they said that ninety six percent of those people are going to continue to fly private once COVID restrictions are over. It’s such a great way to fly, so it’s very difficult to go from having your own plane to sitting in a middle seat with someone coughing on you. Right. So COVID really changed that dynamic. And because of that, similar to what’s happened in the housing market, everybody that could buy a plane went out and did buy a plane. So now we’re at an all time low of inventory. In fact, in the used inventory market, Amstat just published a statistic of five point four percent used aircrafts are available for purchase. That’s lower than any time in history.

Lisa Senters: So what does that mean? That means that there are very few newer aircraft available to buy. So, if you if you go out to buy an aircraft, you have to be ready to act. Cash is king, you can’t vacillate and you have to put your best foot forward. So pricing is inflated and it is now a seller’s market Some planes are going before they’re even listed, so everybody wants to purchase a plane. It’s astounding in our market how quickly this has sort of expanded to the state that we’re in now, which is an all time low.

Peter Harper: And fascinating, I imagine that’s flowed on to. If someone wanted a new plane, what’s the type of lead time today between going and flying plane, ordering and even expecting to receive one?

Lisa Senters: You know, that depends with each different manufacturer. However, I spoke to one of the best Gulfstream salespeople yesterday, and he said that people that he had been talking to that would never consider buying a new plane are now buying a new plane because there’s no used planes available. So they’re ponying up and putting out the money for a new plane. It’s really fascinating You know, I’d like to mention also if you’re going to buy a plane now, people similar to houses are saying, I won’t even do the inspection. They’re that desperate to get a plane and we highly recommend that they do not do that because they could end up obviously with a lemon. But it’s so competitive now that people are actually doing that.

Peter Harper: Yeah, that’s that’s crazy. For the reasons you’ve kind of outlined, I mean, I think you’re right. I think that one point that was really interesting to me, which I saw, was that element of, as you said, what you call private shaming. I’ve never heard it put like that. But I think that’s a real thing. And it kind of evaporated. Right? It’s like if you can afford to do it. And pricing, compared to what it maybe it was historically, there’s ways to get into and utilize private planes, even if you’re not owning it – on a charter basis, it maybe wasn’t available historically. You also touched on a point that probably a lot of people weren’t aware of, you mentioned that there was a tax break put in place by the previous administration that was removed. Do you mind explaining how that has impacted things? Was it a depreciation issue?

Lisa Senters: Well, there is a lot of different tax laws that are advantageous for people that are buying the planes. But there’s a couple of different things that happened last year under the previous administration. They did away with the seven point five percent federal excise tax that’s on every charter, every flight. If you’re taking many flights over the course of the year and you’re paying seven point five percent on top of it… So that went away for all of last year. But that’s back now, though. So the seven point five percent is back. Obviously people get the accelerated depreciation still, but part of the perfect storm is no one knows when that will go away because that’s going over everyone’s head, that that will go away. We don’t know if it will go away or not, but the fear of that going away created again, the perfect storm last December I mean, my friends and the lawyers that do this had more transactions than in their entire career and they’ve ever seen in a quarter.

Peter Harper: Right. That’s fascinating. You touched on a bit of the history of of buying planes, charter, you know, the JetCard, NetJets – for those that are new to this and they’re going to be there for the first time, can you run through 1: the value of and importance of a broker? And  how you work as far as considering what is the appropriate fit for someone, whether it is buy a plane, fractional ownership, or working with some third party supplier or charter operator.

Lisa Senters: Sure. So there are many different ways to fly private. One of them is simply charter and on demand charter. So what that looks like is obviously, if somebody wants to take a trip from New York to California, they just call a company like JetSenters Aviation and the broker goes to work for them and negotiates the best rate on their behalf. Obviously weighs in on safety, you want to use Argus, IS-BAO, or Wyvern. So you want to pick a good person that knows the top level safety. So that’s one thing you can do. You can charter.

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Lisa Senters: The next level up is you can buy a card that acts as a debit card. So you pre-purchase twenty five hours on the card of your choice. Which means, for instance, NetJets has a fleet of maybe 13 different planes. You pick the plane that you want and you stick to that and you buy the twenty five hours on that. It’s a pr- purchase card, so it acts as an ATM debit card. I will say that NetJets has such high demand now that if you buy a new card with NetJets, a new system they just put into place is there are forty five days out of the year that are peak period days that you may not use your new card. So you’ve now purchased hundreds of thousands of dollars for twenty five hours card. You will not be going to Aspen for Christmas. You will not be taking off for Easter, Thanksgiving, New Year’s Eve. Nothing. Fourty five days you can’t use your new card. That’s how busy they are. So that’s a very telling sign as far as the industry goes.

Lisa Senters: But hence why we get to now people are saying, you know what, I’ve never flown private before. It was the largest number of never flying private before people that jumped in and say, I’m going to buy a plane. So people that had never even chartered, I had one personally here in Atlanta, Georgia, that bought a Challenger 605, which is a very large plane “I’ve never chartered before. I had a liquidity event. I have a grandson that’s being born. It’s COVID. Let’s roll. Get me a plane.” So nine million dollar assets, first time out of the gate. Never even did a charter. So people are doing that.

Lisa Senters: That’s obviously another thing that you can do and you can also, which is really important and a big deal, I think is you can purchase a plane and put it into a managed fleet which Jet Edge International just came out with a new way of doing that. What they do is they have something called the Jet Edge Advant-edge and you can buy a plane, put it into their fleet, be guaranteed that type of plane or better and offset your cost. So a lot of people are jumping on to that bandwagon. And it makes a lot of sense, [Peter Harper: Sure] especially for a guy that doesn’t care if he has to fly on his plane or not. And then they still have the asset, they still get the depreciation and they can still turn around and sell it. So it’s a whole aircraft situation, not a fractional program. And it’s brilliant, actually. I think KKR just gave them one hundred and fifty million about two weeks ago to go after that market.

Peter Harper: It makes a lot of sense.

Lisa Senters: History is changing and evolving for sure.

Peter Harper: Yeah, I mean, it’s fascinating that you mentioned that sort of it – and this based on my experience in discussions we’ve had before, I think where it would be sensible for someone to engage you when they haven’t been through this process before. I mean, as you said, there are various options. They come with benefits and they’re both positives and negatives associated with it, depending on how you’re approaching it and understanding those I think is is really key. If it’s not about money, right, and if for some people it’s just a factor of saying, “hey, listen, this is something I want to do and I’ve got the means to do it.” I mean, maybe that’s a different way of looking at it. But what would be your recommendation if someone’s going through this, again, be the first time and you want them to understand that optionality, what’s the sort of process that you take them through? And how do you kind of approach that may be different from how other people work?

Lisa Senters: Well, I think that’s a great question. First of all, I think it’s imperative to pick somebody that is a trusted adviser. So somebody that’s been in the industry for decades. And I think having the relationships in this industry is super important. So, as I mentioned, I got my pedigree at NetJets and a lot of my colleagues from NetJets are still in the industry. Obviously, that’s a nine hundred pound gorilla and we had a great product there and it’s still a great company. So it’s imperative that you pick somebody that you trust. I would say that’s number one. And I’m very proud to say I have decades long relationship with most of my customers too. It’s a referral only business, so I would be very wary of when something looks too good to be true; some people do great advertising or marketing, but it’s all about the relationship. There are bad brokers, unfortunately, out there. You don’t want to skip the steps. You don’t want to say, “I’m so desperate for a plane, I’ll take it without the inspection.” There will be another plane just like there will be another house. When you’re going house hunting and you fall in love, best not to get emotionally attached to it. That’s harder to do, but that’s another reason why it’s imperative to have a broker to keep people off the rails and from overpaying or just making it very bad error.

Lisa Senters: My process for walking people through would be to find out what they’re trying to do. Are they trying to get accelerated depreciation? Do they want to offset their books? Do they need another asset? Or do they simply want to fly private without a commitment? Do they want to prepay or are they the kind of person that wants to be involved in the decision and make it as they go? As I mentioned about the card, you do prepay for the plane of your type. So just for instance, one qualifying question would be if somebody is flying to Aspen twice a year, but all of their other flights are up and down the East Coast from Atlanta to Maine, those are two totally different planes that you need. So if you pre-purchased the card, you’re going to be charged what’s called a privilege charge to use a different type of plane. So all the marketing and advertising says “You can use any plane that we have.” You have to be very careful because, yes, you can, but you’re going to pay double or triple sometimes the price.

Peter Harper: That’s been my experience If you are trying to live in an existence where you need flexibility of any plane, it can become prohibitively expensive when you, compared with “Hey let’s not commit to a card, let’s just charter.” Or another type of option. And I mean, it seems to me that it’s logical, like with any sort of depreciating asset (boats, whatever else) you can get out there and pay as you go on and understand what it feels like to charter what planes you like, what you don’t like. But I imagine, Lisa, these days, you can pretty much charter any type of plane that exists in the world with some limitations is that fair sort of…

Lisa Senters:  A very fair statement? Yes. And sometimes I counsel people because I am a trusted advisor for all of my clients. And I’m very proud of the relationship and the expertise that I have. So sometimes I will counsel somebody to buy a card, but also charter so we can weigh if it’s a one way round trip, same day. OK, that’s going to be a much less expensive charter flight than using your card, because, again, most card programs advertise wheels up, wheels down pricing. All that means is there baking in the round trip. If a card program is about twenty thousand on a heavy jet JSA can get you that same heavy jet for less than half of that. But again, it depends on what the mission is, so if they’re going one way to some esoteric location in the middle of the Midwest, it’s half of one dozen, whether they charter or they take a card.

Peter Harper: Sure, I think that’s really, really good advice. I mean, the one thing I’d hope that listeners get out of this is that that it’s a big industry. It’s grown up a lot. There’s a lot of optionality about it. Getting it wrong can be very expensive. And it’s not just a matter of money/money out the door as far as acquisition costs, it’s ongoing costs. Trying to do this without a broker and without a broker who has deep connections would seem to be a pretty, pretty crazy thing to do. Lisa, thank you very much for joining. It’s been super informative, particularly the updates about the currency, the market. And and thanks for joining us.

Lisa Senters: Yeah. Thank you so much for having me, Peter. Any time.

To contact Lisa Senters, email her at [email protected] or contact Asena for more information.

Peter Harper