Kenn Ricci built Flexjet from a $27,500 fraud-tainted charter acquisition into a fractional jet empire

makers of Devon, the AI software engineer. Crush your backlog with your AI engineering team. And without further ado, we have Ken Luji, the chairman of Fleckjet here at the TV panel.

Well, what's going on?

Good to meet you.

Hey, Don. Hi, Jordy. How are you?

We're fantastic.

Fantastic. We've been looking forward to this.

Thanks so much for uh taking the time to come chat with us. Uh I would love to start with your early career because uh do I have it right that you actually served in the Air Force?

Yes, I went into the Air Force through the ROC program in the late '7s. Wow.

Uh it was it wasn't that hard to get into the Air Force then. The Vietnam War was still active in people's rearview mirror and uh I actually probably wouldn't have been able to go to college if it wasn't for the ROC program. So, it wasn't that I had this strong desire to be an Air Force to be in the Air Force, but I did love to fly and I and and it actually helped me get through college.

That's amazing. So, uh

Yeah. Sorry.

No, no, I was going to say my my um it was interesting. I I always wanted to go to the University of Notre Dame and I I was going up for a visit and I heard my parents, we lived in a very small house, thin walls, and I heard my parents talking about they couldn't afford it

and they said, "Who's going to tell them we can't afford to send them to school?" So, I got to I went to my visit and I said, "Is there any financial available?" And they said, "Well, you kind of missed the window for that, but if you were interested in the military, you could go down and enroll in ROC." So, I went down there on a Saturday that was closed, but I decided for whatever reason I wanted to be a Navy pilot. I'm standing at the Navy ROTC trying to copy down the number, you know, on the old Rotary phones and somebody taps me on the shoulder and they said, "Can I help you?" And I said, "Well, I'm an incoming freshman and I'd like to uh fly and I I'm thinking of joining the Navy ROTC." And he looks at me and he says, "You sure you've been admitted to Notre Dame, son? Because the Navy has boats and the Air Force has jets." So, I'm Colonel Mhler. I'm head of the Air Force detachment. Why don't you become an Air Force pilot? And that's how I ended up in the Air Force.

That's amazing. Wait, so uh you were flying before college. What was the context with of that? Or you were interested?

No, no, no, no, no. I I learned to fly through the what was called the FIP program, which was an instructional program through the Air Force.

Okay. And then uh so I don't know how long you were in the Air Force, but it sounded like when you got out, you had the opportunity to buy a company for a very low amount of money. And I want to know the anatomy of that deal and go a little bit further than you've been uh than you've talked about before because it's it sounds like one of the most fascinating deals that maybe doesn't happen anymore or maybe financial engineering still exists like this. But I'd love to know uh sort of when did your business career start start? What happened after you left the Air Force? Well, you know, I always say that I never really identified myself as a businessman. I I love to fly. I loved aviation. And, you know, people can people can go into business because they love business. And those guys could run a candy store. They could run an insurance company. I'm not that guy. I'm I'm an inch wide and a mile deep. And I only I know a lot about like one very narrow section, right? And so, don't ask me to give you advice on running a candy store, okay? But in my early years, I was flying for a charter company called Corporate Wings. Yeah.

And I got there because after the after the Air Force, I went under reserves. After the reserve assignment, I flew for Northwest Orient where I was furoughed.

Okay.

And so I started to realize, you know, being a pilot has a lot of insecurities. You know, at that time, remember that in the early 80s there's only 5,000 corporate jets in existence. You know, today we have 35,000.

Wow. And so the industry was small. It wasn't stable. And so the charter company I was flying for came up for sale.

And um I called my dad at the time and I said, "Dad, I think I want to buy this charter company. It's cost $27,500." And he, "How are you going to pay for it?" And he I said, "Well, they have 27,000 in the bank. So, I'm thinking if I buy the stock, I'll just use the I'll just use the 27,000 and pay pay for the company. He goes, "Well, but I thought you said 275. Where are you getting the other 500 bucks?" And I said, "Well, why do you think I called you?" So, yes, a le you know, leverage finance exists today. It just has a lot more zeros to it.

Yeah. But, so, so when I heard that, it's a fantastic story. I'm just I'm I'm confused why a why a stock would be for sale so close to cash value. Were there a lot of liabilities that were coming down the pipe that you then you had to generate the revenue to deliver on? Like it just sort of defies like basic economic logic.

All right. So, we're going to tell a story that's that's known to only a few.

And the true story here is that in the early 80s there was investment tax credit of 10%. And it came in cash.

So you could buy a plane. At those times, a citation was a million dollar. You got a $100,000 tax credit.

Mhm.

And corporate wings at the time was actually called J&J aviation.

And they had king errors. And two citations that were on investment tax credit, but they didn't exist.

They they the owner of this company, a guy named Jeff To created a fraud around the existence of these planes. I was flying the King Airs that was in another I mean I didn't know anything about it but the dispatcher at that company when the fraud became unveiled and everybody headed for the hills the dispatcher of the company I was friends with he said to me I can't run a company cuz I'm a dispatcher we need somebody that could fly make the customers feel comfortable so so the deal was there because the company was going to the company was done and so that's how that that was why that that situation was unique but it was few people know about the citation fraud. So that's really how it evolved. We changed the name from J&J to corporate wings and that's how it began.

So so a lot of a lot of hair on the deal but some decent customer relationships and probably some decent employees that could actually fly what assets remained after you sort of cleaned up the corporation. Right.

So we had four airplanes. We had uh two Kingairs a Navajo and a Cessna 421. Okay.

Shortly thereafter the king got worried and they left. Yeah. So I So my business was a grand toll of a Navajo and a Cessna 421 for for you oldtime pilots out there. But by the way, I I thought I died and went to heaven, right? I mean, I had a business. I had I'd go to the I'd go to the hanger on Saturdays and polish the necessels of that Navajo. I was so proud of that airplane.

That's amazing. So then talk about the scale up because obviously you you're you have a a massive footprint in business now. Uh but what were the key steps along the way? What were the key uh turning points for you?

Well, I' I'd say the key turning points were in the mid '9s when we, you know, when Fractional was evolving and I had this nice charter company. Yeah.

Uh maybe 20 25 airplanes at the time, but saw Fractional starting to steal market share in a big way from Charter because a consistent level of service, the fact that they could run one way. In those days, charters were always out and back. You paid round trip for the aircraft. So I kind of saw the threat of fractional and that's when I came up with the idea to form flight options and flight options idea at that time nobody had done fractional with used aircraft. They'd only done it with new aircraft. You had you had citation shares with brand new citations. NetJets was working with hawker and citation at the time.

And how would it work? How would it work mechanically? There'd be basically a uh they somebody would say, "Hey, I'm going to buy this jet. I'm going to cut it up into eight pieces or whatever. And then what did they effectively crowdfund it? Like everybody

had to come together at the same time. How did that actually work?

Capital,

you know. You know, I'm I'm sorry, Jordy, but there there was no internet at the time, so crowdfunding.

No, no, I don't I meant I meant like Yeah.

Yeah. Throw a jet up on Kickstarter.

No, but you you hit on the key issue. Yeah.

You had to You couldn't start with one jet. Yeah. You had to have enough jets that people would buy a share because they could catch on very quickly. If four of us own a jet, you have to have at least four of them in case we all want to fly at the same time. So, you had to get to the point where you had a minimum number of aircraft. And in the in the in 1997, I was out trying to raise capital for just that. My idea was to start with 12 aircraft. They were going to be used citation twos and used and used hawkers. And uh and at the time I wanted to I wanted I needed 12 million of debt. And I went out to all the debt sources I could get. I had my great presentation on. I had my shirt and tie and blue suit and I went to all these places and nobody would give I mean in the end of the day I think we raised like 10 $2 million based upon like you know having that much money in the bank. It was ridiculous. But this was in in 90 this was in late 97. Then in 1998, Warren Buffett buys NetJets.

Yeah.

In June of 98, he buys NetJets. And my proposal was literally on everybody's desk.

And from June of 98 till August of 98, we came away with over $200 million of financing.

General Electric, Boeing Credit, Commercial Credit Corporation, Bombardier. And so all of that was that it was actually in some ways Warren Buffett that got me into the business because he doesn't buy netjets. He christened the industry and allowed my proposal to have meat to it. So that was really we went live with flight options in November.

Needed somebody to legitimize the industry and then people looked at your pitch and they were like, "Hey, this guy's a pilot. He's got all this operational experience. He knows how to work with customers. He's actually a solid bet in the category.

He's in the right market."

Yeah. Yeah. How much how much was what there was there was massive amount of wealth creation in the late 90s. Did that was how much of that just just in the in the kind of internet boom. Did that play into into just like a lot of new demand coming in or or was that not a factor?

Oh, unbelievably a factor because because we tended to be with the used aircraft. We had the same model. It's just the buyin was lower because a brand new citation was 8 million but a used one was 2.4. So we had the same model just the buyin was lower and so it became very entrepreneurial. It became Nuvo Reef were interested in it because they were conserving capital. I can remember there was a company called Internet Capital Group and they they they were in the late 90s and they had a they had a annual meeting in Philadelphia with and we sold 30 shares at that meeting because everybody was instantly wealthy there and then of course you know what followed that right the dot bomb came and then in 2001 it it it just it it went away.

Yeah.

And so was that crash hard for your business? How did you get through it? I mean with leverage it feels like there's always a risk of just actually total capital collapse, total loss. Uh how did you how do you weather the various storms that you've faced throughout your career?

I've been through four and every one has been different. Okay. But that one that one because the industry was still in its infancy,

there were a lot of other there were a lot of there were you know at one time there were 55 startups in this area. If you remember, United Airlines had a startup in the space at one time.

So I weathered through it by finding a merger,

right? As as people were moving away and the business was shrinking, f find somebody else in deep doodoo and then merge with them, right? And then and then create a new story. Yeah.

So that was really and in that case it was Travel Air, which was a division of Rathon

and that was the merger we did dur to come out of the docom bomb.

But yeah, you're right. I can remember like we came into it combined with 200 aircraft and came out of it with like 120.

Wow.

I mean

explain the dynamic of the buyout with Rathon. It was a very interesting dynamic. I was not familiar with this particular process but uh explain the the economic mechanics, how the bidding worked, the results because I I've never heard of that before and it's fascinating.

Yeah. So it's a term called shareholders roulette.

Yeah. Yeah.

And it's used often in a company where you have 50/50 ownership.

And what it simply says, because normally if a company has a buyell agreement, and those buyell agreements will say something like fair market value determined by three independent auditors and if you if you're the seller in a pinch, you take a 15% discount. So it normally defines the process of valuing the company. But when you have two 50/50 owners, one person just simply goes to the other person and makes them an offer to buy and to sell at the exact same number.

And then the other party chooses whether they want to buy or sell at that number. So it forces you to a fair number.

And if you remember, Rathon didn't want to be in that business. They're making missiles.

So it never occurred to me that they would ever want to own the business. But what I did was I got the business underwritten by a private equity firm, Warg Binkus. We underwrote the business at that time at 360 million and I went to Lexington, Massachusetts with my $180 million buy and sell offer to them thinking, look, they had a business that was going broke, right? I gave out 180 million. I thought Rathon's going to erect a Ken Ricky statue in in Massachusetts. I brought him this 180 million, right? They thought I was cheating them. They thought it was too little and they bought me out

and so

Wait, and the business at that time you said was lo you said it was losing money or you're saying the business

when we merged. Yeah.

When we merged the their business was losing money we were maybe making 6 or 8 million

and the combined you know the economies of putting them together right sizing the fleet back office we thought we had a projection for about $30 million and just show you how times are changed. So, it was based on that $30 million projection that the multiple came out and that's how we got to the valuation.

That's still 12x ebida forward number. There's a lot of risk there. That's crazy that they took the deal.

It was you kidding me? Of course it was crazy. I didn't get it. And you know what? It was the worst day of my life because I didn't I didn't want to be out of the business.

Yeah. So, you you have to make this buy sell at 180.

You're ready to buy them out

and you can't then you wind up getting bought out.

But there's no there's no like walking it back. It's like it's over at that point. They just called your block.

You deliver them two letters. One that says I will sell to you at 180 million. One says that I will buy from you at 180 million. And they pick one and sign it.

That's great.

And and I and I was

You wish you were like I wish we did a duel, like a proper duel.

It's remarkable. So So I mean,

you know what? In some ways, it absolutely turned out to be a blessing, but you never see that in real time, right? I can remember those days. I was like I I felt like I'd lost my child. I mean it really was but but in reality because I had raised money along the way I only owned 16% of the combined of the entities. So what you know my buyout I got 16% of the 180 and then we bought that company back from them in 2008.

No way.

No way.

Okay. And we bought it back.

So that was like a f five years you were waiting.

It was yeah almost six. But uh but and by the way I bought it in the in the in the middle of the 2008 financial crisis. Yeah,

we bought it back for 130 million. So it we bought it back at 30 cents on the dollar.

What did you do? What did you do in that in that in that window? You just twiddling your thumbs.

Well, I I don't have I don't have that twiddle your thumb gene. I um I actually began a disastrous process which which is leads me to much pain these days. I began to roll up the FBO industry and I started by buying I partnered with a company called Allied Capital and we bought the Mercury Air Centers which were primary in California

and we started that in ' 04 and we sold that company to McQuary which was Atlantic Aviation. We sold that to them in 2007 and and so and it's painful because you wish you held on you wish do you wish in hindsight you wish you you didn't sell. Well, what I was going to say was that uh we bought we were buying them at six times and we were one of the first transaction that traded at 15 times. Now today FBO industry is trading to private equity well north of 15 multiples. And what are they doing? They're raising the fuel prices to people like us to fund the acquisitions of what I started. So So you know it comes back to

roost. You mentioned four key crisis moments, four financial crises that you've uh soldured through. Do obviously one of them. Housing great recession another. What were the other two?

So in in um the great interest rates 84 when I remember doing proposals to buy an airplane at 21% interest rate. We had that huge interest rate issue in the early 80s. Did you have any did you have any like adjustable rate loans at that time? So or or everything prior to that was fixed and you were just having to work off of the the the 20some.

Well, it wasn't that I was had any debt really at that time. We were, you know, Corporate Wings was more of a management company. I needed people to buy a new plane so that I could run it in charter and become the manager of it. So I had to make a proposal and they said, "What's my cost of capital?" And I would say, well, the going interest rates are 21%. So, but so so, so that was tough on the industry. And then Gulf War I in the early 90s when we hit Gulf War I the the the sale of new aircraft came to a standstill during that during that crisis. So, I would tell you high interest rates, Gulf War.com bomb financial crisis.

How is the aviation industry doing today? I've there were some folks asking about uh EV talls, automation, uh there's there's tariffs and depreciation schedules are changing. It feels like a time of transformation, but I don't know if that's just what it looks like from the outside.

Well, I think our industry, the cool thing about aviation is we're always in transformation. We we live in an industry that always has something cool coming up. So, that that's fun. Um, I I'll tell you that um I don't want to be a Debbie Downer on your program, but but we are in a time of abundance.

And I think you can if you've only been in our industry for 5 years or 8 years, you can come to think that this is normal

and we're living through a time where uh it it's easy to see, right? There's there are two economies. We can talk about the cost of bread. We can talk across the cost of gas, but

fractional owners and private jet owners aren't living. They don't live in that world. The wealth transfer that's going on doesn't live in that world. So, we have this one

world that's living in really good times because it's very in right now to be, you know, business and wealthy

and that is creating uh the what I think is an overabundance in our industry. I think this is extraordinary. In my 40 years in this industry, this is one of one.

Yeah. And I think we have to be careful not to be complacent about this being normal.

Uh because I I I say you know this too shall pass. But right now that this is the world we live in. We live in this abundant world.

Yeah.

In our industry.

What about uh specific technologies that might change aviation. Uh there's been a lot of talk about flying cars, a lot of talk about EV talls, not a lot of production process, not a lot of movement there. But do you have more insight into uh some of the new technologies that might be coming out in the next decade?

I think I think the new technologies I mean I think the number one thing we're going to see is the how windows go away from the airplanes.

So today today if you look at the supply chain

if you go back four 3 four years ago was titanium that that's been solved the problem in the supply chain today is windows. If you ask Embrier, ask Michael Malfitano, ask them what is why are your delivery slipping, they say it's the windows. I didn't know this, but 50% of aircraft windows fail on fail when installed.

Whoa.

So, so

and that's and if you get a failure in the air, like we have a we have a buddy who who had

a lung collapse

a lung collapse

because of a broken window

because of a broken window

and uh

yeah, it's a disaster. So I think the technology that's coming very fast, I don't know if you saw that Embryer announced the smart window in their Prader 600. So they've taken out one of the windows in the aft part of the cabin

and they and instead of that they put a digital screen

and you can make that screen just look outside because there's cameras outside. So if you want to see if anybody's stealing your luggage, you could look out the window and see it. But the reality is in flight you could make it day, you could make it night, you could watch a video, you could make it larger, you could make it smaller. So that is I think the start of what's coming next. We'll get to the point where we'll eliminate passenger windows and rapid form. If you're familiar with the auto aircraft, they're that that is in their development process without windows. And then it won't be long after that that we'll be rid of the cockpit windows because like you just said, high failure, expensive to maintain. So I think that's a technology that we could pretty much you know is assure is coming quick.

How do you evaluate uh new technologies? I'm sure anytime there's any type of new uh private aircraft manufacturer or EV tall company, they're coming to you, they're pitching you, they want like some type of like LOI even though they're not going to deliver for, you know, even five five 10 years. uh we've seen so many of these companies kind of come and go or have a good render or kind of like demo and then they never end up getting off the ground at all. So I feel like the tech industry uh maybe it doesn't feel like this from your vantage point but it doesn't even get excited about a lot of these EV tall projects anymore or at least the insiders don't. Uh but how

well let me

I'm sorry let me separate EV tall because I think that's a different class from innovations and aircraft and so on. Um first of all I think it's my obligation for someone that loves aviation to invest uh a vested side encourage people to come up with new technologies. So I will say I've invested in four uh clean sheet aircraft. Uh I'm 0 for three with one with one that I still have development. So I invested in the supersonic

boom supersonic. No way.

I did that. I I was at the Arion. I was an early early supporter of the Arion product, right? We're an early supporter of the auto aircraft. So I think part of it is just our obligation is to encourage technology. Okay. Some of it some of it is is is self- serving because you know you do have a a a you know a duopoly. You know, we we do have a polyopoly, I guess, in the in in the aircraft business and right now the main manufacturers control so much from the pricing of aircraft, the servicing of aircraft. So, encouraging people to be entrepreneurial in the phase is something I feel obligated to do. Now, I said I haven't done very well at it, but we'll continue to try to encourage those technologies different. I think EVOL is something different. Evall is is a totally different market. Um, we we've been a supporter of beta. I was I did the spa at Eve. Um these are these are the these are the Wright brothers. This is this is early aviation and we're generations away

from those aircraft being suitable for my for our businesses

that we're not going to have flexjet fractionals. They're not

they're not luxurious. They don't have the weight capabilities. You know, a lot of them don't even have no pressurization, no heating, no cooling. People go, "Well, what do you need heating for that? It's only going to be 6 minutes." Well, okay. That's not luxury. It's not something we can do, right?

Yeah, that's funny.

But I think

Sure. But I but I think it's a great technology and it's going to happen.

Yeah. Why do you think the Concord failed?

Um it's a great question because I love I think it was a wonderful aircraft, but there were only 15 of them. So lack of adoption would be the number one reason. you it's hard to what 15 aircrafts there you know you can't keep parts in you know it's just I think it was it's it's obviously was a financial reason now there were other you know environmental concerns at the time most of the environmental concerns aren't a challenge anymore most of the technology now can deal with that so it's really I think we're just the we're like I think we're on the I think had Arion maybe started a year and a half later they'd have played into this era of abundance that we're in, but they got caught in the before co

and so that that that kind of hurt them a little bit. I think had they been a little bit later. I think the market's right. I think we're ready for this. We're ready for supersonic.

Mhm.

What's the most number of hours that you've ever heard of an executive flying annually? You don't have to name the person, but but just the number of hours.

600

600 hours in the air.

Whoa. Okay. That's quite a bit lower than than what uh the Financial Times was reporting on.

Oh, what did they say?

Well, the Financial Times was reporting on I think al I think Alex Karp I think didn't didn't they have have like expecting him to be up in like the thousand something range.

Uh the

and we were saying like it seems like this guy is doing deals in Europe and Asia and America constantly. You can imagine he's constantly in the

headline. One second. There's only 2,000 hours in a year. So, like, how are we going to

Well, so the the the headline was that uh that he spent $17.2 million on flying, and they worked backwards to estimate that that was $2,457 flight hours. But a lot of that is based on the plane. Obviously, if you're in a very expensive plane, $17 million goes a lot less far.

Could have been the the BBJ.

Could have been the BBJ.

Yeah. Anyway,

now now I I personally fly between around 350 hours a year. Uh 350 to 400 and and and you know, but I'm doing a long I go long trips. I'm going I go back and forth to operations in Europe. So uh and I feel like that's a lot of hours. But

how is how is uh Starlink uh how is Starlink uh impacting aviation overall? There's a lot of excitement from it rolling out on the commercial space. Most of the jet I'm sure all the jets that are that are uh in the sort of flexjet fleet have had great great uh internet you know connectivity in general for quite a while. But what is the what is the ongoing impact?

Well well not to correct you but that was not a true statement. Connectivity in corporate aviation has been a challenge for many years. In fact, I would tell you it was the Achilles heel because here you go buy the $70 million jet and you get on it and you have one of the old technologies, you know, and and it it's a disaster. You're like, how could I pay this kind of money and I don't have the internet? Starlink has changed everything. I mean, Starlink, like even for me now, I used to never for my flights, if I had an 8 hour flight, I'm leaving this weekend. I I can schedule anything in that flight. If you want to do this podcast from the air, we can do it because so you can just keep your schedule and remember it works on the ground. The old technologies only worked in the air.

Yeah.

So now you had taxi takeoff, you couldn't do a phone call, you couldn't watch a movie.

So disruptive.

So disruptive. Yeah. No, it this is it's it's changed a lot. In fact, uh we we we had for we we did the initial installations on on Musk's airplane and because of that, we got the initial STC's for all of Starlink. So, our fleets been in Starlink very early on. Uh their competitors are just starting to convert to it.

Yeah. How do how do some of these how do the the contracts work historically? Did did some of the old connectivity providers lock some fleets into really long-term agreements? So now they have to make a decision. Hey, do we continue paying for this plus Starlink? Because I wonder I we we've just been wondering like the how some how slowly some commercial airlines have reacted seems surprising just considering it's such an easy way to create a meaningful differentiation for passengers.

Well, I think you're dead on, right? Money makes the blind see. So if you try to find the solution to what you're missing, it is the fact that they have those long-term contracts. Now I don't know. I don't know enough about all the contracts. I know our contract, you know, our initial contract with GoGo

allowed us to because we have so many planes, we could just add and take off planes at at will.

And um we have not yet done the Phenom fleet because there's a different antenna needed for the smaller fuselage. So, we still do have so you know about 80 airplanes that are on the go system, but we'll we'll be converting those.

That's great.

Great.

Well, thank you so much for the time. This was a lot of fun. I learned a lot and hope to talk to you soon.

Love what you guys are doing.

Thanks so much.

Enjoy what you're doing. Thank you so much.

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