FLYING Magazine

Buying a fractional share of an airplane is supposed to make personal jet aviation effortless, but for Jet It clients it has become a nightmare. On Monday, May 22, Jet It fractional owners were told that their airplanes were being grounded because of safety concerns about the HondaJet. 

At the time of the grounding, Jet It claimed that it was taking the action out of an abundance of caution in light of an incident with a HondaJet. The airplane ran off the end of a runway in South Carolina. Jet It CEO Glenn Gonzales told owners that he was concerned about the safety of the aircraft and wanted to understand the reason that HondaJets were more susceptible to runway excursions than similar aircraft. 

The problem is that the safety issue doesn’t appear to be the cause of Jet It’s sudden service disruption—but cash does. 

Coming from the largest operator of HondaJets in the U.S., it was a shocking statement. The problem was that Jet It also grounded its other aircraft in the fleet, not just the HondaJets, leaving many owners questioning whether this was a “negotiating tactic” to allow the company to exercise the force majeure clauses in fractional contracts, enabling the company to cancel the programs and agreements altogether. 

After all, if Jet It could stand behind the story that the HondaJet was an unsafe aircraft, it would shield the company from liability stemming from potential owner lawsuits and damages caused by an abrupt shutdown and service disruption. 

The problem is that the safety issue doesn’t appear to be the cause of Jet It’s sudden service disruption—but cash does. 

On Friday, May 26, Jet It informed employees in a letter that their jobs were permanently terminated, and the company was closing down. There was not a mention of a bankruptcy, but that is likely not far behind. 

Sources tell FLYING that at least two employees—aircraft sales executives for the company—are both owed more than $200,000. 

READ MORE: Jet It Tells Owners To Find New Home for Aircraft

Meanwhile, Jet It aircraft have been grounded all over the country. They sit at FBOs and maintenance shops, where the owners will have to cover all unpaid expenses that have accumulated on their aircraft tail. This includes any unpaid fuel, maintenance, and storage bills that the aircraft may have accrued.

Over half of the fleet is in maintenance, with tens to hundreds of thousands of dollars owed by Jet It that will have to be paid by the fractional aircraft owners of the various tail numbers.

Owners are scrambling to find new homes for their aircraft, but they are on the hook for any expenses that have been incurred before they can be moved. 

The primary hangar for Jet It, where all of the aircraft logbooks were kept, is in Greensboro, North Carolina. The entity at KGSO hasn’t been paid in recent months, so the hangar owners permanently locked Jet It out of the hangar.  

For vendors that have worked with the company for a few years, this was not a surprise. 

Many of the companies that Jet It has done business with have struggled to get paid in a timely manner, if at all. 

Jet It would string vendors along for months—especially maintenance providers. 

Of the 21 HondaJets that Jet It managed, at least 10 are currently in a maintenance shop. Three of the airplanes in the fleet currently have maintenance liens for unpaid bills.  

A representative for one maintenance shop said it has had one of the jets in the shop for months and wouldn’t release it because Jet It would not pay its $24,000 bill. 

For vendors that have worked with the company for a few years, this was not a surprise. 

Jet It gained a reputation among HondaJet service centers for being slow or delinquent on payment, so the shops often requested payment up-front. This would often delay the time it took for the HondaJets to be serviced and severely impacted the company’s operations. 

Honda Aircraft Company, Jet It’s most important vendor, also wasn’t paid on time. Sources told FLYING that Jet It owes Honda Aircraft more than $1.6 million in its service contracts under a program known as “Flight Ready” and the engine maintenance program “EMC2.” 

Honda Aircraft intends to work with fractional owners, helping them navigate the mess that Jet It has left behind.

Too Good To Be True 

According to sources familiar with the company’s business model, Jet It’s ability to scale was largely a result of how attractive the Jet It program was to prospective customers. In fact, the program may have been too attractive, driving robust growth and feeding a business model with core flaws. 

Jet It generated revenue through several major sources: fractional-owner hourly fees; monthly maintenance fees; up-front selling of aircraft fractional positions; and off-network charter flights. 

Jet It priced its hourly charter rates for clients at incredibly attractive rates. At just $1,600 per hour, the Jet It program was a dream for prospective jet owners. By comparison, Volato, Jet It’s biggest competitor in the HondaJet market, charges $3,450 per hour.

Both Jet It and Volato implemented a fuel surcharge program as the price of jet fuel accelerated in the wake of the Ukraine conflict. However, Jet It charged just $250 per hour compared to Volato’s $800 charge per hour. 

Jet It’s contracts also did not require the fractional owner to pay for deadhead to reposition the jet. The owners only paid for the time they were in the  aircraft.

A source familiar with Jet It’s revenue model suggested that the operating cost per hour for owners, including deadhead time, was likely around $2,700 per hour. This means that although most flights were a screaming deal for fractional owners on an hourly basis, they incurred a loss for the company.  

The original proforma for Jet It assumed that fractional owners would have access to their airplanes for 250 days per year, with the balance available for Jet It to sell for network charter operations at a substantial premium over the owner rate. 

This may have worked, but Jet It’s aircraft were often unavailable because they were out of service for maintenance. Earlier this year, Jet It told fractional owners that nearly 75 percent of the fleet was out of commission because they were in the shop for maintenance. Some of the aircraft were in the shop for routine maintenance, others were being held for lack of payment. 

The Major Flaw in Jet It’s Model 

Jet It prided itself on offering exceptional customer service and contractually guaranteeing fractional owners aircraft availability, as long as the aircraft was booked 72 hours in advance. If an in-network aircraft was not available, Jet It was required to go into the charter market and purchase aircraft time at the charter market’s clearing rate—often at rates that were five times the rate that the fractional owner was paying Jet It for the same service.

In a letter sent to fractional jet owners in November 2022, Gonzales stated that Jet It had to “absorb in excess of $20 million in off-fleet expenses,” just to fulfill fractional owner flight demand. In the same letter, Gonzales blamed Honda for its service woes. 

The monthly maintenance expense provided some level of recurring revenue for the company, but not enough to cover the cost of the company’s extensive back-office and operational systems. 

The company always made money selling fractional aircraft positions, and this was a key driver of cash flow for the company, yielding more than $500,000 per aircraft the company was able to place into its owner network. In the early days of COVID, as interest around personal aviation exploded, so did cash flow opportunities for Jet It. In fact, it is likely that the company relied too heavily on this source of cash to fund its operations. 

But like many businesses in 2021 to 2022, supply chain issues began to impact Honda Aircraft Company, and Jet It could not source as many airplanes to sell to members. This led to the cash flow coming from new fractional sales drying up. That was a major blow to the company’s business model. 

In 2022, the company raised $16 million in structured finance from Loeb.nyc, the private equity firm of former Time Warner executive Michael Loeb and Blue Equity, LLC, another private equity firm. This provided a lifeline to the company as it dealt with supply chain challenges. 

Then the demand for fractional ownership slowed, as the COVID crisis died down. This also coincided with the easing of some of Honda Aircraft’s supply chain issues. 

On October 6, 2022, Jet It was allocated three HondaJets for its network. With the imminent delivery of new aircraft and an operating deficit that had built over the past couple of years, Jet It found an opportunity.   

Gonzales was a former Honda Aircraft salesman who understood the cash flow opportunity in flipping an aircraft. He did it very well. With the waiting time for a new HondaJet measured in years, buyers were willing to pay a vast premium over the wholesale price that Jet It had negotiated. 

Under Jet It’s contract with Honda Aircraft, it was allocated aircraft only for charter or fractional ownership. It was not permitted to sell new HondaJets to owners, unless it was for their own network use. However, Jet It sold at least one airplane to a buyer for exclusive use, a clear violation of the agreement with HondaJet. Therefore, Honda Aircraft Company sued Jet It. 

The lawsuit was later settled, but not until after Gonzales had gone public about his frustrations with Honda Aircraft, calling into question the service, safety, and maintenance record of the HondaJet. He suggested that the reason that he sold the airplane was because he had decided to move away from HondaJets and into Embraer Phenom 100s as the aircraft of choice for Jet It. 

Meanwhile, because of the purchase of the HondaJet and its subsequent sale to a sole owner, Gonzales received a quick cash lifeline for the company, which enabled him to fight another day. 

Erratic Customer Service During a Cash Crunch

But Jet It’s cash flow woes continued. The operating model was starting to break down, and customers noticed a deterioration in service. Flights that had been booked weeks or months before were suddenly canceled owing to the lack of aircraft availability. Jet It stopped offering off-network charter flights, which was in violation of its fractional customer agreements (even for maintenance issues). 

In an effort to deflect blame for service, operational, and financial issues, Jet It has tried to push the blame for these issues onto its primary business partner, Honda Aircraft Company. 

The poor service reputation that Gonzales attempted to pin on Honda Aircraft was likely a result of Jet It’s inability to pay its vendors, and not the HondaJet’s lack of quality. This was explained to FLYING by one vendor in the HondaJet service ecosystem.

Jet It’s poor service reputation also exacerbated the company’s problems. 

With aircraft stuck in maintenance and bills continuing to pile up, Jet It had fewer aircraft for its fractional network and almost no lift available for the much more lucrative charter network. Over time, more aircraft went into maintenance, taking more of Jet It’s network down. 

On May 24, 2023, it all ended.

Gonzales called fractional owners and told them that their aircraft would need to be moved out of the Jet It network and that those airplanes would “not fly with Jet It” any longer. 

The fractional owners that thought they were getting a great deal on a HondaJet learned that it was a deal too good to be true. 

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The post Why Jet It Failed  appeared first on FLYING Magazine.

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