Flexjet's Ricci Scraps IPO, Rebuffs Mergers to Grow $4B Aviation Fleet

Flexjet掌门人Ricci放弃IPO并拒绝并购，专注扩张40亿美元机队 Ricci认为大型企业并购往往暴露出缺乏内生增长能力，而实现持久的客户留存需要赋予一线员工自主化解六位数运营危机的权力。 航空企业家Kenn Ricci分享了他如何将Flight Options及后来的Flexjet打造成运营数百架飞机的庞大私人航空巨头，包括经历了被雷神公司（Raytheon）在董事会残酷罢免的波折，以及在2008年金融危机期间成功回购公司。他阐述了自己反传统的运营策略，例如利用二手飞机机队、拒绝高负债的企业并购，以及赋予一线客服人员当场免单六位数航班费用的权力。除了商业历程，Ricci还提出了独特的跨代家族治理理念，倡导完全的财务透明，并主张在子女早年便将财富转移给他们，而不是死后通过遗产去掌控他们。 Kenn Ricci将Flexjet发展成为运营超过360架飞机、全球最大的湾流机队运营商的私人航空巨头，而他在二十多岁时收购其前身包机业务仅花费了27,500美元。 (25:36) 沃伦·巴菲特于1998年以7.25亿美元收购NetJets后，向持怀疑态度的放贷方证实了飞机产权共享商业模式的可行性，Ricci针对Flight Options的债务融资才得以顺利推进。 (35:05) Ricci在2002年失去对Flight Options的控制权并拱手让给雷神公司后，于2008年金融危机期间以约4200万美元的低价将其从困境中回购，随后于2014年从庞巴迪手中收购了Flexjet。 (51:33) Flexjet支付了3000万美元的分手费以终止首次公开募股（IPO），从而保持私有化运营，并契合其长期运营价值观，而非受制于季度市场的压力。 (63:01)

Kenn Ricci argues that durable success in capital-intensive enterprises and generational wealth management requires relinquishing rigid control in favor of radical transparency, specialized domain focus, and operational empowerment. Drawing from his career building Flexjet into a multi-billion-dollar private aviation company, Ricci asserts that enterprise value stems from frontline customer service and balance sheet discipline rather than corporate acquisitions. Early Wealth Transfer and Sibling Governance (2:34) Ricci rejects conventional estate planning models that withhold assets posthumously or release them in staggered age tranches, contending that such structures reflect parental distrust and enrich fee-extracting intermediaries. Echoing Charlie Munger’s advice that withholding wealth only creates long-term bitterness, Ricci transferred equity to his children during infancy using a family limited partnership established in 1990. Rather than enforcing artificial financial parity among children born years apart, he openly addresses the natural differences in compounding asset values during annual family meetings, which also incorporate personality tests to foster mutual understanding. Scaling Fractional Aviation on Operational Float (35:05) After acquiring a troubled flight operation for $27,500 at age 26 and building capital through concert tour charter contracts, Ricci launched Flight Options in 1998 to challenge NetJets. His core strategy was pairing pre-owned aircraft at a 50% discount against NetJets' factory-new fleet. While commercial banks initially resisted collateralizing undivided fractional aircraft shares, Warren Buffett's $725 million acquisition of NetJets in June 1998 validated the business model, allowing Ricci to secure roughly $300 million in credit facilities from institutions including Bombardier Capital and Boeing Capital. The Hazards of Mergers and Flexjet Turnaround (41:36) Ricci argues that major corporate mergers represent an admission of organic failure, noting that absorbing headcount increases above 10% routinely shatters corporate culture. After a 2002 shotgun clause forced him out of Flight Options during a 50/50 merger with Raytheon Travel Air, Ricci shifted to fixed-base operations, acquiring Mercury Air Centers for $80 million in 2005 and selling it to Macquarie for $615 million in 2007. This liquidity allowed him to repurchase the distressed Flight Options business out of the 2008 financial crisis for an effective net cost of roughly $42 million, after Raytheon lost an estimated $600 million on the operation. In 2014, Ricci acquired Flexjet from Bombardier for $180 million, subsequently voiding a linked $600 million fleet obligation when a competitor's exclusivity terms blocked the jet purchase. Integrating Flight Options and Flexjet required four years to reconcile clashing fleets, align pilot cultures, and achieve an unprecedented voluntary union decertification. Ricci later paid a $30 million termination penalty to cancel a planned public listing, choosing to keep Flexjet private and ultimately quadrupling its operational size. Frontline Empowerment and Service-Driven Value (69:25) Influenced by mentorship from former Notre Dame president Father Ted Hesburgh and his own symbolic renunciation of personal assets in 1992, Ricci views wealth accumulation as a secondary byproduct of delivering authentic service. Aligning with real estate investor Sam Zell’s conviction that private aviation is the only genuine material luxury because it saves irreplaceable time, Ricci emphasizes that customer service is proven strictly during operational disruptions rather than routine travel. To prevent bureaucratic delays when mechanical or scheduling breakdowns occur, Flexjet authorizes frontline customer service representatives earning approximately $80,000 annually to resolve issues autonomously. Staff are empowered to charter external replacement aircraft or comp a $300,000 flight without managerial escalation, removing approval bottlenecks to protect client relationships during critical failures. Ricci demonstrates that high-risk, capital-intensive businesses can navigate cyclical downturns through balance-sheet discipline, private capital flexibility, and radical delegation of operational authority. However, his framework depends heavily on founder-centric conviction and high debt tolerance, leaving unresolved how readily these trust-based governance and frontline-empowerment models can be sustained across future generations without his direct stewardship.

Flexjet 创始人 Kenn Ricci 通过重资产运营与商业模式创新，将一家价值 2.75 万美元的包机公司打造成数十亿美元规模的公务机巨头；他认为无论在企业治理还是家族财富传承中，彻底的透明度与去官僚化信任都是抵御组织瓦解的核心机制。 生前财富转移与打破均等化陷阱 (2:34) Ricci 反对现代父母普遍采取的过度保护模型，并直言许多信托机构利用家族管理人的恐惧赚取管理费。他遵循 Charlie Munger 的理念，选择在生前将资产提早转移给子女，认为隐瞒财产信息本质上是对后代的不信任。他在 1990 年设立家族有限合伙企业（FLP），在子女出生时即赠予非表决权份额，自己作为普通合伙人保留控制权。由于长子与幼子相隔 12 岁，复利导致子女资产并不均等，Ricci 每年组织家族财务会议坦诚面对差异，并要求成年家庭成员全面公开资产与开支。 为防范财富在代际传递中破裂，子女们主动设立了内部规则：直系配偶严格不参与核心家庭财务会议，以保障经年建立的信任动态不被动摇；同时确立“60/20/20”跟投机制——发掘投资机会的子女可自行出资最高 60%，但必须向其余两位各提供 20% 的跟投份额，其余子女可自主选择参与或退出，从而在制度上消除了因投资表现差异而滋生同胞嫉妒的土壤。 二手飞机与分权产权的模式突破 (25:36) Ricci 的航空生涯始于 26 岁时以 2.75 万美元接手涉嫌欺诈的 J&J Aviation 并改名为 Corporate Wings。初期他避开常规包机竞争，与航空经纪公司合作，专为巡回演出的摇滚巨星提供公务机驾驶服务，利用高额巡演收入维持运营，并说服富豪购机后交由其管理以租养机，实现零外部股权融资扩张。当 Richard Santulli 创办的 NetJets 开创点对点公务机分权产权（fractional ownership）模式后，Ricci 敏锐意识到其中的机会。 与 NetJets 采购全新飞机的模式不同，Ricci 创立 Flight Options，选择在二级市场上以约半价采购同款机型的二手飞机，从而向客户提供相同飞行体验但资产买入成本降低 50% 的分权方案。该模式最初难以获得银行抵押认可，直到 1998 年 6 月 Warren Buffett 以 7.25 亿美元收购 NetJets 为行业背书后，Ricci 迅速获得近 3 亿美元授信额度。Flight Options 在上线头三个月便实现 1 亿美元销售额，并在机队中划出约 25% 的未售核心机队作为运营浮动缓冲，确保机主重叠出行时的履约能力。 并购困局、失去控制权与逆周期抄底 (41:36) 重资产行业的高速扩张对现金流构成极大考验。在 2000 年互联网泡沫破裂后，面临信贷压力的 Ricci 选择与雷神旗下年亏损约 3000 万美元的 Travel Air 按 50/50 比例合并，但合并协议包含“轮盘赌”式的对买条款（shotgun clause）。2002 年，当 Ricci 联手 Warburg Pincus 提出 1.8 亿美元买下雷神一半股份时，雷神因猜忌反向行使条款将 Ricci 买断，剥夺了他的企业控制权。这段经历让 Ricci 对大型企业并购产生极深反感，认为大规模整合通常是对内生增长失败的妥协，且极易破坏企业原有文化。 被迫出局后，Ricci 设立 Directional Capital，并以 8000 万美元逆向收购处于债务违约的固定基地运营商（FBO）Mercury Air Centers，在 2007 年以 6.15 亿美元将其出售，积累了丰沛的流动性。2008 年金融危机爆发时，雷神在 Flight Options 累计亏损约 6 亿美元且面临工会矛盾，主动联系 Ricci 接盘。Ricci 仅出资 1500 万美元现金并配合 2700 万美元卖方票据，以约 4200 万美元的实际对价夺回了原本的企业。 Flexjet 整合与一线极致授权机制 (54:49) 2014 年，Ricci 为解决机队老化问题与庞巴迪谈判采购 Challenger 300，最终以 1.8 亿美元整体收购了庞巴迪旗下的 Flexjet。整合两家规模相当但文化割裂的公司耗时四年：Flight Options 拥有 Hawker 老化机队且飞行员高度工会化，而 Flexjet 拥有现代机队且飞行员抵制工会。经过漫长调整，飞行员投票去除了工会认证，Ricci 停用声誉受损的 Flight Options 品牌，全面转型为 Gulfstream 最大的公务机运营商，并支付约 3000 万美元分手费坚决中止 SPAC 上市，确保企业保持私有化运营以践行长期主义使命。 在客户服务体系上，Flexjet 摒弃了多层汇报的官僚流程。Ricci 指出真正的客户体验取决于危机处理能力；当发生机械故障等突发事件时，年薪约 8 万美元的一线客服代表拥有完全独立的决策权，无需向主管审批即可自主调派飞机、安排替代包机，甚至有权为客户直接免除高达 30 万美元的单次飞行费用。这种彻底的组织信任消除了推诿环节，构筑了竞争对手难以复制的商誉壁垒。 Ricci 从自身经历总结出资产配置专注度、现金流韧性与一线去中心化信任的关键价值；然而，这种依靠创始人直觉推动的激进所有权移转和一线高额免单授权，在缺少强力文化约束或进入更大规模跨国运营时，能否在常规职业经理人体系下持续复制，依然有待检验。

[69:25] Kenn Ricci: Customer service is about what you do when things go to hell. It's not about what you do when things are going well. [2:34] Kenn Ricci: Think about wealth transfer and if you don't tell your kids about their financial arrangement, you're saying you don't trust them. [67:50] Kenn Ricci: Friendship is a one-way street. It's only what you do for your friends. It's not what they do for you.

[0:02] I just interrupt you before we started [0:04] recording. I wanted you brought up your [0:05] talking about the addiction of flying [0:07] privately and and and and I um I have [0:10] three children and they're six years [0:11] apart. So there's 12 years from the [0:13] oldest to the youngest. And when I was [0:15] building the business and of course [0:17] remember I started the business I was [0:18] flying too. So I would fly and run the [0:20] business. When you raise a child you [0:22] start on braille and you start to figure [0:24] out like you know what's the [0:25] relationship going to be like? Did I [0:27] spend enough time? Did I miss little [0:28] league games? But I decided I was going [0:30] to give them a love of travel. So I had [0:32] them all skip eighth grade and we [0:34] traveled during their eighth grade year [0:36] and we didn't leave for for the whole [0:38] year. We'd go on six three-week trips [0:40] and during that time I would homeschool [0:42] them and I'd make them build a [0:44] curriculum around where they wanted to [0:45] go and we didn't take them to Paris and [0:48] London. I mean we took them to places [0:49] around curriculum who wanted World War [0:51] II, who wanted to go to India, who was [0:53] fascinated with Asia. So we built these [0:55] curriculums around. Actually, the two [0:57] places I made them all go was Awitz and [1:00] North Korea. So, I'm probably the only [1:02] person that's been three times to to [1:03] North Korea. But, you know, life [1:06] changed. So, starting 2005 to 2017, [1:10] think of the the the 12 years between [1:12] the youngest one who when he did his [1:15] trip in 2017, I realized had never been [1:18] on an airline. And I [1:20] >> an you mean a private jet? [1:22] >> No, no, no. He never been on an airliner [1:23] because life for me had changed. [1:25] >> Never been He never flown commercial. He [1:27] never flown commercial. And so I decided [1:29] that's a bad way to raise a child. [1:31] [laughter] [1:31] So I decided his name's Austin. So I [1:33] said to Austin, um, we're going to go [1:36] we're going to go commercial. We were [1:37] going to Tokyo. And we get we we go to [1:40] the airport. Never done this before. We [1:42] wait in line, check our baggage, uh, you [1:44] know, wait for our seat to be called, [1:46] you know, sit down. Don't take your [1:48] shoes off. But but all the things you [1:50] do, right, security and so on. We sit [1:53] down and finally we're getting ready to [1:54] take off and I look over at Austin. I [1:56] go, "Austin, what do what do you think?" [1:57] He goes, "Hey, Dad, there's people on [2:00] this plane. I don't know." So, what he [2:02] didn't get was like the commercial the [2:04] public part of of commercial transport. [2:06] >> It's funny that you you we were talking [2:08] about this right before we started [2:09] recording. I was like, "We got to hit [2:10] play cuz I'm so interested in like you [2:12] started talking about, you know, a lot [2:14] of people that build successful [2:15] companies like you do. Uh they're [2:17] there's just this huge doubt in their [2:20] mind like I, you know, I'm hugely [2:21] driven. I have a goal in my life, but [2:23] like there has to be things that are [2:24] sacrificed for that goal. Obviously, [2:25] time with the children is one thing that [2:27] that people do, but one of the things [2:29] you didn't even know I was going to ask [2:30] you first was I heard you talk about [2:32] something that's interesting to me. That [2:34] is you you decided to share your wealth [2:38] with your kids, not when you die, not [2:40] when they're older, but right now. You [2:42] have a very interesting perspective on [2:43] this. Can you explain what you're doing? [2:45] >> I became to believe that we have the [2:47] wrong perspective on raising children. [2:49] And we seem to think it's about this [2:51] time we spend with them. So therefore, [2:53] we kind of raise this helicopter [2:54] mentality, right? We go everywhere with [2:56] the kids. We don't let them out of our [2:58] sight anymore. When I was growing up, I [3:00] left at 9:00 in the morning on my bike [3:02] and I just had to be home for dinner. [3:04] And mom didn't chase me around [3:06] Cleveland, Ohio. Right? Those days are [3:08] gone. We tend to think that we put time [3:10] into them. That's the essential. When [3:12] what we really need to put with them is [3:14] we need to show them that we trust them [3:16] and they can trust us. Think about [3:19] wealth transfer and if you don't tell [3:22] your kids about their financial [3:24] arrangement, you're saying you don't [3:25] trust them. And uh I I told my wife [3:28] grow, you know, when the kids were [3:29] young, I go, you know, we're thought [3:31] we're thought as parents to talk more [3:32] about sex than we are about money. And [3:34] the reality is money will get you in a [3:36] lot more trouble than sex will. So I had [3:39] three observations about wealth [3:40] transfer. One is that um there's a whole [3:43] cottage industry around trusts and the [3:46] management of generational wealth [3:49] transfer and there's big money in it. [3:51] The system wants you to think you have [3:53] to control wealth because that brings in [3:55] the trustees that brings in the law [3:57] firms and the banking firms and all [3:59] those necessary professionals to kind of [4:01] skim away your your wealth. Second of [4:04] all, the Chinese have a saying the the [4:06] the the son of a lion is a lamb. And so, [4:10] uh, the, uh, I think people that create [4:13] a lot of wealth, particularly if it's [4:14] entrepreneurial wealth, tend to have [4:17] they're very they're lions. And lions [4:19] are control things. And so, why not buy [4:23] into the system where you control your [4:24] children? And so, this this is why these [4:26] trusts are set up. At 25, they get this. [4:28] At 35, they get that. At 45 we get they [4:31] get this. Right? And this is kind of a a [4:34] way to control from from the grave or [4:36] for the patriarch or matriarch or the [4:38] wealth to still be influential even when [4:41] they're not around because [4:42] >> they're used to being they want to be in [4:45] charge. They want to be important. They [4:46] don't want to lose their their [4:47] relevancy. And then finally, there's the [4:50] most bizarre one to me is if we tell our [4:53] kids, if we give our kids wealth and we [4:55] tell them about wealth and they know [4:56] about this, they'll become lazy. Well, [4:58] man, does that say you were must have [5:00] been an awful parent if that was the one [5:02] thing that that that flips the switch. [5:04] You couldn't parent through that. So, I [5:07] decided a past number one, most [5:10] importantly, I love my children and I [5:12] love watching them be happy. I want to [5:14] watch them spend their money. I want to [5:16] watch them be wealthy. But most [5:17] importantly, I want to help them. I know [5:20] a little bit about re about wealth. I [5:21] knew a little bit about now I'm [5:23] accidentally wealthy. I didn't get here [5:24] with some strategic, you know, some [5:26] monetary plan, financial plan. [5:28] >> Hold on. We're going to we're going to [5:29] dive deeper on that. But give me some [5:31] background. Did you grow up middle [5:32] class, poor? Like, what was your [5:34] childhood like? [5:34] >> Oh, my father was a grade 12, worked for [5:36] the US government. He's actually a spy. [5:39] Uh he had a fascinating background. He [5:41] came out of World War II, worked in the [5:42] OSS, worked in naval intelligence, and [5:45] then um had a uh uh the in the 60s, [5:48] early 60s, Bobby Kennedy set up the OCD, [5:51] the organized crime drive through the [5:52] Treasury Department. And my dad was a [5:54] part of that part of that that group at [5:57] that investigated uh investigated [5:59] domestic mostly um mafia, mostly [6:02] organized crime in those in that era. [6:04] His undercover name was Richard Dill. [6:06] Don't get he was investigated in a lot [6:08] of cases Italian. He was Italian. They [6:10] changed his name to D. Think of that's [6:12] that's the government at work. I [6:14] remember [snorts] one time he, by the [6:16] way, he only in 17 years of undercover [6:19] work, he only worked on three cases. So, [6:21] shows you the time it takes, right, to [6:22] be in to work. [6:23] >> So, his undercover name was Dick Dill. [6:25] >> Richard D. Dick D. [laughter] [6:27] >> Richard's always Yeah. Yeah. He was [6:30] investigating the police chief of [6:32] Lincoln, Nebraska. and ties to the [6:35] organiz I'm 7 years old at the time. I [6:38] don't know much about it, but but I knew [6:39] that I knew that we had to go live in [6:41] Nebraska for 2 months cuz he was there [6:43] undercover as a family. This was the [6:45] greatest time of my life. We stayed at a [6:47] holiday had a pool. I'd never been any [6:49] place where they had like a pool outside [6:50] your so that hits on. It's like middle [6:52] class somewhere around there. Didn't [6:54] have a pool. The reason I wanted to [6:55] start on this and I'm going to still [6:56] pull on this thread if you don't mind is [6:58] because my I have this other podcast [6:59] called Founders. I read biographies of [7:01] history entrepreneurs. [7:03] People struggle with this all the time. [7:05] It's in these books for going back 200 [7:07] years. They're like, I was essentially [7:08] the the the problem is I was the son of [7:10] a poor man. My kids are the son of a [7:12] rich man. What do I do here? And so I [7:14] had the the luck of a lifetime to be [7:16] able to go and have dinner at Charlie [7:18] Mer's house right before he died. [7:19] Probably 6 months before he died. And [7:20] one of the questions I asked him with is [7:21] because me and him had run he read, you [7:23] know, hundreds of biographies. I was [7:25] doing the same. That was the the the my [7:27] my like craft and the main before I [7:30] started the show like all I was focused [7:31] on and I was just like what's the your [7:33] answer to that like you read the same [7:34] books I do what what's your answer you [7:36] know he grew up he wasn't poor but they [7:37] were in mall it was like a normal life [7:39] and he goes you give them the money and [7:41] you know cuz monger is just no [7:43] straight to everything and I go why he [7:45] goes cuz what he goes they'll hate you [7:46] if you don't and he goes what's the [7:48] point of building a relationship and [7:49] making all this money and then at the [7:51] end of your life your kids hate you and [7:52] that was his very simple way of looking [7:54] at this [7:54] >> fantastic fantastic fantastic insight, [7:56] right? Like I said, I want to watch them [7:58] enjoy their wealth. [7:59] >> He did say one funny thing though cuz [8:01] somebody I think I I may have asked him [8:03] to follow up either me or somebody else [8:04] to follow up and I go, "Yeah, but won't [8:05] that make them a little less ambitious?" [8:08] He goes, "Yes." [laughter] [8:10] >> And in his case, I think he gave he gave [8:12] a couple hundred million to I think nine [8:13] kids or something like that. And he's [8:14] like, "Yeah, some of them have $250 [8:16] million and they're not as ambitious." [8:18] Like, so what? [8:19] >> They're different. Every kid is [8:20] different. In fact, one of the things we [8:22] have these family meetings once a year [8:23] where we talk about wealth and one of [8:25] the things I start out with each project [8:26] because when I look at why families rip [8:28] apart over wealth, right? It's really in [8:30] two areas. One of them is that they feel [8:33] somehow they're entitled to be equal, [8:35] but they're not. I have a child that [8:36] started inheriting wealth 12 years [8:38] before the youngest one. You don't think [8:40] his estate, you don't think what he has [8:42] appreciated at different rates than the [8:44] youngest one? So, I start every meeting. [8:46] I go, "Look guys, you're not equal. It [8:47] doesn't mean I don't love you. doesn't [8:48] mean it's just it's just how things are. [8:50] And the sooner you get over that fact, [8:52] the happier you'll be. It's just like it [8:54] wasn't set out that way. [8:56] >> So, have you already given all the [8:57] wealth you're going to give to them or [8:58] that you keep how do you like how [9:00] >> Well, um Well, yes, pretty much so [9:03] because we gifted shares of a family [9:05] limited partnership when they were very [9:08] young. [9:08] >> Did you get this idea from Sam Walton? [9:09] >> Uh no, not [9:10] >> you know that's how Sam Walton avoided a [9:12] lot of he didn't do it to avoid estate [9:14] tax. He wind up He's like, "Well, if you [9:16] want to avoid estate tax, you give give [9:18] your kids the asset before it [9:19] appreciates. It's so logical. The crazy [9:22] thing is he did this, his father-in-law [9:23] gave him the idea. I've read every [9:25] single book on Sam Walton and his [9:27] father-in-law gave him the idea. They [9:28] did this when the value of Sam Walton's [9:30] company was like I think the shares that [9:32] he gave to his four kids were $5,000 [9:34] each. Ditto. Okay. I started the family [9:37] purchase in 1990. I have my first child [9:39] in 1995. So, I have the vision of what [9:43] it's going to do 5 years before it [9:45] happens, right? And as soon as I could, [9:47] as soon as I could, I gifted shares. [9:49] When they were born, I gifted. It's a [9:51] family limited partnership. So the [9:52] general partner, which is me, still can, [9:55] you know, I have all the flexibility in [9:56] the world to make distributions. It's a [9:59] phenomenal vehicle. So Walton had it [10:01] right. It's a great vehicle. So they're [10:04] not created equal. I want to watch them [10:06] happy. I want to watch them use their [10:08] but but also I want to guide them. I [10:10] want to be here alive when they're [10:12] making stupid decisions with their money [10:14] or making good decisions with their [10:15] money. I've made stupid and I've made [10:18] bad decisions with money, too. But so, [10:20] so why can't I be the one to guide them? [10:22] Otherwise, assuming they they still love [10:25] me when I'm dead. They tend to love you [10:27] more when you're dead. But in any case, [10:29] assuming they still love me, well, [10:31] they're going to go, "What would dad [10:32] have done?" Well, isn't it better to [10:34] like be here alive when they ask you [10:36] what what should I do, Dad? [10:38] found it. So I think sometimes we want [10:41] to rule from the grave. You have this [10:42] trust environment that's there and then [10:44] if you're going to spo this is going to [10:46] spoil your kids, then you really weren't [10:47] that good of a parent. If that was the [10:49] one thing that did it, they couldn't [10:50] handle this. Or maybe the the [10:52] alternative is it's all the more reason [10:54] to give it to them when they're alive so [10:56] you can guide them through it, right? As [10:58] opposed to when they're dead and you [10:59] can't do anything when you're dead and [11:01] you can't do anything about it. [11:02] >> I want to tell you about the presenting [11:03] sponsor of this podcast, RAMP. I have [11:06] been reading a lot about SpaceX lately. [11:08] SpaceX is one of the most valuable [11:09] businesses in the world and one of the [11:10] main themes in the history of SpaceX is [11:13] constantly attacking and questioning [11:15] your cost. 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So for instance, I [13:22] asked them go now remember this is going [13:24] back when they're young I started [13:26] talking to them about money now at 5 [13:28] years old 6 years old now we're not [13:29] talking about tax effective or [13:31] compounding interest but what I taught [13:33] him early on was giving I so our early [13:36] family meetings were all about who [13:39] should we give money to and why loved [13:42] animals my son loved Catholicism uh and [13:46] my youngest son when when I remember the [13:48] first time we were giving he was maybe 6 [13:50] years told he always wanted to give it [13:51] to Disney and I was like well us and [13:53] Disney is not really a non forprofit [13:55] like [laughter] [13:56] >> they're doing okay [13:56] >> they have they have their own [13:57] methodology so I taught them first to [13:59] give [14:00] >> then before we started really diving [14:02] into the estate and I really went into [14:04] that when the youngest one was around 16 [14:07] where we really started going through [14:09] like every year we go through a [14:10] spreadsheet where's the money how does [14:12] it transfer who has control of it [14:14] where's the bank like like all the stuff [14:16] you need to know everything but before [14:19] we did that we did a we did a [14:21] personality test and everybody reported [14:24] on their personality cuz kids are [14:25] different. Who who thinks leftrain, who [14:28] thinks right brain. So I wanted the kids [14:30] to understand how they could get along. [14:32] So I started with that. So then we [14:34] started talking about money, how it [14:36] transfers, like what we would do with [14:38] it. Two surprising things. Number one is [14:41] that it creates this trust and I have [14:43] these I have this amazingly trusting [14:46] group. Now the kids in the group of [14:49] five, my wife and I and the three [14:50] children, they report. They show us [14:52] their estate and what they spent money [14:54] on and we share this. [14:55] >> How old are the kids now? [14:57] >> So 37 uh 20 uh 31 and 20 and 25. [15:01] >> Okay. [15:02] >> Yeah. Okay. So it's been going on for [15:04] it's been going on for a while. But the [15:06] other thing like I you know I mentioned [15:08] I'm accidentally wealthy. You have to [15:09] realize that even when we were talking [15:11] about this, we weren't talking about it [15:13] that the volume we're talking about say [15:14] I mean my personal net worth has [15:16] accelerated in the last 6 years along [15:19] with Flexjet which is the asset I own [15:21] and you know one of one of the largest [15:23] assets I own and and and and protect. [15:25] >> One of it's got to be the largest asset. [15:27] >> Well, it's the largest one. But uh [15:29] >> what else you got that I don't know [15:30] about? [15:30] >> Well, I I mean I'm I always say I'm an [15:32] inch wide and a mile deep. I've made a [15:34] lot of investments only in aviation. And [15:36] I probably know more about the area of [15:38] aviation. I've invested it. I own [15:40] SIMCOM, which I sold to CAE. I owned I [15:42] owned what is today um uh uh Atlantic [15:45] Aviation. [15:45] >> Hold on. Let's so let's this is exactly [15:47] so I want to start talking about the [15:48] business because I think I understand [15:50] the what you did on with their kids and [15:52] why you did it. And I think again [15:53] anybody's wealthy has to think through [15:54] these things. I think discussing them [15:55] openly is service to other people. [15:57] >> Oh, I'm sorry. Let me finish what I what [15:58] I learned. Go. Okay. So number one, this [16:00] amazing trust that they got amongst [16:01] themselves, right? They started [16:03] investigating and reading about [16:05] biographies and families that blew it [16:08] and they came to realize that the third [16:10] transfer of wealth, the third generation [16:12] is the tough one. And so they've started [16:14] to talk about [16:15] >> sleeves to share sleeves in three [16:16] generations something very durable [16:18] through human history. [16:19] >> So they've come together to talk about [16:20] the next passing of wealth and [16:22] generational and two two things that [16:24] they they've come up in the last year. [16:25] One is they decided not to include [16:27] spouses in these meetings. They decided [16:30] that each one of them, two of them have [16:32] spouses, one doesn't. They decided in [16:34] these meetings that each one of them [16:36] will decide how to share financial [16:38] information in their own family. That [16:40] this isn't a group share. This is us [16:42] five and we've been doing this for 10 [16:44] years, 12 years, and it's not something [16:46] we're not going to toss people into the [16:48] middle of it because we don't know their [16:49] personalities. We didn't have 10, 12 [16:51] years of grooming to to get them to this [16:54] point. So that was number one. Number [16:56] two was when they look at generational [16:58] wealth transfer and why families come [17:00] apart. One of the things that happens [17:02] other than they all feel like they [17:03] weren't treated equal. They're mad at [17:05] the patriarch for not treating them all [17:06] equal, which we've gotten over. But the [17:08] other thing that that that happens is [17:10] one of them does really well, takes the [17:12] money and makes a great investment and [17:14] the other ones do less and then there [17:17] becomes a little jealousy amongst them. [17:19] So they decided they came to the idea [17:22] that any investments they all make [17:24] they're going to share and the person [17:26] who has the investment three kids the [17:29] person that has the investment can put [17:31] 60% of it in but has to offer but not [17:34] required 20% to each of the other [17:37] siblings and they can participate or not [17:40] thereby alleviating the the opportunity [17:42] for them to be jealous. Look I gave you [17:45] the opportunity to come in you came in [17:46] or you didn't or we share the upside [17:47] together. That was their idea, not my [17:49] idea. [17:50] >> That's really interesting. Okay, so [17:51] let's go to the source of the wealth. [17:52] You were a pilot. Okay, [17:54] >> take me back to like first of all, how [17:56] old were you when you learn how to fly [17:57] planes? [17:57] >> You talked about my upbringing with my [17:58] parents a little bit. My dad was a [18:00] government employee and um I went to a a [18:03] Jesuit high school, St. Ignatius, and [18:05] they sent at the time in the 70s, they [18:07] sent 30 people to Notre Dame. They moved [18:09] them right from there to to Notre Dame. [18:10] And I loved it. I wanted to go there and [18:12] I was uh I got I got I got admitted and [18:15] then I'm going up for a visit. And I [18:17] grew up and you know houses have 2x4s. [18:19] Ours had 1 by twos. So I could hear my [18:22] parents. I'm an only child and I could [18:24] hear my parents talking the night before [18:26] I'm going to Notre Dame and they say you [18:28] have to tell him we shouldn't let him go [18:30] because what if he goes up there and he [18:31] likes it and then he wants to go and we [18:33] tell him we can't afford to send him. My [18:35] mom was saying I wouldn't let him go and [18:37] my dad would go let him go maybe he [18:39] doesn't like it and then he comes back [18:41] and says I don't want to go anyhow and [18:42] then we don't have to have the subject. [18:44] But I knew going up for that class visit [18:46] that didn't matter how much I liked it. [18:48] I knew what was coming when I came home [18:50] and said whether I wanted to go or not. [18:51] So I was inclined not to go and put my [18:54] parents in a bad position. When I get [18:56] there I ask them on campus, is there a [18:58] um is there financial aid event? Like [19:00] well you missed the deadline. This is [19:02] March. But the Vietnam War, this is [19:04] 1974. The Vietnam War was still very [19:08] ripe, very raw. And uh people did not [19:10] like the military. And so they said, "If [19:13] you're willing to go into ROC, they're [19:15] always short of the candidates. They [19:17] never fulfilling their quota." So for [19:19] some reason, don't ask me why, I decided [19:21] I wanted to be a Navy pilot. Maybe I [19:23] like the double breasted suits, [19:24] whatever. So I go down to the ROTC [19:27] building and there's no cell phones and [19:29] I'm looking through the glass window. [19:31] I'm trying to read upside down on the [19:33] phone what number to call on Monday [19:35] morning to tell them they had a new [19:36] naval aviator. [19:37] >> Why did you pick aviation? You had never [19:38] flown a plane or anything. [19:39] >> No, I had to go in the military. I know [19:41] I had to go out with DC. I figured if I [19:42] got to go into the military, flying [19:44] looks like a lot of fun to me. I'm [19:46] copying the number down and somebody [19:47] taps me on the shoulder and they said, [19:49] "Can I help you?" And I said, "Yes, sir. [19:51] I'm an incoming freshman at Notre Dame [19:53] and I want would like to join the Navy [19:55] because I want to fly." And he said, [19:57] "You've been admitted to Notre Dame." I [19:59] said, "Yes." He goes, "I'm shocked [20:00] because they usually admit smarter [20:02] people than that." [laughter] [20:04] He said, "The Navy has ships and the Air [20:06] Force has planes. I'm Colonel Mueller. [20:09] I'm head of the Air Force detachment and [20:11] I'm enrolled in the Air Force. And I [20:13] never heard I never knew how my parents [20:15] reacted, but I came home [20:17] >> cuz then they'll pay for school. [20:19] >> Yeah. I don't know that I've ever told [20:20] the story. It was the first time I [20:21] learned how to defraud the government. [20:23] >> It was [laughter] I I'm a freshman at [20:25] Notre Dame. I'm enrolled. I've got my [20:27] hat. I got my uniform. And um and and [20:30] the the the sergeant who administered [20:31] that said, "Now, I know you I know [20:34] you're a plea here, but here's how [20:35] here's how you you get a $100 a month [20:37] stipen for general expenses." He goes, [20:39] "But there's other income." He goes, [20:40] "Here's what you do. You go to the [20:42] bookstore. You buy all brand new books. [20:44] You bring me the receipt. I'll reimburse [20:47] you for the new books. You take them [20:48] back to the bookstore and then you buy [20:49] the used books." [laughter] So like my [20:52] first my first interaction with the [20:53] military is I was taught like how to [20:55] take advantage of the US government. Do [20:57] you take time off from Notre Dame to [20:58] learn how to fly like? [20:59] >> No, no, no. You learn it concurrent. You [21:01] you you you you one day a week and this [21:03] was the tough one. One day a week you [21:05] have to stay in uniform and and believe [21:07] me at that time post you know that that [21:10] p that Vietnam war era that was not an [21:12] easy task because people did not like [21:15] the military at all at that time. So you [21:17] know you have all these courses around [21:19] the air force in the summer you go to [21:21] whatever your summer program was your [21:23] summer school and so on and then so [21:25] that's where I learned to fly. So what [21:27] kind of planes do you fly the first? [21:28] >> Oh, you know the Cessna 152, Cesna 172. [21:32] >> They're not putting in like the F-16s. [21:34] >> No, that comes after [laughter] grade. [21:36] >> No. In fact, you know, when you [21:37] graduate, what happens then you go to [21:39] general flight training which is done [21:40] like in T at that time was done in T37s [21:42] and T-38s and then you get assigned, you [21:45] know, it's a year and a half before you [21:47] get control of a jet in the Air Force. [21:49] There's the primary training, then [21:50] there's the training you you go into. [21:52] >> Okay. So you you mentioned, hey, I'm an [21:54] inch wide, but I'm a mile deep. All my [21:56] businesses focus on the this we [21:58] mentioned Buffin and Munger. I don't [21:59] know if we said on the show if we were [22:00] talking before, but like we me both [22:02] mentioned Buffin and Munger a bunch of [22:03] times and their whole thing is like know [22:04] your circle of competence and just stay [22:05] inside that circle. So that sounds like [22:07] what you did. Your first [22:08] >> I always say my portfolio of investments [22:10] is is unbelievably diversified. It's [22:12] cash and airplanes. That's my [laughter] [22:14] diversification strategy. [22:16] >> So what's the first business you do in [22:19] aviation? [22:20] >> So first of all, I don't I don't I don't [22:22] think of myself as a businessman. In [22:24] fact, I I'll often say there's two [22:25] people that are very successful in [22:27] business. One is a person that just gets [22:29] business. They could run a yogurt store. [22:31] They could run a steel manufacturing [22:33] plant. They just get business. They [22:35] understand how they're connected. They [22:37] see market strategy and business is just [22:39] very clear to them. And the other ones [22:40] that are just passionate about what they [22:42] do. You're passionate about your [22:43] podcast. You're successful in business [22:45] because this is what you love to do. I'm [22:47] successful because I love to fly and I [22:50] learned everything. Right. that that's [22:52] what put me here. But I didn't I never [22:54] had a goal to become wealthy or to build [22:56] a business. So [22:57] >> that's the accidental wealthy part [22:58] you're talking about. [22:59] >> Of course, in many ways, right? [23:01] Accidentally that I even formed a [23:02] business. Accidentally that uh you know [23:05] that when I go into private aviation [23:08] there's only 5,000 jets in the world and [23:10] today there's 35,000 jets. So part of my [23:13] luck [23:13] >> wait say that part again. [23:15] >> Yeah. [23:15] >> When you started [23:16] >> So 1985 figure by [23:18] >> there's only 5,000 jets. [23:19] >> 5,000 jets in the world. And today [23:21] there's 35,000 private jets in the [23:23] world. So part of my part of my luck was [23:26] just to be when this industry grew up. I [23:28] entered an industry because I could have [23:30] been an airline pilot. I could have gone [23:32] into I could have stayed in the [23:33] military, but I I was attracted to [23:35] private aviation. It was more free to [23:36] me. It was more it was more spontaneous. [23:39] It was more interesting. Uh the people [23:41] you would meet that there's no cockpit [23:43] door. I could have conversations with [23:45] passengers and learn from them. So, who [23:47] knew in 1985 that private aviation would [23:50] be this unbelievable growth industry in [23:53] the next 40 years, right? Didn't know [23:54] that. So, that's that's part of it. But [23:57] but what I'm really doing is flying. I [23:59] leave the I leave the military. I become [24:01] a cargo pilot flying air freight. Then I [24:04] go to Northwest Orient. I'm at Northwest [24:06] Orin in a very brief period of time. [24:07] They have a furlow. So, I lose my job. [24:09] >> So, wait. Northwest Orient doesn't exist [24:11] anymore. [24:12] >> No, they aine. It was an airline. Yeah. [24:14] It was it was you know the airlines were [24:16] Panam, TWWA, Northwest the the airlines [24:19] that flew all around the globe. They [24:21] were the good air they were the airlines [24:22] that were the prestigious ones. [24:24] >> Okay. So you're in Northwest uh Orient. [24:26] You said you got furled which is another [24:28] term for I don't have a job. [laughter] [24:31] >> So I came back to Ohio. Ohio birthplace [24:33] of the Wright brothers. [24:35] >> Well not that's in southern Ohio but [24:37] >> yeah but I think Dayton right something [24:38] like that. [24:39] >> But my my father was he he didn't see it [24:43] as a very stable career. He he said, "I [24:45] know a lot of piots and they're all [24:46] airport jockeyies. They just kind of [24:48] move from place to place and they end up [24:50] taking whatever job they can. It's just [24:51] not a stable industry." So, it was at [24:54] that time that I I I went to law school [24:57] and uh really um [24:59] >> So, you love flying and pilots. Your [25:01] dad's giving you hindsight bad advice [25:04] considering what your life has turned [25:06] out. [laughter] [25:07] >> Uh and you're going to do something you [25:09] don't love. [25:10] >> Correct. Correct. [25:11] >> For prestige or money. said you needed [25:14] something to fall back on in case this [25:15] aviation thing doesn't work out. Well, [25:18] the aviation thing worked out. Okay. But [25:20] >> did he live long enough to see it? [25:21] >> You know, he died in 1991, so kind of. [25:24] >> Okay. [25:25] >> Kind of. Uh he saw me he saw me have a [25:28] business. He saw me fly. He flew on one [25:30] of my first lure jets. Loved it. Okay. [25:32] But he never I mean, no, he would never [25:34] he never saw this coming. Got it. [25:36] >> The only job I can have in law school is [25:38] a part-time pilot. So, I'm a fill-in [25:40] pilot for a company called J&J Aviation. [25:43] And J&J Aviation was a was a fraud. I [25:46] mean, I'm just an employee there. But [25:48] what they did was in the early ' 80s, [25:50] they had investment tax credit of 10%. [25:52] And if you bought an aircraft, you got [25:54] an immediate 10% credit. So, they would [25:57] sell these citation jets for $750,000. [26:00] So, they had about a fleet of about six [26:02] airplanes. And then they they'd sell [26:04] these citation jets to investors on the [26:06] West Coast, a long way from Cleveland. [26:09] And they would they'd get the $75,000 [26:12] investment tax credit. And then they pay [26:14] the $750,000 for the plane. And then the [26:18] head of J&J was a guy named Jeff To. And [26:20] every month he would pretend that these [26:22] aircraft were on lease, but they [26:24] weren't. The aircraft didn't even exist. [26:26] He would make up a dummy statement. He [26:28] would say, "It flew 40 hours this month. [26:30] The revenue was was $90,000. the [26:33] expenses were 78,000. Here's your [26:35] $12,000 check. So, he simply put the 70 [26:38] the million5 the two aircraft. He put [26:41] the million5 in the bank and kind of [26:42] dribbled out the interest in a fake [26:44] statement. Well, finally after about a [26:46] year and a half, the owner said, "We got [26:48] to see our jets." And they were never [26:50] they were always in the air. They were [26:52] never around. But one day, they they [26:53] caught him and he flew the coupe. So, [26:55] this little company J&J Aviation had [26:57] like three employees, you know, a [26:59] secretary, a dispatcher. [27:00] >> Is it just charter? What's it like was [27:03] using these managed airplanes or these [27:05] these phantom airplanes, but there were [27:07] six of them. They were Navajos and these [27:09] little tiny piston engine aircraft. And [27:11] the dispatcher dispatcher there, Rick [27:13] Michaels, calls me up and he says, uh, [27:16] he said, "You know, nobody here wants to [27:18] do this and and I don't have I'm not [27:20] smart enough to do it, but but you seem [27:22] to know a little about aviation. You [27:24] should buy the company." So, I called my [27:26] dad. [27:26] >> And you're how old at the time? [27:28] >> 26. [27:29] >> And you never thought you were going to [27:30] be an entrepreneur? No, in fact, I [27:32] didn't even buy this company to be an [27:33] entrepreneur. I bought it so I could [27:34] still have a job. Like, I needed to make [27:36] sure these airplanes didn't go away so I [27:37] could keep flying. I mean, that was the [27:39] whole goal. And Rick said he could do it [27:41] by himself. So, I left I kept I knew I [27:43] had to employ the dispatcher and run [27:45] what it ended up two of the planes left. [27:47] So, I had four airplanes when I started. [27:49] And I called my dad and I said, "Dad, I [27:51] I'm going to I want to buy this company [27:53] uh J&J Aviation. I'm actually going to [27:54] name it Corporate Wings." And he goes, [27:56] "Oh." He goes, "Um, I go, it's it's [27:59] $27,500." [28:01] And he said, "Well, how are you going to [28:02] pay for it?" And I said, "Well, the [28:03] company has $27,000 in the bank, so I [28:06] think I can just use their own money to [28:08] buy them." And he goes, "Oh." He goes, [28:10] "Well, what are you what are you doing [28:11] for the other $500?" I go, "Why do you [28:12] think I called you?" [laughter] [28:14] So, that was really how I bought [28:16] corporate wings and that company's still [28:17] here today. Explain how you get from [28:20] corporate rings to flesh jets. [28:22] >> Right away, I decided where is the where [28:24] is the niche for this corporate wings? [28:26] like everybody has a charter plane like [28:28] but how do I get bigger niches and so on [28:30] and I you know life is timing I met into [28:33] I I met someone who worked for Chapman [28:34] Freeborn I don't know if you know this [28:36] company they move all the rock stars [28:37] around [28:38] >> so they move the freight you know every [28:40] rockstar comes with a stage and part of [28:42] that stage can go on the land part of it [28:44] has to go in in big aircraft depending [28:46] upon what but the it's a cargo moving [28:48] system and along with it they had this [28:50] ancillary business to move the star to [28:52] move the celebrity I [28:53] >> I'm watching this documentary on eagle [28:55] the eagle host the band the Eagles and [28:57] they're [28:58] >> they have a bunch of success early on [29:00] and one of their favorite things about [29:01] being in a band and being a rockstar is [29:03] that they have this private plane. [29:04] >> Absolutely. [29:04] >> It's like little like turbo prop. [29:07] >> Yeah. The big groups went in those turbo [29:09] props cuz they needed 15 18 seats. It's [29:12] the single performers that went in the [29:13] corporate jets. Okay. El I flew Elton [29:16] John, Brian Adams, uh Bruce Springsteen, [29:19] uh Tony Bennett, Barbara Stryand. Those [29:22] were the ones those were my clients. So [29:24] with Chapman Freeborn, whenever they [29:26] would get a cargo movement and they [29:28] needed to move the Celebrity, I made a [29:30] deal with them to do that. And that was [29:31] how that that was really your initial [29:34] niche. [29:34] >> But it was really cuz I wanted to fly [29:35] and I thought it'd be [29:36] >> Oh, you're you're piloting them. [29:38] >> Yeah, of course I am. [laughter] Of [29:39] course I am. Sure. And you know what? It [29:41] was a good gig because you um when you [29:44] flew those celebrity tours, say a pilot [29:46] at that time got 7,000 a month. If you [29:48] flew a three-month tour, you would get [29:50] 20,000 a month. Of course, you had no [29:52] you had no work for that. And it was [29:54] kind of perfect cuz I could fly the tour [29:56] for 3 months and then have the rest of [29:58] the time I'd work on the business or or [30:00] you know, kind of learn the business and [30:02] fig and figure it out. So that I'm [30:04] building the business concurrently with [30:06] doing these celebrities. Then I have [30:07] these big planes. So I start to go more [30:10] international. I fly, you know, I I take [30:12] up I flew Richard Branson for a year and [30:14] a half. I live in London. Best flying [30:16] because I got to learn the world. [30:18] >> Wait, wait. So you're flying Richard [30:19] Branson now. This is a corporate private [30:21] jet, [30:21] >> correct? And you're just [30:22] >> Well, but remember to get the [30:23] celebrities, I had to go to to people [30:25] that wanted to buy a large like a [30:27] GFream, a Gulf Stream 2 at the time. [30:29] Okay. And I had to tell them, you used [30:31] the aircraft. I'm going to lease it out [30:33] 3 months a year, which will pay for the [30:34] aircraft for the whole year. [30:35] >> Mhm. [30:36] >> And so I got people to give me airplanes [30:38] on that financial agreement. [30:40] >> They're putting up the money. [30:41] >> Yes. Correct. [30:42] >> That's how Okay. So that's how you're [30:43] doing this very limited. [30:44] >> Correct. Correct. I'm doing it without [30:45] without any there no ken capital at this [30:47] point in time. I don't even have I got [30:48] the $500 from dad. So now [30:51] go into the '9s and along concurrent [30:54] with building this business once you [30:56] have the large cabin filling in the rest [30:58] of the fleets kind of easy cuz people [31:00] think if you can do the big stuff if you [31:02] can travel the world handling my [31:04] airplane. So we is is you must be [31:06] qualified. So we start to build a [31:08] managed fleet of aircraft till it gets [31:10] to in the low 20s. And there's, you [31:12] know, when you build businesses, there's [31:14] these steps, right? Like without any [31:16] other help, I could run three airplanes [31:17] myself, you know, but then if I want to [31:20] run 15, that's kind of the next step. I [31:23] need 17 people to run 15. And then I [31:26] need 17 till I get to 30. And then when [31:28] I get to 30, I need 35 people. There's [31:31] these steps of infrastructure. So I'm [31:33] about where I need to be. and early and [31:36] so in the early '9s um we don't even [31:38] realize this today but today big [31:42] manufacturers Gulfream Bombardier Cessna [31:45] they pre-ell their aircraft and they [31:47] don't build them if they're not sold but [31:49] going back so going back to the '9s they [31:52] looked at it like the car industry Cesna [31:54] had a dealer network where people to be [31:57] a dealer you had the level of dealer if [31:59] you bought three single engines and one [32:01] twin engine you were this level if you [32:02] bought four twin engines you got this [32:04] commission structure and you were a [32:06] larger dealer. But when the business [32:08] didn't sell, there were all these [32:09] whitetails [32:10] >> and so what's that? [32:11] >> A white tail. So a white tail is a plane [32:13] that doesn't have an end number on it [32:15] >> because they don't know who to title it [32:17] to cuz it's not sold. [32:18] >> Okay. [32:18] >> So it was like the the auto industry. [32:20] They kept building kept the [32:21] manufacturing run going and if they [32:23] couldn't if sales couldn't keep up then [32:25] they just parked them in a lot and [32:26] called them whitetails. Well, the Gulf [32:28] War I happens in 1991 [32:31] and it goes ahead that these whitetails [32:34] Hawker has these whitetails and Richard [32:36] Sanuli who was the founder of netjets [32:39] goes to Hawker and says you can't sell [32:41] the airplanes. I'll take 20 of them and [32:43] sell them on consignment fractionally. [32:46] >> Is that the first [32:47] >> This is how fractional [32:48] >> that is the invention of [32:50] >> that's the invention of fractional [32:51] ownership. Rick Rich Sanulie, brilliant, [32:54] uh, realized that the average company [32:56] flies an airplane 300 hours a year. A [32:58] plane wants to fly 1,200 hours a year. [33:01] So, why don't we get f four people to [33:03] share them? [33:04] >> What does it mean a plane wants to fly [33:06] 1,200 hours a year? [33:07] >> Well, because if you look at a lot of [33:09] things, number one is an airplane [33:10] doesn't like to sit around. They break [33:12] when they don't fly. The the fluids leak [33:14] out and they so they want to fly. Number [33:16] one. Number two, they had the capacity [33:18] to fly a thousand,000 to,200 hours a [33:21] year. So an average corporate owner at [33:23] that time was leaving the plane in the [33:25] hanger five days a week. And so why not [33:27] utilize that debt asset? That was his [33:29] that was his vision. And so he initially [33:32] thought, well, if I get four people to [33:34] each put 200 hours on the plane, that's [33:36] kind of the perfect. So, I'm going to [33:37] shell the sell the planes in quarters, [33:40] which is why if you see NetJets's end [33:42] number today, it still ends in QS [33:45] quarter share [33:46] >> because originally they only sold 200 [33:48] hours. Now, today you can buy 100 hours, [33:50] 75, but that was his vision. And he sold [33:52] these whitetails, these consignment [33:55] aircraft. So, he never put up any [33:56] capital. He said, "If I sell them, I'll [33:58] I'll give them back to you." [34:00] >> So, all of a sudden, now this becomes [34:02] invogue. And where is he stealing [34:04] customers from? me the charter operator [34:07] >> because in the charter business at that [34:10] time if you took my plane and went to [34:11] Florida I had to charge you to return [34:13] the plane back to Cleveland otherwise [34:15] how did I get it home? [34:16] >> Yeah. [34:16] >> He had the idea of this floating [34:18] dispatch. I'll drop you in Florida and [34:20] then the next client I'll figure out how [34:22] to get them from here to there. Well the [34:24] the that was attractive to a lot of [34:27] different companies. And so he was [34:29] starting to steal business. I got a [34:31] little nervous. So between 1993 and [34:34] 1996, I'm watching this unfold and I [34:38] say, "Well, he's selling these brand new [34:40] assets because he's getting them from [34:41] the manufacturers on consignment. I'm [34:43] going to go into the used market and I'm [34:45] going to buy them used, pre-owned, uh, [34:48] previously enjoyed, I like to say, and [34:51] I'm going to go ahead and I'll have the [34:54] exact same airplanes he did." So [34:55] whatever NetJet had, if they bought [34:56] brand new Hawkers, I had a used hawker [34:58] program. If they brought brand new [35:00] citations, I just emulate them. Had a [35:02] used citation program. That was my [35:04] vision. [35:05] I would be buying them used at at half [35:08] price. So the service is the same. It's [35:11] still you can fly. You only pay for it [35:12] when you're on board. It's just the buy [35:14] in is is going to be 50%. That was my [35:17] vision. But unlike him, I couldn't buy [35:20] these on consignment. I had to have [35:22] capital to do it. So in 1996 I put [35:25] together the this is my first time [35:27] really starting to look at a business. [35:29] It's the first time I kind of understand [35:30] the debt that I have to present the [35:32] presentation how you know looking at [35:34] cash flow and projections and I go out [35:37] to different banks probably 35 or 40 of [35:40] them with this idea of fund me the [35:43] amount of money I need to start the [35:44] business. I think I needed 30 or $40 [35:46] million of borrow. I wanted to borrow [35:48] it. And they look at me and the banks [35:50] are like, "We don't get it." Like, [35:52] where's our collateral? We have the tail [35:54] of the airplane. You're selling out. [35:55] Like, how do I have a quarter of a [35:57] plane? So, none of them were a buyer. I [36:00] think at the end of of of 12 months or [36:02] 15 months of being on the road, I had [36:04] maybe 7 million of opportunities if I [36:07] put up assets equivalent to 7 million. [36:09] It was the worst financing ever. In June [36:11] of of 1998, Warren Buffett buys NetJets [36:15] for $750 million and he christens the [36:19] industry and I just happened to be the [36:21] guy who saw the banks last. And that [36:24] summer I got almost $300 million of debt [36:28] financing. So again, accidentally [36:30] wealthy [36:31] >> because they're like, "Well, Warren is [36:33] doing it's a good idea. [36:35] >> Had a good idea." Yes. [36:36] >> Yep. And all of a sudden, Bombardier [36:38] Capital, Boeing Capital, Fleet Bank, all [36:41] 50 million here, 50 million there gave [36:43] me these lines of credit that allowed me [36:45] to buy the initial fleet, which I went [36:47] active October 13th, 1998. [36:50] >> But what is the company? Is it still [36:51] corporate wings? [36:52] >> No, I phoned a I I I branded that [36:55] product Flight Options. [36:56] >> Okay, that was the brand. [36:58] >> Deal is how the best founders turn the [37:01] world into their talent pool. I've been [37:03] studying how history's greatest founders [37:04] operate for a decade. And one thing they [37:06] all have in common is they understand [37:07] that recruiting and hiring the very best [37:09] talent is your most important priority. [37:12] A players recognize other A players, [37:14] which is why top companies like Ramp, [37:16] Shopify, 11 Labs, Uber, and Door Dash [37:18] all use Deal. 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Deal is trusted by [38:00] over 40,000 companies and growing fast. [38:03] Learn how they can help your business by [38:05] going to deal.comra. [38:08] That is deal.com/ [38:10] senra. [38:11] >> So that's flight options. You start with [38:13] how many planes with flight options? [38:14] >> Well, once I get the financing probably [38:16] 25. [38:17] >> Okay. Why'd you pick a number like that? [38:18] >> There were three different fleets. Okay. [38:21] Two two light jets and a and a medium [38:23] jet. And you need about eight aircraft [38:26] to be your core fleet. In other words, [38:28] if if you and me are both going to buy a [38:30] share of an aircraft, we recognize there [38:31] can only be one because if you and I [38:33] want to fly the same day, who gets the [38:36] plane? So, you had to show the potential [38:38] prospect that you had a fleet. And eight [38:40] was about the number that people Well, [38:42] oh, you have you have eight citations, [38:44] I'll buy one. And then you have you can [38:46] service us. [38:47] >> So, if you had 25 planes to start out, [38:49] how many customers like what when do you [38:51] hit your limit? Like, oh, we had 100 [38:52] people's too much. Like what's the [38:54] >> No, because remember these are core [38:56] fleet. These planes never get sold. What [38:58] I do from this point on is if four [39:00] people buy a buy the citation, I buy [39:02] another citation. [39:04] >> Okay? [39:04] >> So these 24 aircraft are awesome. [39:06] >> You don't stay with 24 25 for [39:07] >> and you know what that kind of that's [39:09] still a model we use today. If we look [39:10] at our fleet of 365 aircraft, we would [39:13] tell you that about 70 of them are core [39:15] fleet. They don't get sold. They're just [39:17] there to support your our customers [39:19] ownership in a share of a jet. [39:20] >> Okay. [39:21] >> Yeah. because we need that because on [39:23] peak travel days we're going to have [39:24] more demand than there's just not enough [39:26] airplanes to go around. So we still have [39:28] that core fleet model. [39:29] >> Okay. So but this is called flight [39:30] options. [39:31] >> Yes. [39:31] >> How do we get from flight options to [39:33] flesh jets? [39:33] >> Okay. So uh there it's a little longer [39:36] than you probably hoped but $100 million [39:38] in sales between October and December. [39:41] 400 [39:41] >> away first three months of [39:43] >> David. This was the most amazing thing [39:45] I've ever seen in my life. People [39:46] thought it was such a great bargain that [39:48] they would send me a check. I think the [39:50] buy in at that time was like $800,000. [39:53] People would send a check for $800,000 [39:55] and say, "Send me the paperwork. I want [39:57] to fly tomorrow." In other words, they [39:58] loved it so much they knew they couldn't [40:00] fly till I had the money. They'd send me [40:01] the the checks and they'd go, "Send me [40:03] the paperwork. We'll get to that stuff [40:04] later. Just let me fly." [40:05] >> Yeah. [40:06] >> So 100 million in the first 3 months, [40:09] 400 million in the next year, and now [40:12] all of a sudden I have no I've got a [40:13] tiger by the tail and no clue, right? [40:16] because a business that grows that fast [40:18] is immensely complicated particularly [40:19] for cash flow. And I think at that time [40:21] I didn't really realize that you know in [40:23] capital intensive industries [40:25] particularly like aviation the balance [40:27] sheet is the whole game. It's not the [40:28] income statement it's the balance sheet [40:30] you know forget income forget EBID it's [40:33] free cash flow and well how strong is [40:35] your balance sheet that that's what [40:36] drives that business. I didn't know I [40:38] didn't know that in 1998 I hadn't [40:40] figured that all out yet. I'm in my [40:42] early 40s when this is happening. And so [40:44] then I bring in I bring in an equity [40:46] partner. So now I have some equity [40:47] partners around the table. 2000 we have [40:49] the dotcom bomb. [40:51] >> So I've been through I've been through [40:52] four recessions. That was that was [40:54] number three. So now the business is [40:56] struggling a little bit. Cash flow [40:58] struggling not volume struggling. And we [41:01] decide you know when a business is in [41:03] trouble you there's there's two things [41:04] you can really do. Well three things I [41:06] guess you could close it down. Two is [41:08] that you can sell it for a song. Or or [41:10] three, you you you you strategically [41:13] change direction. So you you go to the [41:14] bankers because your problem is always [41:16] the credit markets. It's always who's [41:18] who's out there for you. And you say, "I [41:20] have a new strategy. I'm going to merge [41:21] with this company. Here's the [41:22] projections." And you buy yourself time [41:24] to see if you can put these companies [41:26] together. [41:28] Acquisitions. Mergers are incredibly [41:30] difficult. I hate them. I don't do them [41:32] very often. I think they're immensely [41:34] culturally they're damaging. Why do you [41:37] hate mergers? [41:38] >> I I hate them for me because for me I [41:41] think they're a sign of weakness because [41:43] you can't build your business on your [41:44] own. You can't whatever this company is [41:47] offering you in terms of let's say it's [41:49] market share. Let's say they have a part [41:51] of the market. You have a part of the [41:53] market and you say gosh we'll capture [41:54] the market. Well do you really need to [41:57] spend 12 10 times cash flow to grab the [42:00] market? Would you invest that money [42:02] yourself and get grab the market share [42:04] or do you not have a good enough product [42:06] to do it? So I think we don't analyze [42:08] enough what it costs for whatever your [42:11] logic is for bringing that in. Give me [42:14] the logic for why you're doing that. And [42:16] I would tell you 90% of the time you [42:18] could probably do this yourself without [42:20] the acquisition. Now once you do the [42:22] acquisition culturally if you have a [42:24] business build on culture which is [42:26] essential for me it's essential for us [42:28] it's impossible building a c bringing in [42:31] you know you can integrate a culture if [42:33] 10% of the workforce is being added [42:35] adding 30% 40% culturally impossible and [42:38] then you're going to destroy your [42:39] culture. So you probably had you [42:41] probably overpaid you I don't know if [42:43] your business if the business reasoning [42:45] is sound and you you really put your [42:47] culture at risk so that's why I don't [42:48] like them. [42:49] >> Okay. So, but you were this was the the [42:51] >> I'm in trouble. I'm in trouble [42:52] financially. [42:53] >> So, you have to [42:54] >> Yeah. I haven't figured this out yet. [42:55] You're You're asking me this was this is [42:57] 26 years ago. I have knowledge that's [42:59] accumulated since [laughter] then. Um [43:01] so, we merged with a company that's also [43:03] in trouble called Traveler. It's a [43:05] division of Rathon and we do the we slap [43:07] it together 50/50. [43:09] >> Are they in the same business? What are [43:10] they? [43:10] >> Yes, they have a company called Traveler [43:12] that has a a brand new product line [43:15] >> but also fractional ownership. Okay. [43:17] Henrian owned Beachjet at the time, [43:19] Beachcraft, Beach Aircraft. And and they [43:22] had merged it with Hawker Beach. It [43:24] became Hawker Beach. And so they were [43:27] trying to see they had Travel Air as a [43:29] distribution channel for their aircraft. [43:31] So they it's not making money. It's [43:34] losing $30 million a year. They they [43:35] slap it together with flight options [43:37] which was marginally breaking even on. [43:39] We were making money but not free cash [43:41] flow. [43:42] >> So we put these company consolidate, get [43:44] rid of the back office. Uh uh Rathon [43:47] wants to focus on missiles and [43:48] submarines and in the concept of putting [43:50] these two together 50/50. We come up [43:52] with shareholders roulette. Are you [43:53] familiar with that term? [43:55] >> Yeah. Where you have to [43:56] >> you have to make an offer to buy [43:57] >> buy or sell it [43:58] >> at the same price. So I had 18 months to [44:00] underwrite the transaction. I go to [44:02] Warberg Pinkus. I need I need an outside [44:04] I need an investment partner to do this. [44:07] They see the model. They value the [44:08] business at 360 million. I go running up [44:11] to Lexington, Massachusetts to go into [44:14] Rathon to tell them, "I'm here with your [44:16] $180 million. This company was a piece [44:18] of and now I'm here. I figure, [44:20] where are you putting the Ken Ricky [44:22] statue that I found like I found all [44:24] this money for you?" And they looked at [44:26] me and they thought I was stealing the [44:27] business and they bought me out. [44:29] >> Oh. [44:29] >> And I'm gone. 2002, I've lost my throne. [44:33] It was the worst day of my life. I had I [44:35] was passionate. I love this business. My [44:37] friends were in the business. Right. [44:39] >> Hold on. We got we got to pause here cuz [44:40] this is very interesting. How much of [44:42] the 180 come to you personally? [44:44] >> You hit the nail on the head. You have [44:45] you have a knack for asking the exact [44:46] right question. I own 16% of the [44:48] company. [44:49] >> Okay. Fast forward today. The punch [44:51] line's going to be I bought this company [44:52] back and now I have a controlling [44:54] interest. So, who thought the worst day [44:56] of my life? [44:57] >> But still, like you thought, let's go [44:58] back to like you were you learned how to [45:01] be a pilot when you're in college. You [45:03] grow up, you know, middle class in Ohio. [45:06] Now you have millions of dollars and you [45:08] just said it's the worst day of your [45:09] life. This is really really important [45:11] because the whole point of this show is [45:13] like I usually talk to people that do [45:14] things for a very long time and there's [45:16] like this new industrial like [45:18] entrepreneur ecosystem and it's driven [45:20] by investors and they tell they give the [45:21] worst advice to founders ever. They're [45:22] like start scale sell. It's like I've [45:24] talked to all these investors or excuse [45:25] me these entrepreneurs that sold. They [45:27] all talk about like this. If you sold [45:28] something you loved they they're like [45:30] yeah but your uh uh Travis uh from Uber [45:34] >> Yeah. was in that chair and he made [45:36] billions of dollars and lost Uber. Yeah. [45:39] Ask him how he felt when he had four or [45:40] five billion dollars dropped in his [45:41] head. He didn't give a [45:42] >> Didn't give a about it. Absolutely [45:44] didn't give a about start scale. [45:46] Get a new investor. [45:48] >> It's crazy. So, okay. So, worst day of [45:50] your life. Let's take take me to that. [45:51] You were like, I thought I was going to [45:52] have this company. They bought you out. [45:54] >> First of all, no one was going to be [45:56] more passionate about building that [45:57] business than me. I don't care who [45:58] Rathon put in there. It was never going [46:00] to you know, these businesses are small [46:02] margins. They're they're highly [46:04] technical. It's uh there's not an MBA [46:06] program at Harvard on how to run private [46:08] aviation. At least there wasn't at that [46:10] time. It's become a lot more popular [46:12] now. [46:12] >> You're in your 40s at this point? [46:14] >> Yeah. 42. [46:15] >> Married with ch with children? [46:16] >> Uh yes, at the time. [46:17] >> How many kids? [46:17] >> Uh two children at the time. [46:18] >> Okay. Yeah. So, you got you got a [46:20] couple, you know, tens of millions, [46:22] whatever the the number is. [46:23] >> What's your what's your thought process? [46:25] Like where Well, first of all, I I [46:27] always say it was the worst day of my [46:29] life. I lost my throne. I lost my [46:31] passion for living. I lost the vision. I [46:33] didn't have any vision like what am I [46:34] doing now? And then you know when you do [46:37] this it's horribly conflicting because [46:40] you don't want the company to succeed [46:41] without you, right? You you had to be [46:43] the binding force. So you really don't [46:45] want it to succeed. But on the other [46:47] hand, you don't want it you don't want [46:48] it not to succeed. You built this baby. [46:50] Your friends are there. If it doesn't [46:52] succeed, then your whole idea was for [46:54] So it's very conflicting. And I [46:57] got so tired like of being in Cleveland [46:59] and at a restaurant. What happened? [47:00] people wanted to hear this story because [47:02] at the time, you know, there's there's [47:04] 800 employees, so all in mostly in [47:07] Cleveland. So, I decided I was going to [47:09] move. [47:09] >> This is what we were talking about [47:10] before. I was like, where where do you [47:11] live? You're like, Arizona. Like, how [47:12] the hell did you wind up in Arizona? [47:13] >> I just decided I was going to go west of [47:15] the Mississippi. I was going to be in a [47:17] big town. It was Denver, LA, or or [47:19] Phoenix. And uh LA was a redeye to get [47:22] back east. So, I decided and Denver was [47:25] a little cold. So, I ended up in in [47:27] Phoenix and been there since 2003. So [47:30] now nothing to do. I'm in Phoenix. At [47:32] least I'm not being asked what the hell [47:34] happened. And Warberg Pinkis obviously [47:37] took a liking to me. That's why they [47:38] backed me. They said, "We want to get [47:40] more into this space. We'd like to give [47:42] you $250,000 a year. You'll be our [47:45] executive and residence. You'll find [47:47] deals for us and we'll give you a little [47:48] piece of the action of whatever you do [47:50] in private aviation." [47:52] And I was like, "Well, wait a second. [47:54] Like, why would I do that first? Why [47:56] don't I go find the deals and then [47:58] decide who I want to bring in? Like why [48:01] would I just line up with Warberg? [48:02] Because then they get to say yes or no [48:04] on a deal. In other words, I come to buy [48:06] your company and I have to call Warberg [48:07] and go, "Can I buy them?" [48:09] >> Whereas if I just do this myself, I [48:11] could come in, make the deal, and then [48:13] go find the capital. So that's when I [48:15] started directional capital, which was a [48:17] company met again an inch wide, a mile [48:19] deep. We put our our our website went [48:21] out. We only invest in an area we know a [48:23] lot about. I knew people in the industry [48:25] who needed capital at the time and they [48:27] came to me because they knew they didn't [48:29] have to explain to me what was our cost [48:31] per hour, what was dispatch [48:32] availability, what was, you know, what [48:34] was occupied rate. [48:35] >> You knew the ins and outs of the [48:36] business already [48:37] >> and they trusted me and then [48:38] >> and you're getting equity in return for [48:40] cash. Is that what you're doing? [48:41] >> Well, you mean when I [48:44] >> Absolutely. Absolutely. It's venture. [48:45] It's it's private equity, right? And [48:47] then they always liked my story. Well, [48:48] Ken, what what mistake did you make that [48:51] helped me finance my company? And don't [48:52] make that mistake. I I played on that. [48:55] You know, I look, I I can tell you where [48:56] the where the the bodies are buried. [48:58] >> And lo and behold, I was working two or [49:01] three different deals. My my partner [49:02] Mike Rossy, who came in with me in the [49:05] early '9s when I kind of transitioned [49:07] out of pilot into starting to work more [49:09] on the businesses. Um we get approached [49:12] by Allied Capital who there was a [49:14] company called Mercury Air Centers based [49:16] mainly on the West Coast. They're in [49:18] default on their debt with Foothill [49:20] Capital, a division of Wells Fargo. And [49:22] we buy this company for $80 million in [49:25] concert with Alli Capital. [49:26] >> What does Mercury do? [49:27] >> They FBOS's. They own only FBOs, fuel [49:30] fuel, you know, private fuel facilities [49:33] for private jets. [49:34] >> A lot of people are buying up FBOs right [49:35] now is what I hear. [49:36] >> It's horrible. [49:37] >> Why? [49:37] >> Well, here's the problem. I started the [49:39] industry. So I in in many ways I created [49:41] this monster. [49:43] >> Well, because they're only going to [49:44] private equity. And we could get into [49:46] whole my whole philosophy on private [49:47] equity. I don't think it's really good. [49:50] Sybans Oxley changed in 2000, right? [49:52] Those Sorbane Oxley rules made it so [49:54] hard to be a public company. But even [49:57] those companies that are public still, [49:58] if you read their if you read their [50:00] annual reports, they have some master [50:02] besides greed, they have environmental [50:05] policies, they have social policies, [50:07] they have policies regarding their [50:09] employees and their leadership. Private [50:12] equity has to disclose none of that. [50:14] They are solely based upon a return to [50:16] investors. So they're solely about [50:18] greed. And so they've taken an industry [50:20] and just tried to monopolize it. It's a [50:22] duopoly now in the FBO industry. Again, [50:25] I started it because I sold the business [50:27] to Atlantic Aviation as which is one of [50:29] the duopolists. They're just pushing the [50:31] envelope and what's the most amount of [50:33] money we can abscond with from these [50:35] wealthy people that buy jets and they [50:37] have this new thing called event fees [50:39] which they make up in the morning. A [50:40] lunar eclipse, let's charge an event [50:42] fee. Uh, you know, I mean, it's just [50:44] it's just horrible. And I think there's [50:45] being a real rep repercussion into the [50:48] industry now. But we digress. [50:50] >> But you buy it in early 2000 Mercury Air [50:54] Center, these FBO chain the 18 or 19. [50:56] >> What did you like about their business [50:57] that you wanted to buy it? [50:59] >> Well, first of all, it was in the [51:00] vertical I knew. So I knew how to market [51:02] to corporate pilots. I knew why people [51:04] wanted an FBO. The business made money [51:07] on the on the spread between what they [51:09] bought fuel for and what they sold it [51:11] for. So relatively easy business to [51:13] understand. I had a non-compete. I [51:15] couldn't necessarily compete in the [51:17] operating side of the business. So, it [51:18] was available. I The non-compete didn't [51:21] cover fuel distribution or hanger and so [51:23] on. I can see where it was a very [51:25] fragmented industry. We had 18 FBOs. It [51:28] was the sec one of the second largest at [51:30] the time. And so going out and buying [51:32] these little mom and pops and giving [51:33] them 4 million, 3 million. We were [51:35] buying it six times etha at the time. [51:37] Today, these businesses, an FBO business [51:39] will trade at 15 to 20 times today. Mhm. [51:42] >> Did that bought it for $80 million in [51:44] 200 and 2005 and then sold it in 2007 to [51:49] McQuary, which now is called Atlantic [51:51] Aviation. So we built it about doubled [51:53] the size of it and sold it for 615 [51:56] million. [51:56] >> Oh, so that's where you have a you're [51:57] getting a huge chunk of cash now. [51:59] >> Great. I own 20% Alli Capital had 80. [52:01] Okay. [52:02] >> Okay. So Mike and I [52:03] >> that's a really good in two years [52:04] considering you had to do something and [52:06] you couldn't do what you really wanted [52:06] to do. [52:07] >> Right. Right. So again, the worst day in [52:10] my life. I don't I you know, let's just [52:12] have faith in the future. I see none of [52:14] this coming, right? I see none of this [52:15] coming. But that's where I get the [52:18] capital. And what do you think happens [52:19] next? Rathon's had enough fund with with [52:21] flight options. They've lost $600 [52:23] million in the in the years they've [52:25] owned it. The company's become unionized [52:28] and it's a problem and it's it's going [52:30] to crap. So, who do they call, Ken? You [52:32] want to take this piece of off our [52:34] hands? And what do I say? Of course I [52:35] do. [laughter] [52:37] I want my company back. I don't care [52:39] what shitty position it's in. I want my [52:41] company back. Think about this one. [52:43] Financial crisis happens in September. I [52:45] buy it in December. So, how dumb am I? [52:48] [laughter] [52:48] I'm the dumbest guy in the world. I buy [52:50] this company back in the in the the dear [52:52] of the financial crisis. And what do you [52:54] have to pay for it? 135 million. [52:56] >> Okay. [52:57] >> Okay. Of which the reality is the [52:59] because there's li there's payables, [53:01] there's liabilities. We're assuming the [53:03] reality is it was it was around it was [53:05] around 42 million and I borrowed a 27 I [53:10] gave a $27 million personal note and 15 [53:13] million in cash. [53:14] >> What did you back up that personal note [53:15] with? [53:16] >> Just me. [53:17] >> How did you do that? [53:18] >> The seller took a note for 27 million. [53:20] Not a long note. I think three year a [53:22] three-year note. But I you know there [53:25] were I had I had invested in a couple [53:27] other small businesses at the time. I [53:29] had I had assets. I had a home. I had I [53:31] hadn't [53:32] >> Did you have to pledge to the home or [53:33] No. [53:33] >> Oh, yeah. [53:33] >> Okay. That's where I was getting [53:35] personal guarantee of everything. [53:36] >> That's what I thought. Okay. That's [53:37] where I was getting. [53:37] >> Yeah. And I did have the $100 million [53:39] that from the you know, I used some of [53:40] that, but I had some I had some I had [53:42] some net worth out there that was that [53:44] was viable. [53:45] >> Is this the company that becomes Fleck [53:47] Jets? [53:47] >> Yes. One more step and we're done. [53:49] >> Okay. [53:49] >> So, I inherit flight options back. I [53:52] decide the the the no capital's been [53:54] invested. I need a new fleet of planes. [53:56] So, I look around the industry. Who's [53:58] got the best fleet? It's Bombardier. [54:00] They have these Challenger 300s which [54:02] are super mid. This is where the market [54:04] is going. There's these eight passengers [54:06] transcontinental. Kind of the perfect [54:08] fit for the shitty planes I have at the [54:10] time that are Can I pause there? Yeah. [54:12] Because like you said earlier there's [54:13] like there was like 5,000 private jets [54:16] when uh you started in the industry in [54:18] like the ' 80s or whatever that was. [54:19] Then there's 35,000 today. [54:21] >> Yeah. [54:22] >> I think I read like almost all of them [54:23] are in America. Like what is America's [54:25] share of that? [54:26] >> 85% of the market. [54:27] >> That's incredible. [laughter] Yeah, [54:29] people always ask me, "What's your [54:31] what's your strategy for Asia?" Don't [54:33] need one. Don't need an Asian strategy. [54:36] There's three flights a day over there. [54:38] I'm doing 800 flights in the US. Like, [54:40] what are my strategy to get those last [54:42] three flights? I mean, what are you [54:43] thinking? [laughter] [54:45] >> Okay. So, you need a new flight or you [54:47] need new planes and you go to [54:48] Bombardier, [54:49] >> right? So, so what I really want is the [54:51] Challenger 300, but they have a company [54:53] called Flexjet and they have [54:55] exclusivity. They only have Challenger [54:57] 300s. [54:57] >> Okay. of a fleshed is also fractional [54:59] ownership. [54:59] >> It's fractional same owned by [55:01] >> by Bombardier. [55:02] >> Okay. [55:02] >> Based in Dallas. But I caught a good [55:04] sales guy. I caught this I caught a guy [55:06] who was head of sales that when I told [55:09] him I wanted to buy 20 Challengers and [55:12] at the time they were about 15 million a [55:14] piece. So when I came up with $300 [55:16] million order, he scratched his head and [55:19] was like, "Am I really going to lose a [55:20] $300 million order because there's this [55:23] non-compete with a company we own?" So [55:25] he goes to Pierre Badwen who was run the [55:28] head of Bombardi. The family's own [55:29] Bombardi. The Badwin family's own that [55:31] that that company for years, still does [55:32] control it. And I had known Pierre [55:35] through YPO. He liked me. And he said, [55:38] "Well, Ken knows aviation." And why [55:41] don't you, he tells Steve, the head [55:43] sales guy, why don't you see if he'd buy [55:44] Flexjet? [laughter] [55:47] So I went to buy planes and they sold me [55:49] Flexjet in 2014. [55:51] >> Why did they want to get rid of it? [55:52] Well, because again they're in the [55:53] manufacturing business to be honest with [55:55] you. They were financially struggling [55:57] after the crisis. So picking up I paid [55:59] 180 million for Flexjet. Picking that up [56:02] was 180 million they probably needed at [56:04] the time. With 180 million came an order [56:06] to buy 20 more aircraft. By the way, [56:09] with the deal they made me expand the [56:11] order to have globals, which I had no [56:14] idea how I was going to pay for. I had [56:16] to buy 15 globals and they were 40 [56:18] million a piece and I did not have that [56:19] $600 million. So, where'd you come up [56:21] with that? [56:22] >> Oh, that's a that's again life is life [56:23] is funny. So, we signed the deal. We're [56:26] going to buy flex jet. [56:26] >> Sign the deal not knowing how you're [56:27] going to pay for the globals. [56:28] >> Well, I knew how to pay the 180. No, I I [56:31] did not know how I was going to pay for [56:32] the globals. I did not know how. So, [56:34] with with the buying of 180 million, I [56:36] place a billion dollar order for [56:38] Challenger 300s and globals and and [56:40] actually some Lear Jets, which they [56:41] owned at the time, too. So, I buy the I [56:43] I placed the order. Fingers crossed that [56:46] we'll ever be able We'll figure out how [56:47] to pay for those airplanes later. I got [56:48] to get flex in here. They call me [56:51] up. It's We're going to close like in [56:53] October. They call me up in September [56:54] and I get the By the way, I need to come [56:56] see you. And I'm like, I'm toasted. I'm [56:58] I'm on this deal because they're [57:00] coming they're coming to tell me NetJets [57:02] has beating my offer cuz there's only [57:04] three companies left at the time. [57:06] There's Flexjet, Flight Options, and [57:08] NetJets. These are the or the Citation [57:10] shares, too. But there's three big [57:12] companies. And the number two and number [57:14] three are about to merge. And I figure [57:16] Warren Buffett isn't going to let this [57:17] happen. He's gonna he's he's in there. [57:19] He's coming in to take my bid. So, I [57:22] know they're coming to tell me and they [57:24] sure enough they sit down and they go, [57:25] "We have a problem with NetJets." And [57:28] I'm like, "Oh, no. They had globals [57:31] there also." And they were not. And and [57:34] Bombardier claims they were not aware [57:37] that in the contract when they sold the [57:38] Globals to NetJets, it prohibited them [57:41] selling them to me. So, the message they [57:43] had to convey was, "We can't sell you [57:46] the Globals." That's not a bad [57:48] >> Whoa. 600 million I didn't have to worry [57:50] about. [laughter] [57:51] And of course I went, "Oh, that sucks. [57:53] Are you kidding me? This destroys [57:55] everything I needed a vision of." [57:58] [laughter] [58:00] >> And now fast forward, right? Two years [58:02] later, we do the Gulf Stream and part of [58:03] that deal we get exclusivity. So now [58:05] we're the only people that can operate [58:07] Gulf Streams. [58:08] >> Oh, I didn't know this. So wait, so so [58:10] Net uses global to this day. Well, see [58:13] what would have happened if if they [58:14] didn't pull that card on me. I would [58:16] have had to be committed in each [58:17] category, light jet, midjet, and heavy [58:19] jet to buy the Barbaria product. That [58:22] was the deal. They didn't want to lose [58:23] their distribution channel. But they [58:25] took heavy off the plane, off the [58:26] tarmac. They they took that away because [58:28] they couldn't sell me the Globals. That [58:30] opened me the opportunity to go ahead [58:32] and buy the Gulf Streams, which I did in [58:34] 2017. [58:35] >> Awesome. [58:36] >> And now we still buy them today. I mean, [58:37] we're the largest GFream operator in the [58:38] world. We have 85 of them. [58:40] >> Wow. [58:40] >> Yeah. Yeah, we have more than the US [58:42] government. [laughter] [58:44] >> That's a great stat. [58:44] >> So now I own Flexjet. [58:46] >> Yeah. And then why do you decide, okay, [58:47] I'm going to use that name instead of [58:49] >> Well, because Flight Options were for [58:50] Okay. [58:51] >> Flex is a better name. [58:52] >> It had a bad reputation. It wasn't [58:54] paying its bills. I bought [58:55] >> Flight Options because because they had [58:57] it up. [58:57] >> Yeah. They the the the lost half their [58:59] customer base because they gave shitty [59:01] service. The planes lost capital. They [59:03] never invested in the planes. So the [59:04] seats were torn. I mean, it just the [59:06] name had a bad reput they were [59:08] unionized. [59:08] >> Yeah. Yeah. [59:09] >> And it's this bad union reputation and [59:11] so so Flexjet was the much better way to [59:13] go forward. [59:14] >> Okay. What year do you are you buying [59:15] >> 2014? [59:16] >> 2014. [59:17] >> Yeah. Okay. Takes me the next four years [59:19] to integrate the two companies including [59:21] getting rid of the union. [59:23] >> Why four years? [59:24] >> Well, culturally the companies were [59:26] different exactly the same size about [59:28] like 300 pilots each, 600 pilots total [59:31] between the two customers. Remember, you [59:34] got the shitty hawkers over at Flexjet [59:36] and you have the nice challengers at Fle [59:39] I mean the shitty at flight options and [59:41] the the challengers at Flexjet and the [59:43] Flexjet customer doesn't want to be on [59:44] the shitty hawker. So the integration of [59:47] trying to get the systems the the [59:48] economics of putting the systems [59:50] together weren't that easy. [59:51] >> It was a lot harder than you expected. [59:52] >> Yeah, a lot harder. Culturally, Flexship [59:55] was like we hate the union and everybody [59:57] identified themselves. Well, I'm I'm a [59:58] flight options pilot. I'm a flex ship [60:00] pilot. Just think about how do how do [60:02] you get uniforms to 600 pilots? [60:04] >> Yeah. [60:04] >> Right. What do you have to pick uniform [60:06] crossover day? Like so for a while you [60:09] got two different colored pilots flying [60:10] and you got the blue pilots and the [60:12] brown pilots. I mean it just was it just [60:14] was very complicated. [60:16] >> But even though you're going through [60:17] this difficult 4-year period and this [60:19] makes more sense now. I've got like the [60:21] whole history of why you hate mergers [60:22] and acquisitions [laughter] [60:24] >> and you have a couple experiences that [60:25] are bad. I have, but are you still [60:27] really you strike me as a supremely [60:29] optimistic guy? You're just like, okay, [60:30] I'm going to sell this contract. I'll [60:31] figure out where the 600 million is [60:32] coming later. Right. [60:34] >> Do you still have a lot of faith in the [60:35] fractional ownership business? [60:36] Absolutely. [60:37] >> So, you're like, you're know this is [60:38] what you're going to do for this is like [60:40] your life. [60:40] >> Yeah. Not not for this program, but if I [60:42] showed you the the economics of how a [60:44] charter operator works, how a management [60:46] company works, and how a fractional [60:48] company works, and showed you topline, [60:50] bottom line, and margin, it's the only [60:52] operationally dynamic model. It's the [60:55] best model. Rich San Julie, he invented [60:58] this model and it was brilliant. [60:59] >> Okay, so the 4-year period, now we're in [61:01] 2018. Now you're under Flex Shetts. You [61:04] have the uniform pilots. [61:05] >> The union's gone. [61:06] >> The union's gone. [61:06] >> The only time we've ever only time a [61:08] union's ever voted to to for [61:10] self-representation in the history of [61:12] pilots. [61:12] >> Oh wow. Okay. [61:13] >> Only time. [61:14] >> Yeah. [61:14] >> Now you have the planes that you want. [61:17] >> The kind of planes that you want. Okay. [61:19] >> The state of the business there though, [61:20] I feel from let's say let's say that's 8 [61:23] years ago. [61:23] >> Yeah. Has the business like doubled in [61:26] size? Tripled like quadrupled. [61:28] >> Quadrupled. Quadrupled. Okay. It's a [61:30] private company. We're not even going to [61:31] get into the fact that you almost like [61:33] took it public and that. [61:34] >> Shoot me. But go on. [61:35] >> Yeah. And then you paid like I think $30 [61:36] million to get out of it. Million dollar [61:39] mistake. [61:40] >> Well, first of all, why why is this so [61:41] important to you? Cuz I'm obsessed with [61:42] like familyowned businesses, private [61:43] companies. Like it's just like to me [61:45] like the ideal situation. You know, I [61:47] have a bunch of friends that are public [61:48] company CEOs. Yeah. And they all [61:49] secretly hate it by the way. [laughter] [61:51] But like why was it so important to like [61:54] in addition to let's take away like the [61:55] reporting and how difficult it is [61:56] running a public company but like why [61:58] did you want to keep your company [62:00] private? [62:00] >> Because I believe in a higher being. I [62:02] think there's a purpose we have beyond [62:05] wealth accumulation. Okay. There has to [62:07] be I've always struggled and of course I [62:09] went to Jesuit high school so of course [62:11] I was of course I have the guilt gene [62:13] but I've always struggled with the [62:14] question like why am I here? It took me [62:16] till 2018 [62:19] to really find who I am, why I'm here to [62:22] all come into alignment. And it's [62:24] crystal clear in my life today. I always [62:27] struggled with it. I could go back to [62:29] conversations in the late ' 80s and late [62:31] 90s when I was starting the business. [62:33] And I'm asking, how does this business [62:35] serve others? And I think fundamentally [62:37] I always knew my life had to be about [62:40] serving others, but always shied away [62:42] from wealth because that didn't seem [62:43] like wealth doesn't serve others. that [62:45] serves me right. You can have there's [62:46] very, you know, wealth seems to be very [62:49] tempting. So, it took me a long time to [62:52] find my life. [62:54] >> Before we get to 2018, you're figuring [62:55] this out. Take me to some of these [62:57] conversations where you're like [62:58] questioning this with like what's your [62:59] inner monologue? Are you sharing these [63:00] thoughts with other people? [63:01] >> Yeah. In fact, probably, you know, if [63:03] you were to ask me like some of the most [63:04] influence of people in my life. One of [63:06] the most influential was Father Ted [63:07] Hesper who le who led the University of [63:09] Notre Dame for 35 years. You know, he [63:11] ran this amazing institution. He grew it [63:14] from going broke during World War II [63:16] because they had no students to becoming [63:18] one of the most prominent universities [63:20] in the in the world today, right? And he [63:22] did that over a 35 year tenure as [63:24] president. And he had an amazing [63:26] business sense as well as being a [63:29] priest. So, you know, he he was an [63:32] amazing resource and had amazing [63:33] insights. And I remember going to him at [63:36] a time he he retired from president, so [63:39] he was very available. I ran the student [63:41] government when I was there. So, I knew [63:42] him from my days at Notre Dame. [63:44] >> And so, you go to him [63:45] >> and I asked him a question. I asked him, [63:47] I said, um, you know, I'm I'm I'm pretty [63:51] sure that that I'm pretty sure that [63:53] Jesus was not a capitalist. I'm pretty [63:56] sure he had to be a socialist cuz I [63:58] don't recognize anything in what I was [64:01] taught about why we are here in the life [64:04] of capitalism. I don't see that. I I'm [64:06] not finding that. And I said that to him [64:09] and he looked at me and he said, "I have [64:10] two thoughts for you. Number one, it can [64:14] be if it consumes you." I actually said [64:17] to him, I said, 'You know, I got a [64:18] shitty gift. You know, if I could cure [64:21] cancer, that would be a great gift. If I [64:23] could like heal the poor, I mean, [64:25] there's a lot of good gifts. There's a [64:26] lot of very altruistic gifts. I don't [64:28] have that gift. I got the gift for [64:30] looking at a balance sheet and [64:31] understanding how the business can [64:33] translate to the balance sheet. I I [64:35] understand that. that that's my special [64:36] gift. And he said to me, um, yeah, you [64:40] can you God thought enough of you to [64:43] give you that gift. You're going to be [64:44] tempted your whole life with being [64:47] selfish with this gift or thinking about [64:49] how to continuously use this gift for [64:51] others. But God had enough confidence [64:53] [clears throat] in you to give you that [64:54] gift. And so run with it. And number [64:57] two, he told me, don't overthink this. [65:00] He goes, life is really simple. We want [65:03] to make it We want to make it so [65:05] complicated. To have a life of [65:06] significance, you only have to do three [65:08] things. Be true to your God. Be as good [65:10] as your parents and champion the causes [65:12] of underdogs. He didn't say be a [65:14] Catholic. He didn't say be a Christian. [65:16] He said be true to whatever you think is [65:18] why you're here in existence. Be as good [65:20] as your parents. Our parents are flawed [65:22] in so many ways. He didn't say be the [65:24] perfect parent. But parents come with a [65:27] genuine acceptance that they want to [65:29] give life, right? So he said be be as [65:31] good as and then champion the cause of [65:32] underdogs. Always look around the room, [65:34] find the underdog and go to them. [65:36] >> Okay. So you're having these [65:37] conversations you're with people you [65:40] trust and yourself for several years. [65:41] And then you said you didn't really [65:42] figure out why you're here till your two [65:44] until 2018. What was the answer that [65:46] arrived in 2018? [65:47] >> You want to know my immediate my [65:48] immediate reaction? So remember I'm [65:50] still doing a little bit of flying. I'm [65:51] flying these rock stars. I'm flying Bill [65:53] Clinton at the time actually. And um and [65:55] and I'm and I'm reading because when [65:57] you're a pilot you have a lot of time to [65:58] read. you're you're waiting a lot and I [66:00] read a biography about an Indian chief [66:03] and in order to become head of his tribe [66:05] to become chief he had to prove that he [66:08] was worthy of the tribe and that meant [66:10] giving away all his worldly possessions. [66:13] Somehow this sticks with me. I have the [66:15] conversation and in 1992 I decide to [66:17] give away everything to prove to myself. [66:20] I saw one of your guests talk about I [66:22] think it was about um having a a tooth [66:25] procedure without Novacaane to prove he [66:27] had courage. [66:28] >> Everybody's seen this. [laughter] [66:30] >> That clip got tens of millions of views. [66:32] >> Okay, that's how I know it. That wasn't [66:34] my courage. My courage was to give away [66:36] all my assets and then to build them [66:38] back up. [66:39] >> Well, it didn't matter. I I had to prove [66:41] to myself that my that that that wasn't [66:43] what ran my life. That the accumulation [66:45] of wealth wasn't what wasn't going to be [66:48] what ran my life. That I had the courage [66:50] to use the talent I had, not for [66:52] self-accumulation. Okay, so this is kind [66:54] of what we were talking about before um [66:56] we recording. I told you fantastic lunch [66:58] I had with Samzel and his whole thing [67:01] was just like he's like I know all the [67:03] rich guys. You'd be surprised how [67:05] miserable most of them are. They have [67:06] more money than they'll ever spend. They [67:08] trade time which they can't get more of [67:10] uh doing things they don't like for more [67:12] money they can ever spend. He's like [67:13] there's only one true luxury in life and [67:14] that's like get to private jet money. [67:16] That's what this advice that he gave me [67:17] cuz he's like you bought everything in [67:19] the world and he's just like it doesn't [67:21] matter. He's like the thing that made [67:23] him the happiest wasn't his compound in [67:25] Malibu or his place in Chicago. It was [67:27] that every year I think between [67:28] Thanksgiving and uh Christmas he took [67:31] his entire family this extended family [67:33] and everything and he was able it was [67:34] like 35 people and he would take them to [67:36] this little village in France for a few [67:38] weeks and be able to pay and provide [67:39] that experience for every single person. [67:41] Right. And his whole thing was just like [67:43] you're not like going to be happy on the [67:45] things that you consume. It's the thing [67:46] for other exactly what you give what you [67:49] give away not what you take in. [67:50] >> So so but but bring me to this like [67:52] realization. So you did that in '92, but [67:54] to bring me to this realization 2018 [67:56] where you're just like now I know for [67:58] sure. [67:58] >> Well, let's let's just say two things, [68:00] right? In '92, even though you know, now [68:02] I'm now I've given away everything. So I [68:03] have not, you know, that was a that was [68:05] a proof of Ken, but I again I didn't [68:08] have a lot of wealth. I mean, I had that [68:09] nice event. I had the nice event in the [68:11] mid. I mean, don't don't get me wrong, [68:12] I'm I'm I'm wealthy, but I'm not this [68:14] wealthy, okay? Uh you know, today I mean [68:17] it's a factor of 40 compared to what it [68:19] was in 2006, right? So but but but well [68:24] I don't you know that just means the [68:26] temptation gets greater. No, no, it's [68:27] not the temptation. It's just like one [68:29] of my favorite lines from the history of [68:30] entrepreneurship is that it's comes from [68:32] Henry Ford. He says, "Money comes [68:33] naturally as a result of service." And [68:34] so his whole point is like you want to [68:36] make more wealth. That's fine. Find a [68:38] way to make somebody else's life better. [68:39] And then the way you make more wealth is [68:41] create is increase the amount of [68:43] people's lives that you get better. [68:44] Correct? And if you just focus on [68:45] service, the money will come back to [68:46] you. [68:46] >> Interview's over. You just captured [68:48] everything, right? I mean, I will tell [68:49] you, I mean, if you asked me, I would [68:51] say, look, six things. Be be passionate [68:54] about what you do, compassionate about [68:55] how you do it. Memories are worth [68:57] whatever they cost to what whatever they [68:59] cost to create. Friendship is a one-way [69:01] street. It's only what you do for your [69:03] friends. It's not what they do for you. [69:05] Don't miss the best five days of your [69:06] life. These are these are um [69:10] you never know what they're going to be. [69:11] So, wake up every day with the idea that [69:13] what a wonderful day this could be. [69:14] Right? So, those are the things that [69:16] that cross my mind. And by the way, [69:18] there's no downside in in doing [69:20] something for somebody you don't like. [69:23] Doing something good for somebody you [69:24] don't like. No downside in that. [69:25] >> I think it's excellent advice. That's a [69:27] perfect place to close our first [69:28] conversation. I really enjoyed meeting [69:30] you. I was looking forward I've heard [69:31] nothing but great things about you. I [69:32] will end a little different than I [69:33] normally do. [69:34] >> What I will say about your business is a [69:36] lot of my friends use flex shets and [69:39] they all talk about the same thing. is [69:40] like you have remarkable customer [69:42] service and these are highly [69:43] disagreeable, you know, high-powered [69:45] entrepreneurs that are not easy to [69:46] please. So, you should be very proud of [69:48] the the business that you've built and [69:50] one that's growing rapidly right now and [69:51] I hope you hold on to it. I know you [69:52] just sold about 20% of it, whatever the [69:54] case is, but I think there's good things [69:55] in the future of flex. [69:57] >> Let me say one thing about customer [69:58] service cuz you brought it up. Um, one [70:01] of the keys to customer service is, you [70:02] know, if there's a problem because [70:04] customer service is about what you do [70:05] when things go to hell. It's not about [70:07] what you do when things are going well. [70:09] Within our organization, there is no [70:11] approval process. The person you talk to [70:13] on the phone when you call and schedule [70:15] your trip and you say, "We had a [70:17] breakdown. I got to get this." That [70:19] person has all the authority to comp [70:21] your trip to give you whatever money [70:23] they need. They don't have to call a [70:24] supervisor to say, "David needs help." [70:26] So, I empower everyone in the [70:28] organization at whatever level. First of [70:30] all, it says trust, which is the [70:32] foundation of I trust throughout the [70:34] organization. That carries trust to that [70:36] person. But this is a person making [70:37] $80,000 a year that can comp you a [70:39] $300,000 trip. So that's how we think [70:42] about customer service. [70:43] >> I love it. Thanks. Great. Great. [70:46] >> I hope you enjoyed this episode. Please [70:47] remember to subscribe wherever you're [70:49] listening and leave a review. And make [70:50] sure you listen to my other podcast, [70:52] Founders, for almost a decade. I've [70:54] obsessively read over 400 biographies of [70:56] history's greatest entrepreneurs [70:58] searching for ideas that you can use in [70:59] your work. Most of the guests you hear [71:02] on this show first found me through [71:04] Founders.