FlyExclusive (JRE, Kinston) has gotten "over the hump of a really challenging time", with 18 out of its 37 non-performing aircraft now sold and most of the remainder due to leave the fleet by the end of 2024, Founder, Chief Executive, and Chairman Jim Segrave told ch-aviation in an exclusive interview at NBAA-BACE in Las Vegas. The operator is very optimistic about replacing those aircraft with Challenger 350s.
"We've made terrific progress in that regard. We've added three Challenger 350s to our operation and expect to add another one before the end of the year... When we looked at these airplanes, we budgeted that they would fly 80 hours a month and that they would be up and running 70% of the time. Our experience so far is that they're running 110 hours a month, and they're up 85-90% of the time. So they're exceeding all of our best budgeting projections," he said.
The publicly listed business aviation operator was losing over USD3 million per month on the non-performing aircraft, mostly due to their very poor dispatch reliability.
According to Segrave, around 80 to 90% of the 37 aircraft identified initially will be sold by the end of the year, although the target may move by one aircraft. As of October 1, the operator still had two Encore+, seven Sovereigns, five Citation X, and five GIV-SPs on its Part 135 certificate as "non-performing" types. Proceeds from the sales are being used to acquire more Challenger 350s. Having added its first aircraft of the type earlier this year, flyExclusive plans to increase the fleet to 20 by the end of 2025.
The company's Part 135-certified fleet also includes twenty-three Citation Jet 3 and 3+, thirty-four Citation Excels, seven Citation XLS, and three Citation XLS+. Segrave said those Citation models "have been terrific" and there are no plans to exit them. However, the Excels will gradually rollover to XLS and XLS+.
While the current focus is on growing the Challenger 350 fleet, FlyExclusive will start studying, within the next year, whether to return to the large jet segment. There are no plans, however, to enter the turboprop segment. The operator's entire fleet can operate on both a Part 135 charter certificate and a Part 91 subpart K fractional certificate.
"This allows me the flexibility to put every customer on every airplane. It's about driving efficiency and using the airplane that's best positioned for the flight," Segrave explained.
Volato transaction and fractional business
As part of its restructuring, FlyExclusive is emphasising fractional ownership growth as an important facet of its business. This was the main rationale behind recent takeover of the management of Volato (TMB, Houston Hobby) aircraft.
"That wasn't necessarily a planned transaction; it was more of an opportunistic one. What it really is for us is that there are 400 members [of Volato fractional services], and so it was a customer acquisition opportunity for us to acquire those members and bring them into the FlyExclusive family," Segrave said.
Volato operated a fleet of twenty-five HA-420s at the time of the transaction. FlyExclusive is not strategically committed to the type but will incorporate it into its fleet as long as existing Volato customers want to fly it. However, Segrave pointed out that the necessary adjustment of rates to make HA-420 operations viable would bring them close to the level of CJ3 rates.
"So, do they upgrade to the CJ3? Do they say they want to downgrade to something else? The future is unknown, but for as long as the customers would like us to, and as long as they keep buying shares at rates that are sustainable and profitable for us as a company, we'll continue to operate the HA-420s," Segrave said.
FlyExclusive is contractually obliged to deliver flight hours to its fractional and jet card customers but also operates on-demand charters for both retail and wholesome customers. Those are ad-hoc but useful to dampen the unavoidable fluctuations in demand from fractional and jet card owners. FlyExclusive is also strategic about accepting on-demand charter requests and picks only those that make financial sense, as it is not reliant on this stream of revenue alone.
Currently, around half of all flights are chartered to the on-demand retail and wholesale market. Segrave said that as the fractional and jet card businesses grow, the on-demand share will decrease to a target of around 25%.
The big upside of the fractional ownership model is that it is both asset-light and delivers predictable revenue.
"If you sell a customer an airplane today, and it's a five-year agreement, you have visibility of when that customer is going to exit that airplane. If you're doing a decent job, you have a very high likelihood they're going to transition into the next airplane. And so your retention is very high," Segrave explained.
Maintenance issues
The transition to newer aircraft under the fractional ownership business model is also a response to persistent supply chain issues which have particularly affected older and out-of-production types as OEMs focus their constrained resources on supporting the newest types.
"A good example would be our GIV-SP fleet. The manufacturer is just not supporting them at the level they did before. They're very focused on their new products. While they'll still get you the parts, it's not their priority," Segrave said.
The rollover to Challenger 350s also helps with these issues, as the aircraft have fewer maintenance needs. The switch to more reliable aircraft decreases pressure on the fleet, as hours can be distributed across a bigger number of available aircraft.
"When you have broken airplanes, the ones that are working fly lots more hours, and so you're creating more of a problem," Segrave stressed.
FlyExclusive has no problems hiring pilots, but Segrave admitted that the engineers' labour market is much more of a challenge, particularly when it comes to experienced staff.
Restructuring
The restructuring was necessary to overcome "one hell of a challenging year." FlyExclusive posted a net loss of USD60.8 million in the first six months of the year (USD11 million attributable to FlyExclusive). In addition to the fleet rollover and growth of fractional ownership and jet card businesses, Segrave outlined the strengthening of the executive team as an important step in the process. In late September, the company announced Brad Garner as new CFO, Mike Guina was named new CCO, while Matt Lesmeister was promoted to the role of COO.
"We got into this place because of COVID and thinking the problems were supply chain-based and labour-based, and as things normalise, we'd get back to normal, the airplanes would improve, and profitability would come along with that. And they just didn't. Parts supply hasn't gotten easier. Labour, the maintenance side of things haven't gotten better. So we just couldn't continue along that path," Segrave explained.
He underlined that the operator will continue "disciplined growth." As a publicly traded company, it can access capital once it proves that it can execute its restructuring.
"[Delivering on the plan] puts us in a really good place to say, hey, this is a great place to make an investment in a private aviation fractional business when the competition there doesn't have an opportunity to do that," Segrave said.