Fractional HondaJet operator Jet It has grounded all its aircraft and has laid off all staff. Jet It pointed the finger at maintenance issues with their aircraft, but questions abound about the financial position of the company.
Jet It Background
Provider Jet It launched its fractional jet program in 2018. The two founders, CEO Glenn Gonzales and co-founder Vishal Hiremath, had both worked in sales for Honda Aircraft Company. Using their knowledge of the HondaJet, they were the first company to offer fractional shares in this light jet and they provided a days-based usage model, in contrast to the more common hours-based usage structure.
Over the last few years, the company expanded to both Canada and to Europe. Meanwhile, the HondaJet fleet grew to over 20 aircraft and Jet It had started to add Gulfstream G150’s and Phenom 300’s. The company also made its aircraft available on the charter market.
This growth and success earned the company awards and the founder's honors including the 2021 Ernst & Young's Southeast Entrepreneurs of the Year. They were also the topic of a 2020 Harvard Business School case study which looked at the business model and growth of the start-up company.
But, at the end of last year Jet It had a public dispute with manufacturer Honda about the maintenance and reliability of the planes. This dispute was settled just a few months ago. Then at the end of May, CEO Glenn Gonzales grounded the Jet It fleet citing safety issues with the HondaJet, even though no other operators of the aircraft took any similar action. Gonzalez pointed to a May 18th runway incursion at Summerville, South Carolina of a HondaJet from another operator. After landing on a wet runway this plane overran the airport, slid down an embankment and caught fire, thankfully there were no serious injuries.
Just days after grounding the fleet, the company laid off their staff.
Jet It Company Issues
The initial news of the shutdown came from Craig Fuller at Flying Magazine, who is also a Jet It fractional owner. In his recap of the Jet It situation Craig notes “Over half of the fleet is in maintenance, with tens to hundreds of thousands of dollars owed by Jet It that will have to be paid by the fractional aircraft owners.”
There are two big related issues that appear to have brought about this demise. Firstly, the company appears to be simply out of money and secondly this led to multiple unpaid bills, including aircraft maintenance bills, which meant over half of the HondaJet fleet were unavailable to fly because there was no cash to pay for the maintenance.
The lack of aircraft meant owners could not fly.
There just were not enough aircraft to meet all the required owner flights.
One charter broker we talked to said they stopped using Jet It some time ago, for charter aircraft, because they were no longer meeting their required standards of timeliness and reliability.
Jet It staff posting on Glassdoor have been complaining about unpaid bills, particularly maintenance bills, and credit cards being declined, with a history stretching back well into 2022. These staff also noted that MRO’s (Maintenance, Repair, and Overhaul providers) won’t service the planes because of the bad payment record.
The Jet It story has a lot of parallels to AvantAir which filed for bankruptcy in 2013.
AvantAir was a public company and operated over 50 Piaggio P180 turboprops. Being public meant its financial statements were freely available and they showed the company had built up losses of over $120m in its ten-year history. As we wrote at the time “Part of the problem was that the company seems to have simply not charged enough.” And for AvantAir, as maintenance issues increased, there were more and more of the fleet on the ground and not available to transport owners in the air.
Honda Aircraft Company has already reached out with offers of support for the Jet It fractional owners. They will help provide seamless transitions to alternative aircraft management options for the HondaJet fractional owners who have been released from the Jet It fractional program and/or agreements.
As part of the available assistance, Honda Aircraft Company will provide fractional owners with free parking for their aircraft at its headquarters in Greensboro, N.C., for a period of up to 90 days, including the offer of pilot services to relocate the aircraft to the Honda Aircraft Company's facility. This will help to ensure a smooth transition for impacted fractional owners of the HondaJets. The assistance will be provided free of charge to eligible HondaJet owners.
Addressing the safety comments coming from Jet It, Amod Kelkar, Chief Commercial Officer and Vice President, Customer Service at Honda Aircraft Company said “The HondaJet remains a reliable and safe aircraft to operate, and we reaffirm our confidence in the aircraft’s safety through our engineering and analysis.”
Honda notes that there are over 230 HondaJets in operation worldwide, which have accumulated over 180,000 flight hours, and says the HondaJet boasts a dispatch reliability of over 99.7%.
Fractional provider Volato, now the largest operator of HondaJets, is also addressing the safety comments by opening its annual Safety Summit to the broad HondaJet community. Members of this community are invited to attend the Summit, at no cost, on June 21, 2023, at the Denver Marriott Hotel in Denver, Colorado. "In an industry where safety is paramount, collaboration between regulators and operators is key to improving our practices," said Matt Liotta, CEO of Volato. "We are opening our Summit to stimulate collaborative enhancements in safety within the HondaJet and wider private aviation community." Volato says representatives from the HondaJet Owners and Pilots Association, Jet Token Inc. and Banyan Air Service are planning to attend.
Volato is also working with Honda Aircraft Company and Banyan Aviation Services to provide owner groups with time to assess options, help with aircraft compliance, investigate the true status of aircraft, coordinate insurance coverage, and get aircraft back in the air with experienced pilots.
One fractional owner we talked to said that Jet It held a 20% ownership position in his aircraft, which complicated the other owners moving the plane to another operator or manager. He also said that the plane had two “loaner engines” which further complicates any move, because the ownership of those two engines was unclear, and in the heavily regulated field of private aviation all the parts need to be carefully tracked.
In a fractional agreement there are three key payments. 1. The initial purchase price for the share, 2. A monthly management fee, and 3. An “occupied hourly rate”, paid for each hour that an owner flys in the plane, this may include some fuel costs and/or there may be an additional fuel fee.
The big lesson from Jet It is that if the price looks too good to be true, maybe it is too good to be true. In the Jet It case the $1,600 per hour occupied hourly rate was too low. Competitors are closer to double this rate. A higher rate would produce several hundred thousand extra dollars per year for the company – money that could be used to maintain and operate the aircraft. For example, Volato, another fractional HondaJet operator charges owners $3,450 per hour plus fuel, less an hourly rebate. PlaneSense charges over $2,600 per hour plus fuel to the owners of their fractional PC-24 light jets.
A fractional aircraft agreement in which the aircraft operator/manager retains an ownership interest, creates some tensions and potential conflicts of interest. If the operator is chartering out their owned time, how do they prioritize the use of the plane between a fractional owner, who pays a marginal $1,600 per occupied hour, compared to a charter customer who pays many multiples of this (maybe 4, 5 or 6 thousand dollars all in for the occupied time). This isn’t normally an issue if the operator has a sound business model and cash flow, and it can all be balanced with good operational planning, but it certainly causes legal issues in a shut down like this.
In addition, the day-based model for the fractional owners may have played a part. In a small jet like the HondaJet, if owners only use it for an hour or so per day, and it’s on the ground for the rest of the day, then it’s not making much money or not flying other owners or not being chartered to third parties. The big fractional operators have hours-based models. That’s not to say day based is inherently bad, but it gets harder to make the economics work in smaller aircraft which potentially need to be doing multiple flights a day. Our understanding is that while Jet It had a day-based model for fractional owners, the aircraft might not always stay with the owner throughout the day, if there was a long gap between return flights, and the HondaJet could productively fly other owners or charter customers on revenue legs.
As a pricing comparison, Airshare which also has a day-based usage model, charges fractional owners over $4,000 per occupied hour for one-way trips, or $3,000 per occupied hour for return trips, in the Phenom 300 light jet - significantly more than the hourly rate at Jet It. Airshare tells SherpaReport that they have been profitable since their founding in 2000.
This lower pricing was a feature of the marketing and messaging at both AvantAir and Jet It. Both company’s messages drew on the economics of their aircraft. They both implied that because their aircraft were more economical to fly, they could pass on significant savings to fractional owners. For instance, AvantAir said “we’re 40 to 60 percent less than our competitors.” While both of the planes – the Piaggio and the HondaJet – are relatively fuel efficient, they were also being used in floating fleets at Jet It and AvantAir. An outright owner who is just going point to point to point in their aircraft could realize the full efficiencies. But a floating fleet operator has to take account of repositioning (or empty legs) and solve the equations of getting the nearest plane to each owner who wants to use one. So that combination of 1. Is the price too low and 2. Are the operations and flight scheduling optimized for a floating fleet model with a single model small aircraft fleet, operating on a national scale, appears to have contributed to the demise.
Overall, the private aviation industry has just been through a record-breaking boom in demand over the last couple of years - driven by covid - and it looks like we are on the other side of that now with demand dropping from those record levels. So as Warren Buffet said “Only when the tide goes out do you discover who's been swimming naked.” It’s certainly a time to do more due diligence in selecting providers, and ask them harder questions, especially if you are spending hundreds of thousands or potentially millions of dollars with them.