00:47:13 · Kenn Ricci, David Senra
[00:47:13] S1: I just decided I was going to go West Of The Mississippi. I was going to be in a big town. It was Denver, LA, or And LA was a red eye to get back east. So I decided, and Denver was a little cold, so I ended up in Phoenix and been there since 2003. So now nothing to do. I'm in Phoenix. At least I'm not being asked what the hell happened. And Warburg Pincus obviously took a liking to me. That's why they backed me. They said, we want to get more into this space. We'd like to give you $250,000 a year. You'll be our executive in residence. You'll find deals for us and we'll give you a little piece of the action on whatever you do in private aviation. And I was like, Well, wait a second. Like, why would I do that first? Why don't I go find the deals and then decide who I want to bring in? Like, why would I just line up with Warburg? Because then they get to say yes or no on a deal. In other words, I come to buy your company and I have to call Warburg and go, can I buy them? Whereas if I just do this myself, I could come in, make the deal and then go find the capital. So that's when I started Directional Capital, which was a company met again, an inch wide and a mile deep. We put our website went out. We only invest in an area we know a lot about. Knew people in the industry who needed capital at the time. And they came to me because they knew they didn't have to explain to me what was our cost per hour? What was dispatch availability? What was, know, use occupied rate? [00:48:35] S0: You knew the ins and outs of the business Yeah,
00:48:35 · David Senra, Kenn Ricci
[00:48:35] S0: You knew the ins and outs of the business Yeah, [00:48:37] S1: and they trusted me. Then- And you're getting equity in return for cash? [00:48:40] S0: Is that what you're doing? [00:48:41] S1: Well, mean when I. Yes, we made investments. Absolutely. It's venture, it's private And equity, then they always liked my story. Well, Ken, what, what mistake did you make that helped me finance my company? Don't make that mistake. I played on that, you know, look, I can tell you where the bodies are buried. And lo and behold, I was working two or three different deals. My partner, Mike Rossi, who came in with me in the early nineties, when I kind of transitioned out of pilot into starting to work more on the businesses. We get approached by Allied Capital, who... There was a company called Mercury Air Centers, based mainly on the West Coast. They're in default on their debt with Foothill Capital, a division of Wells Fargo. And we buy this company for $80,000,000 in concert with Allied Capital. What does Mercury do? They're FBOs. They own only FBOs. Fuel, you know, private fuel facilities for private jets. [00:49:34] S0: A lot of people are buying up FBOs right now is what I hear. It's horrible. Why?
00:49:34 · David Senra, Kenn Ricci
[00:49:34] S0: A lot of people are buying up FBOs right now is what I hear. It's horrible. Why? [00:49:37] S1: Well, here's the problem. I started the industry. So I, in many ways I created this monster. Well, because they're only going to private equity and that we could get into whole, my whole philosophy on private equity. I don't think it's really good. Sarbanes-Oxley changed in 2000, right? Those sorbains Oxley rules made it so hard to be a public company. But even those companies that are public still, you read their annual reports, they have some master besides greed. They have environmental policies. They have social policies. They have policies regarding their employees and their leadership. Private equity has to disclose none of that. They are solely based upon a return to investors, so they're solely about greed. And so they've taken an industry and just tried to monopolize it. It's a duopoly now in the FBO industry. Again, I started it because I sold the business to Atlantic Aviation, which is one of the duopolists. They're just pushing the envelope. And what's the most amount of money we can abscond with from these wealthy people that buy jets? And they've had this new thing called event fees, which they make up in the morning. A lunar eclipse, let's charge an event fee. You know, I mean, it's just, it's just horrible. And I think there's been a real repercussion into the industry now, but we digressed. [00:50:50] S0: But you buy it in early two thousand [00:50:52] S1: I and buy Mercury Air Center, these FBO chain, '18 or '19.
00:50:52 · Kenn Ricci, David Senra
[00:50:52] S1: I and buy Mercury Air Center, these FBO chain, '18 or '19. [00:50:56] S0: What did you like about their business that you wanted to buy it? [00:50:58] S1: Well, first of all, it was in the vertical I knew. So I knew how to market to corporate pilots. I knew why people wanted an FBO. The business made money on the spread between what they bought fuel for and what they sold it for. So relatively easy business to understand. I had a non compete. I couldn't necessarily compete in the operating side of the business, so it was available. The non compete didn't cover fuel distribution or hangar and so on. I can see where it was a very fragmented industry. We had 18 FBOs. It was the second, one of the second largest at the time. And so going out and buying these little mom and pops and giving them 4,000,000, 3,000,000, we were buying at six times EBITDA at the time. Today, businesses, an FBO business will trade at 15 to 20 times today. Did that, bought it for $80,000,000 in thousand and five, and then sold it in 2007 to Macquarie, which now is called Atlantic Aviation. So we built it, about doubled the size of it and sold it for $615,000,000 [00:51:56] S0: Oh, so that's where you have a, you're getting a huge chunk of cash now. [00:51:59] S1: Great. I own 20%. Ally Capital had 80. [00:52:01] S0: Okay. [00:52:02] S1: Okay. So Mike and I [00:52:03] S0: That's really good. And two years considering you had to do something and you couldn't do what you
00:52:03 · David Senra, Kenn Ricci
[00:52:03] S0: That's really good. And two years considering you had to do something and you couldn't do what you [00:52:06] S1: really wanted to do. Great. Right. So again, the worst day in my life, I don't... I... You know, let's just have faith in the future. I've seen none of this coming. Right? I see none of this coming. But that's where I get the capital. And what do you think happens next? Raytheon has had enough fun with with Flight Options. They've lost $600,000,000 in the in the years they've owned it. The company's become unionized and it's a problem. And it's it's going to crap. So who do they call, Ken? You want to take this piece of shit off our hands? And what I say, of course I do. I want my company back. I don't care what shitty position it says. I want my company back. Think about this one. Financial crisis happens in September. I buy it in December. So how dumb am I? I'm the dumbest guy in the world. I buy this company back and they dear them the financial grace. And what do you have to pay for it? 135,000,000. Okay. Okay. Of which the reality is that because there's payables, there's liabilities, we're assuming. The reality is it was around 42,000,000. And I a '27, I gave a $27,000,000 personal note and 15,000,000 in cash. [00:53:14] S0: What'd you back up that personal note with? Just me. How'd you do that? [00:53:18] S1: The seller took a note of 27,000,000. Not a long note, I think three year, a three year note. But I had invested in a couple other small businesses at the time. Had assets, I had a home. Hadn't.
00:53:18 · Kenn Ricci, David Senra
[00:53:18] S1: The seller took a note of 27,000,000. Not a long note, I think three year, a three year note. But I had invested in a couple other small businesses at the time. Had assets, I had a home. Hadn't. [00:53:32] S0: Did you have to pledge the home or no? Oh yeah. That's what I gonna ask. Personal guarantee of everything. That's what I thought. Okay. That's what I was getting to. [00:53:37] S1: And it did have the $100,000,000 that from the, you know, used some of that, but I some net worth out there that was viable. [00:53:45] S0: Is this the company that becomes Flexjet? [00:53:47] S1: Yes. One more step and we're done. Okay. So I inherit Flight Options back. I decide the, the, capital's been invested. I need a new fleet of planes. So I look around the industry, who's got the best fleet? It's Bombardier. They have these Challenger 300s, which are super mid. This is where the market is going. There's these eight passengers, transcontinental, kind of the perfect fit for the shitty planes I have at the time that are... [00:54:11] S0: Can I pause there? Because like you said earlier, there like 5,000 private jets when you started in the industry in like the eighties or whatever that was. Then there's 35,000 today. I think I read like almost all of them are in America. Like what is America's share of that? [00:54:26] S1: 85% of the market. [00:54:27] S0: That's