Jessie Naor: Good morning and welcome back to the VIP seat. have a very special guest today from AvFuel. Sit back, buckle up and let's take off.

Preston Holland: Well, we have a very special guest today. CR Sincock, is the president of AvFuel is here and AvFuel in general has been in the news a lot. And so we figured that this going to be a very relevant and current events topic. So CR, thanks for coming on the podcast.

C.R. Sincock: ⁓ absolutely, Preston. I like how you almost said av fuel has been a big topic in the news today. We like to ourselves as Kleenex for tissue. We're like the av for jet fuel. So there you go. But anyway, appreciate it and happy to be here.

Preston Holland: I did.

Jessie Naor: Nice.

Preston Holland: Yeah, absolutely. Awesome. Well, I guess probably a good place to start is like, explain to us what AvFuel is. what, you know, do you make the gas? Do you drill the gas? Like where are you in the in kind of the value chain so that everybody understands kind of what perspective we're coming from.

C.R. Sincock: Yeah, for sure. mean, it's something that I guess like any industry you take for granted and then don't realize that, you know, to most people the truck just shows up at the airplane. So, you know, AvFuel is, I would say best thought of as a downstream aviation energy company. So we perhaps ⁓ venture bit into midstream, but, you know, we ⁓ are involved in United ⁓ Canada, Western Europe, some parts of Latin America. So, you know, we're in a number of different countries and we're basically doing everything from the refinery all the way down to when the air, when the fuel makes its way into the airplane wing. So, and then everything related and adjacent to that. So that's, you know, at a very high level, that's what I have fuel is, you know, we're just shy, probably of 1500 employees across our different companies. know, we're several billion in revenue company. So of fluctuates based on the price of oil, as you imagine, which has been in the news quite a bit recently. You know, we're sort of comparable, I would say, to a small mid cap kind publicly traded company and kind of scope scale size, but our our family owned business. So a little back of the envelope about Avfuel

Jessie Naor: Thanks. Yeah, and that was one thing I wanted to talk about because CR, you're kind of recently taking the helm here of AvFuel. And a lot of people know your dad, Craig, just because he's been in the industry since the ⁓ So I guess maybe could you give us too the story of ⁓ he started and where you guys are at now.

C.R. Sincock: Yeah, absolutely. And that really does help, think, to explain, know, going through that story, I think will help explain to some of the subscribers here about like sort of how the does work. Because, you know, back in the ⁓ 80s when dad became involved in the company, I mean, he acquired the business it was acquired as a generous term, you know, when it was a really, really tiny, I think there were like five employees or something he likes to joke and a cat, you know, so it was this tiny little company and he actually had to go get equity partners even to buy that, right? So he was kind of the sweat equity in the business. And basically at that time, the company was a distributor for Phillips, you know, Phillips Phillips 66, right? So kind of analogous to how it works in the car gas industry where You'll have jobbers that work on behalf of oil brands, sometimes independent, sometimes branded. we were a Phillips jobber for aviation for a couple states in the Midwest, including Michigan. And that's how the business started. time, and so at that point, all the major oil companies and had an aviation business. So just like how you would see, you know, stations from all the different brands at the time, you know, I mean, not just what you see today, but, you know, even more, right? So you'd see your Chevrons, your Texaco's back then, your Sonoco's, you know, Phillips, your, I mean, there, was just, it's just on and on and on, right? You see all these different gas station brands. And, so the same thing happened for aviation. So, so we were, we were, you know, Phillips for that region. that's how we started our growth path. And then kind of the next step was going out and getting, because we had a small region to do ⁓ our distribution you know, we would move the fuel to these various airports for Phillips. would brand them Phillips, right? Put up the Phillips sign, you know, give them the Phillips program, whatever, right? And, and so then what happened is my dad went and basically got a few similar arrangements with different oil companies for different regions of the country. So it's like, well, Phillips, we can only do these couple of states, you know, but what about, you know, what if we go get a similar branding arranged it with, you know, XYZ oil company, you know, in, in another of the country, right? And so that's kind of how the early out of the, of the business went was sort of, but we were at that point still a We didn't really have the AvFuel brand yet at that time.

Preston Holland: So from there, so okay, so Philips, and Philips still exists in the market. I guess my first question is, you eventually branch out? ⁓ they still a partner? Like how does that relationship work if that was kind of the foundation?

C.R. Sincock: Mm-hmm. Yeah, absolutely. So, ⁓ good question. And I guess first off, ⁓ are a partner of Phillips and and I would say that that has taken now more of the the the modern or contemporary sort of model in industry, which is where Phillips does still maintain a certain number of what they call their direct, you know, FBOs Phillips direct. large amount of their business is sold the refinery level and then purchased by, let's just say, AvFuel, WorldFuel, and taken to the various airports FBOs. But you're right, at point we did end up branching out. We started working with a fairly, I'd a regional refinery that was in Texas at the time back in the 80s, Pride Refining. And was sort of, again, from sort of Texas out to the sort of central United States region. So they became one of the brands that we were putting up. And then at one point, AvFuel, you know, the was being sold, or at least they were looking for ways to monetize and ⁓ get cash. And so... in one of sort of the early transactions for AvFuel, AvFuel acquired Pride, refining aviation division. So that, you know, obviously expanded the ⁓ scope and scale of AvFuel. And then that kind of a similar time to the got made. to saying, rather than going out and, and, know, in one state, you're Phillips in one state, your pride and another state, your Sonoco, another state, your shell, you know, kind of confusing from a, from a company, you know, strategy perspective, right? So, so that's when the Avfuel brand was, was born, so to speak, as opposed to not just a company name, but really, uh, you know, a recognized, um, fuel brand in the aviation industry. so the idea was all of those different relationships became now call it a supplier, right, or a supply chain partner, but everything downstream was, was AvFuel, right? So was an AvFuel sign, AvFuel trucks, AvFuel card processing, AvFuel, you know, mean, pick up the phone, it's AvFuel. It's not, you know, whatever oil company. So So that was sort of the big transition in the industry. And it would turn out to be, know, whether we kind of helped to catalyze that transition to the market a little bit, perhaps. I think also there were just other structural factors that were leading a lot of the major refineries to get out of the downstream. Just their cost structure, their operations, things just didn't make sense. They needed to focus on drilling, exploration, and refining. And so AvFuel was really in this great niche to kind of be that downstream aviation partner for so many different refineries.

Jessie Naor: And I think too, this is a good chance to maybe talk about, the listener who is not familiar with the supply chain, can talk about a barrel of crude and then how that turns into, ⁓ gets your airplane? What are all the steps in that process and where's the value added along the way?

C.R. Sincock: Yeah, absolutely. It's a long journey. So, you know, it starts in the ground somewhere and most of, you know, today's production, you know, you have sort of big offshore deposits. have a lot of US is a lot of shale and fracking based production. You have big oil fields in the Middle East. So you have, you know, a couple of different sources of the raw, you know, crude oil that crude oil is extracted. and sent to the big refining centers of the world. And so one of those big refining centers is ⁓ in the United States, the Gulf Coast. I there's refineries everywhere in the United States, but there's concentrations in the Gulf Coast. You also have big refining centers in the Middle East, in East Asia, some in Western Europe, less so than they're to. Venezuela, a lot of oil deposits.

Preston Holland: Venezuela Venezuela Venezuela been in the news.

C.R. Sincock: a lot of oil deposits. Some refining, yes. The refining capacity has atrophied over the years because of of investment and graft and corruption. But yeah, have a lot of potential for sure. so the oil makes its way to one of these refining hubs and ⁓ it's sort of optimization problem around how far you have to move the crude oil and then the type of crude oil. ⁓ There's different heavier or lighter kinds of basically how much refining has to be done, how much has to be removed from the ⁓ there's different refineries that are better for different kind of grades of crude oil. But roughly speaking, it gets, it's refined. And then at that point, you can think about it as sort of splitting the barrel. And so for every barrel of crude oil, you get a certain percentage of gasoline blend components. you get a certain percentage of middle distillates, is what you kind of group jet fuel into, but you'd also put like diesel and certainly very similar for example, is ultra low sulfur diesel to jet fuel. Whereas is much more similar to basically a very, very high octane gasoline, almost like a race fuel of sorts. you get fractionation of the barrel and all these different products that come out. The autogas blend components are the biggest. Diesel is a substantial one. Jet's not huge, but not small. It's going to be between 5 and 10 % of the output of most refineries. ⁓ so kind of... And then now that fuel has to go somewhere, right? So the crude coming in the refineries is usually on... ships, large ocean going ships or sometimes pipelines going out is again going to be on either pipelines or ships most of the time. And so it's going to move from, you let's use the United States as an example. You know, if it was refined in the Gulf Coast, most of the time in the United States, it's going to then make its way on one of the major pipelines. So you have Colonial goes from Gulf Coast to New York area. You have plantation that goes from Gulf Coast to DC area. Of course, all these have many stops along the way, right? So you can pull the product off, you know, and then you have Explorer that goes from Gulf Coast to Chicago area. And then along the way, you can break off of Explorer and go into the Magellan system, which is mid-continent. So you have kind of all these different kind of ways. Now, the coast, like California, is a little different. It tends to either have its own refining capacity ⁓ product is brought in on the water also. New York is a split of pipeline and waterborne product. So you have all these different ways that the refined product then makes its way to a local terminal or storage depots. And then from there, it's usually loaded onto trucks on a truck rack. So those terminals have a pipeline comes in on one side. You load into those giant dome. tanks you see when you're driving by the expressway sometimes at ports, you know, and then those can then pipe their way into a truck rack where over the road transport trucks pick up the fuel and then take it onto an airport. And then of course, you know, that's where people get more familiar and then it goes either into, you know, a consortium if it's at a large airline airport or it goes into, you know, an FBO's fuel farm or a private flight department's fuel farm, you know, on the airport.

Jessie Naor: And I know that like world fuel has some involvement in like the shipping as well, you know, but it's, it has fuel kind of like from refinery to wing. Is that the, your chain? Yeah.

C.R. Sincock: That's kind of the journey. Yeah, yeah, yeah, exactly. Well, I mean, I'd say we do shipping as well. We don't do we don't do a lot of, would say, like, ocean going vessels, because we feel like there's a lot of people that are kind of there's a lot of trader large traders that are specialists in doing that. And so it's kind of, you know, but but we do do a lot of pipelines. So it's I mean, which is basically the main way the product is is ⁓

Jessie Naor: Mm-hmm.

C.R. Sincock: traded, so to speak, the United States, domestically in the United States. So we do a lot of pipeline, we do a lot of rail car, and then of course we do tons of trucking.

Preston Holland: And I'm assuming that that's, is that brokered capacity or like, cause you obviously don't own the pipelines. how do you, how do you, like, you buying space in the pipeline or how does, like, how does that work?

C.R. Sincock: Yeah. Yeah, exactly. the larger players, like an AvFuel or WorldFuel, we have space on the pipelines. Yeah, we have a history on the pipelines, which gives us a certain, you know, it's kind of like, it's a little bit of a chicken and egg. You know, it's kind of like a, well, if you shipped X amount on average per month last year, then you get the right to ship the same percentage this year, you know? So sometimes a little hard to like break in the door. So pipelines will sometimes have a a program for new shippers or something, you know, but, but yeah, that's generally speaking how it works is that we have space on the big pipelines. So, yeah, sort of the whole.

Jessie Naor: So from like a competitive moat perspective until you're like really at scale, like one of these big fuel companies, like you're not gonna get in, you're not gonna get space on that pipeline. Yeah, okay, interesting.

C.R. Sincock: Correct. Correct. would say that's one of the additional big factors, scale factors that, yeah, that AvFuel has invested in, grown ⁓ in the last, would say maybe 10 years ago or something when we really kind of got to that kind major kind of that's where it's almost like a midstream, know, downstream midstream type like scale. We're taking positions on pipelines and then in the big storage terminals that are at the ends of the pipelines, right? And so, ⁓ that's something that's, it's definitely a, you have to be a certain size and then it does create a barrier to entry because it means you know, our kind of our cost basis is different, our... reliability is different.

Preston Holland: OK, so it sounds like really complex, lots of barriers to entry. you're not going to have some startup be like, oh yeah, AI and all this stuff, and we're going to come take out Afuel. I've got to ask the question. We had Nick Fazioli on the podcast a couple of weeks ago. It feels like you're probably a nice target for private equity or something like that, but you are your family-owned business. Why?

Jessie Naor: you you

Preston Holland: I mean, I guess like, do they come knocking all the time? would assume like they're probably like, Hey, we want to buy you. This would be great. Like us through like keeping it as a family business. Cause you could probably sail on your super yacht and fly your private jet out there and not have to deal with, you know, this market volatility and all this craziness.

Jessie Naor: You

C.R. Sincock: Yeah, exactly. We could still be a good consumer of the private aviation supply chain. But ⁓ so I think it's a great question. And I mean, the answer is yes. And we are very ⁓ fortunate to have many, many suitors in that department, both investment that want the company to go public or do some kind of a transaction and private equity partners are looking an acquisition.

Jessie Naor: Yeah.

C.R. Sincock: And I would, you know, it's something that we see as, I mean, look, it's always there, but we have extremely de minimis interest in it. think just because of the, you know, Avfuel for us as a family is sort of, you know, it's a legacy. It's a, know, we see it as an important brand and business and group of people in the industry and culture and something that we, know, has a monetary value to us, but also has a you know, cultural value, the ability for us to sort of try to shape in a positive way the industry and, you know, just the whole kind of, I would say community and life of people, not just my family, but everybody that's been with the company for so many ⁓ Um, you know, and just that kind of, uh, uh, life in the industry. think some, someone said at one point, one of my friends, Reese, they were like, you know, at a certain point, like, you know, if you're in, in, in certain industries, it's like, just kind of becomes part of your kind of part of who you are. And, you know, in the same way as saying, you know, I'm, you know, I have dark hair and I'm a man and I'm whatever. And, you know, I mean, it's, it's, it's just kind of becomes part of your identity. And so don't think that. We don't really have any reason to rid of that. And I think, you know, I find the business really enjoyable. You father obviously loves it. You know, he started it and grown it over many decades. so I think it's you know, there's, I would also say the side, like there's, you know, we're also fortunate that the generates a lot of cashflow. It does require investment. there's a lot of, I mean, not just in people and systems and technology, but also, for example, refueler trucks, right? We maintain one of the largest fleets of refueler trucks in the world. mean, it may be, it's certainly top five, it may be top two or three, just on airport We have more than a thousand on airport refueling trucks. And, you know, I we have to buy. ⁓ many, many of those a year. you know, for those of who spend time around FBOs, you know, they'll know that those are hundreds of thousands of dollars per copy, you know. So there are certainly major investment requirements of the business, but even despite that, the generates a lot of cash flow. It's not kind of one of these tech businesses where you're, you're valuing something based on, you know, an outcome five, 10 years in the future. And so, you know, because of that, you know, we're able to do all of the things we need for the business, for the people in our business, for our partners in the industry, our customers, without like, we don't need extra capital in order to be able to do that, right? Which would be, let's say, reason to look at that, to be like, hey, I wish we could do XYZ, but we can't because we need an extra $100 million to be able to go do whatever, you know, so.

Jessie Naor: Yeah, well, I think you're in the lucky position too that, you know, not everybody has a next generation kind of built in, you know, some, you know, sometimes the legacies kind of die out with the founder, but I'm sure that Craig's very happy that you're happy to keep the legacy going. So. ⁓

C.R. Sincock: Yes, he is. And we have a great time. mean, we, you know, we go to a lot of the trade shows and conferences together. I mean, sometimes we divide and conquer, but, you know, it was just that schedulers, dispatchers, know, whenever that was a week or two ago in Cleveland and, you know, and just, so we ended up going to that together. And so it's, it's, it's fun for us. I mean, it's work. It's hard work. We are exhausted at the end of the day, but it's, but it's also really fun and getting to see everyone on our team. ⁓ I mean, gosh, we had, think, I want to say 70 something AvFuel team members there, which was incredible. It was the most we've ever had. And at 80 something FBOs and partners exhibiting and just being able to go see customers, many of whom we've known for like decades, you know? So, it's like going to see a bunch of friends. mean, so it's, yeah, exactly.

Jessie Naor: Old friends, yeah.

Preston Holland: Yeah, and you guys throw great parties too at Scudgers and Dispatchers. you those, half-fuel parties always one to definitely be at. So talk about dad's role the business now. So we talk a lot this show about ⁓ like aviation is a project for a lot of founders. And so ⁓ it's really hard to truly and really get out of the business. So, you know, as you're, as working through this kind of generational shift

Jessie Naor: Thank

C.R. Sincock: Exactly, yes,

Preston Holland: know, really trying to keep it in the family walk through like what that transition has been like.

C.R. Sincock: Yeah, it's spot on what you just said. mean, one these classic entrepreneurs out there. And there's a couple of them in the industry, but not a lot. that has just, I mean, it's his passion, his life. mean, yeah, started, I consider him, I mean, when he bought the company, was. wasn't even really known as Avfuel and you know, so basically started the company and when it was nothing and has grown it and both from a business perspective and aviation, I mean, he loves to fly, right? I mean, worked at the local airport in Michigan as a job during college and you know, I mean, he's always been an aviation guy through and through. mean, he's flown airplanes ever since then until... now when he flies, you know, Av fuels company airplanes. And so still to this day, you know, including to Europe and back, you know, and so, and so he's, you know, for him, it's just, it's just in his blood, like you said. And, ⁓ and so it is, it is a transition. It's something that, you know, I think for him, he's so, you know, ⁓ as the business he was used to sort of being the, the, the chief everything officer, you know, from supply to sales to shoveling the sidewalk to whatever was sort of happening. And so I think that's sort of, yeah, it's just been an adjustment. But I think what's happened is obviously as the business has grown enormously in size and scope, it just becomes impossible. There's a certain point when there's just not enough hours of the day. And I think we finally have hit that point where, and so that is just helping to helping him to let go of certain things, certain decisions, a lot of the day-to-day, week-to-week decisions, while still having a huge amount of things that he can influence in a really positive way. ⁓ ⁓ that's, I think he spends a lot of time on just the culture of the, just of the like, he used to be sort of well-known for just walking around the office and just. you know, going and talking to people and, and, know, connecting on a personal level, but also discovering like, ⁓ maybe there's something going on here that, you know, people aren't appreciating or whatever. And, you know, I think just, like that. think, just his, his obviously very broad network in the industry and kind of all ⁓ aspects the industry, right? Not just in. ⁓ our fuel segment, right? But across all the different sectors, whether it's the OEMs, service providers, aircraft operators, you name it, just because of how long he's been in the industry. so I think that my point here is that so much to do and so many ways to kind of contribute that I think that that's made it a softer, you know, it's a long process, but I mean, I've also been involved with the business for a very long time. So it's been gradual, right? But like, even though, you know, I was, I guess, officially made president a few months ago, that's been in the works for, you know, decades, you know, so, so it's been a gradual process, and there's a lot for him to keep his hands on while kind of elevating our, our senior management team, right, many of whom have also been

Jessie Naor: Mm-hmm.

C.R. Sincock: with the business for decades.

Jessie Naor: Well, and that's one the things I've noticed about your team specifically. There is a, look, this is a commodity business, but it's still very much, there's a culture there. And now hearing the story of Craig out there, like, cleaning the sidewalks off the snow, like that just shows me like, that's a founder and an entrepreneur who like, there's no job that's too gross or too bad for me. I will, I'm in there in the trenches with you. That's really cool.

C.R. Sincock: absolutely. I think that's, yeah, and I think that's a part of the culture that we hope will always stay with AveFuel, right? Is sort of this, and you're exactly right, Jesse. it's funny, like what we say, it's like we sell the same fuel that everyone else does. It's kind of like, I guess, if you go to a bank or something, right? And it's like, in a like a lot of banks provide the same money, right? ⁓ They do, It's all US dollars.

Jessie Naor: Mm-hmm.

C.R. Sincock: But, you know, but there's a lot of difference between kind all of the other ancillary services that surround that fuel ⁓ and relationships of sort of knowing ⁓ when how you can count on someone as your business right? And so I think that's kind of what we've really made AvFuel great on is ⁓ is and we always work the best with customers that under, mean, obviously we have to be very price competitive, right? I mean, that's why we make decisions like getting into the pipeline business, which I can guarantee you is not cheap and a lot of incredible amount of volatility during price movements like right now and other times for us. But reason we do all that is to be extremely cost competitive. But the reality is once you get down to a point where you're within a couple pennies of, you know, of other people, like most smart business people will then realize like, okay, at this point, I'm not going to like make or break my business by choosing, you know, as long as they're within a couple, you know, it's like now it becomes more about like, what, what are all the other things that we can, that we can count on in this supply partner, right? You know, like how else are they going to help me grow my business? How else are they going to make sure that, I get fuel even when shit hits the fan. How else are they going to basically an, I mean, we're effectively a bank for many of our customers, right? We extend unsecured credit to many customers have strong credit profiles, We provide leasing of many of dollars of equipment and of trucks and tanks. There's all these other things that come. And then there's just the relationship of knowing like, hey, are we going to be there when they really need something? if we've been working with somebody for 10, 20 years, then for we will be. So that's, ⁓ think, what tried to build a business based on.

Preston Holland: That's interesting. Well, it probably gives us a good segue to talk about what is going on. We talked a little bit about pricing. I think that there's a lot of shock factor at the pump right now for even those contracted rates. Everything's going up. We'd love to hear a commentary on the macro market of jet fuel right now. Obviously, there's been a lot of...

Jessie Naor: Yeah.

Preston Holland: world events and volatility that's kind of driven that. You've got the Strait of Hormuz and crazy true social posts that are coming out that you would never expect to see come out publicly, which is pretty crazy. So walk us through the current state of jet

C.R. Sincock: Yeah, absolutely. And I'll preface all this by saying that if I did have a crystal ball, then back to our discussion of the super yacht and the helicopter, that would for sure be my life. But in the commodities markets, I think that, look, the big picture is twofold, I would say. And I'm going to start by this from the perspective of North America. recognizing that that's slightly different for Europe and then perhaps more different for other parts of the world. you know, mean, the United States is the largest energy producer in the world, right? So we don't have the largest reserves. We have one of the highest reserves, but we have the largest production of energy being kind of like oil and gas. And so from an energy perspective, like energy security perspective, the US is going to be just fine. and North America, Canada, Mexico, whatever. So, mean, we're going to be just fine. Now, of course, though, markets are not in isolation. so pricing ⁓ still has been will continue to be a roller coaster because of the political events. And the reason the markets are tied is because you can trade. You can product from both oil and refined products, meaning jet fuel, gasoline, diesel, whatever, between, you know, there's ships every day, And so the reality is oil and products are going back and forth. So obviously if a huge shortage develops, let's just say in the Middle East or Europe, then obviously that prices will go up, So there's is, we still are tied to markets because of that. So I don't think there's any worry about running out of product. Yeah, there may be some supply chain funkiness, but I mean running out in a large scale extended way, right? And I think that the more severe shortages could develop again closer to where some of the... the damage is being done in the Middle East and or, you know, ⁓ in let's say Western Europe that don't have, they don't have anything close to the domestic production that the United States does. You know, I still don't think that countries are gonna run out of product. I'm just sort of saying on the ⁓ relative of risk, right? So it's really more of a, you know, prices. ⁓ moving product around through arbitrage. And a of that just comes from psychological war premium with what's going on in the Straits of Hormuz and ⁓ expectations, right? any financial market. And it's kind of just how long does a straight stay closed? And it's also what other damage gets done to the energy infrastructure the broader Middle East region.

Jessie Naor: Yeah, well.

C.R. Sincock: So I mean, those are really the two big key factors.

Jessie Naor: And what, mean, is your crystal ball prediction on pricing? I mean, if this thing goes on, you we have no idea. I mean, it could be over tomorrow. It could be over in three months. It could continue on from that. You and I've already seen some parts of the market adjusting. Like the Saudis have a pipeline that can go out to the West, you know, so they're starting to route things over. Like worst case I mean, like how bad can pricing get given that the US, we have our own production, you know, like what? I guess how does that all work? If this goes on for three months, what can we expect or more?

C.R. Sincock: Yeah, yeah, think think, you know, guessing what's going to happen on a daily or even weekly basis is, know, is anyone's guess. No one knows. It depends on what Trump tweets, you know, that that day. But I would say that, you know, from a, know, to answer your question from a more let's call it medium term perspective, I do think we're going to see elevated prices. I think that and you've already seen this, like if you look at sort of like the futures curve, the you know, the market for the last number of years has been in people call backwardation, meaning the price of front month, the price of delivery of product tomorrow or next month or whatever is high. And then as you go out further, you want delivery in six months from now or a year from now, two years from now, right? Those prices are lower. And that structure reflects different things in the market ranging from risk premium to a shortage in the short term. We need product now, but we're not worried about it in a year from now. But been in this market structure now for years, since at least the Russia-Ukraine war started. It's gone from severe to mild, but it's all been roughly the same structure. I think that what we're starting to see though now is some of the the medium and longer term months are kind of creeping up. think, the ⁓ simplistically back end of the curve is moving up some. ⁓ And think that's in response to basically just more market participants are realizing that, know, whether, there's some unlikely scenario where everybody sings kumbaya tomorrow and everything goes back to normal, you know,

Preston Holland: you ⁓

C.R. Sincock: There's already been damage done and there will likely be additional damage done, damage in either the form of parts of refineries blown up, terminals blown up, ships blown up, whatever. And those kind of things are semi-permanent. They take time to restart, rebuild, repair. Um, you know, and so even if you open the straight and let ships through, you know, maybe the refinery terminals aren't operating at full capacity or aren't loading at full capacity, or maybe you have some ships that have been dislocated to other parts of the world or need repairs or maybe, you know, insurance companies are still really sketchy about, this could happen again. And so now we're going to Jack the rates. I mean, they're through the roof now, but I mean, you know, so So there's all these different, like what I would call more medium or longer term knock-on effects, right? So like, we get some kind of a pseudo lasting peace the spot prices like today's prices come down from the peaks of what they I think so, but I

Jessie Naor: Mm-hmm.

C.R. Sincock: But I don't think we're just gonna go back to where prices were before all this started, to put it in that sense. I think we're going to kind of be at an elevated level of pricing compared to, let's say, the beginning of the year for an extended period of time, probably year plus, at least six months. ⁓

Jessie Naor: Can the market work around it? mean, from a, you know, the straight of Hormuz, let's just say, you know, this goes on forever. And we're all just no one wants to do business there anymore. I mean, oil, I know it's harder to refine or that it's not fully ready. But like, I mean, can the market readjust this in the long term and not rely on that straight?

C.R. Sincock: Yes, the market, I yeah, if we talk, if we just really zoom out and step back, the market definitely can adjust. I mean, it would be extremely painful in the short to medium term, probably would cause a recession. But because you'd be starting to talk about many, many months of the Strait of Hormuz closed, oil prices would potentially go up even more. And so there would be a very painful short-term shock to the economy. sort of medium to long term, absolutely can adjust. Like you already mentioned the pipeline, the Saudis have to reroute product. You have different countries and regions where you could make investments to, I mean, again, we were talking about earlier, Venezuela has the largest reserves in the world, but it would just take a large amount of money and effort to kind of. get them producing at a high rate. But it's very doable. mean, it's a problem that money and effort can fix. it's, and political will can fix. And so those are, which extended super high oil prices would probably do that. So I think that the answer is that yes, if it was really a, what I would call pseudo catastrophic situation where the straight stays

Jessie Naor: Mm-hmm.

C.R. Sincock: extraordinarily volatile and closed for some extended period of time, the can work around it. It would take time and it would be some pretty pain in the short term. But eventually, you'd have other pipelines, rerouted production, investments in other production. And then at that point, you would see more effects on countries that are very short products. So like this is why China, for example, has been investing for a long time to try to transition away from fuel. not necessarily because they're all like super green there. It's because they that if this, for example, got very catastrophic, they would be hurt more than anyone else would be, of the very economies. mean, some of the Asian economies are susceptible. Some of the European economies are a bit susceptible, but

Jessie Naor: You don't say.

C.R. Sincock: But China has a huge economy that's very reliant on oil and very net short. It would be challenging.

Preston Holland: So like, that's a great framework for kind of global oil and gas. ⁓ It sounds like I should probably put off buying my F-350 dually for little while, ⁓ because, you know, it's gonna be pretty pricey to fill up. ⁓

C.R. Sincock: Hahaha

Preston Holland: But talk about like the impact that is going to have. And I think it's important to bifurcate or maybe the better question is, is there's bifurcation between autogas and diesel? Is the same bifurcation framework the right way to think about that from Avgas and jet fuel or is it or are they more closely tied together? I know there's a lot of subsidies that happen with of gasoline and coming up on a midterm. So expect, you know, the to increase this kind of, you know, kind of the big joke everybody's got. But like, are the two markets tied together? One is the first question. And then the second question is, ⁓ do do ⁓ the oil and gas markets and jet fuel, avgas move together? Or is there like a delay in that? Like, would we see oil and gas prices come down before we saw kind of fuel come down? To use the again. ⁓

Jessie Naor: and airline impacts just to throw a third one in there, the airline's relationship to all that too.

C.R. Sincock: Right, yeah. Yeah. Yeah, great. No, I'll start. I'll start hitting a few of those points and then I'll kind of pause and see what you want me to focus on more. But I mean, the so first of all, yeah, Avgas and jet are actually quite different. So they are they are like, like, you know, probably reasonably good analogy of diesel you know, and gasoline, right? They are at least different. And so ⁓ There you know, Avgas is a much lighter, lighter in the refining term, you know, which has to do with things like where it sinks in the columns and but it really just is a, you know, a more pure, you more expensive cut of the of the refining column. Again, it's like a high, you if you think about premium car gas is like 93 octane, right? And Avgas is 100 octane, right? Now, ⁓ octane. that's used is slightly different, but it's roughly speaking, that's a good analogy, right? Whereas diesel, or Jet Fuel's best thought of is like a very clean diesel. It's like a ultra-low sulfur diesel that's even cleaner and has some special properties around flash point and aromatics and freeze point and things like that. So they're fairly different. AV Gas is tiny. I mean, if... Jet is five to 10%. All aviation is five to 10%. mean, Avgas is like a rounding error. And that's just because if you think about it, I business aviation uses jet fuel, but all the airlines use jet fuel, the military uses jet fuel, right? So, I mean, that's the vast majority. And Avgas is honestly only made by a very, very few refineries now. It's the only major, I hesitate to use the word major, semi-major transportation fuel that has lead in it still, right? Hence all of the efforts to, now, the amount of lead is minuscule, but it's still there. so that's why the industry has made the efforts that it has and is still on a course to eventually eliminate that from the... the fuel, which is a whole topic of a whole nother podcast. But yeah, mean, so that's a very fragile supply chain. And getting back to your sort of question about how they move, they do move with the oil markets in general. You can think of everything as, I mean, this is ultra simplistic, but you can think of like the price of oil plus what they call a crack spread or a refining margin. Plus, then that gets you to the product, the jet fuel or diesel. That for example, all the transportation margins. Like we would have to charge to pay for moving the fuel. It's not free to send the fuel hundreds or thousands of miles, right? But at a very high level, that's kind of what it is, right? It's sort of like, what's the price of the oil and what's the cost to of refine that oil and that gets you the price. All these are constantly moving though, right? So that refining crack spread is also moving around. So it's not like it's a perfect one-to-one, right? So when oil prices rise or fall, generally speaking, especially if it's by a significant amount, you're gonna also see the commensurate price of, know, jet fuel or avgas rise or fall as well. But it may not be on a lockstep one-to-one because maybe, you know, the refineries all of a sudden are, have you know, there's too much of the end product in storage or maybe depending on the season and you don't need, you know, seasonality comes into effect of supply and demand or maybe, you know, this particular refinery shut down for maintenance and that one is better suited to produce this type of fuel than that type of, you know, so there's all these other things going on, right? But like at a very high level, yeah, they do move together.

Jessie Naor: Is heating oil still a pretty good peg for pricing when you're looking at like jet A futures and

C.R. Sincock: Yeah, so heating oil, mean, you which used to be for a long time, you know, the main contract that was used, right, to hedge jet fuel. And that contract has now become ultra low sulfur diesel. Although at some point it was still, I don't know if it still is today or what, it still had a ticker of HO. So just because of heating, you know, it's, yes, they're all roughly, they all roughly fit into the same band of of kind of these middle distillates, so to speak. You have sort of ⁓ blend stock on the one end and some chemicals. And then on the other end, you have the really heavy bunker fuel and things like tar, stuff that's solid, that's viscous. And so the middle distillates, I mean, very broad, but includes kind of... And so the most... traded on commodity exchanges, you know, contract in that category is this formerly heating oil, now ULSD contract. And then you can trade some spreads that are like, that are either called the regrade or the up down, depending on like where you are in the world, all this lingo, but that basically convert the ULSD into a jet fuel product, a jet kerosene product. But those are pretty thinly traded and don't have lot of flexibility and options. So usually people are still using the heating oil or ULSD contracts.

Jessie Naor: And airlines, I mean, that's my understanding is that's what's really driving our prices is airline activity, their hedging, their, can you talk more about that?

C.R. Sincock: Yep. Absolutely, Yeah, I mean, that's that's I mean, the reality right is, mean, you know, for those watching the show that are, you know, operators of large fleets, they're very familiar with the fact that, you know, fuel is one of their biggest expenses, right? I mean, in a variable cost basis, it be the most expensive, you know, right up there with, let's say just accrued maintenance on the aircraft or, you know, amortized maintenance or whatever. but and that's, you know, no different from the airlines. I mean, they might have, you know, quarter, a third of their expenses are whole airline are fuel, right? And so, you ⁓ you got labor, you got that and you got your equipment, those are kind of the expenses, right? And so, and so because of that, they're very sensitive it. And I think most folks know that airlines operate on pretty tight margins. You know, they're they really need a heavy load capacity to, you know, be be full to have flights be profitable. so, yeah, mean, am, you know, concerned might be an exaggeration, but I'm a bit cautious and yeah, watching how this is going to affect the airline industry and especially it tends to sort of hit the long haul flights the most because obviously those flights have to, you know, load up on massive amounts of fuel to make these, you know, I remember I used to take at one point, AvFuel was sort of looking at various business development opportunities in the Pacific and was doing a couple of flights over to Singapore and I used to take the nonstop Singapore Airlines from either Newark or from LAX to Singapore, right, which is sort of a 19, 20 hour nonstop flight and more than half the fuel, like there was so much fuel on board that I forget the exact statistic, but it was like half of the fuel is used to carry the other fuel or something. You know, mean, like it was like, you was like.

Jessie Naor: Yeah.

C.R. Sincock: It was like airborne for so long, And so those kind of things, like it becomes inefficient. And when the prices go up, those are extra right, to pricing. So yeah, I think it's something to definitely watch the health of the airlines. I I think it will kind of sort out again the airlines that have built more robust balance sheets over the past.

Preston Holland: you

Jessie Naor: Yeah.

C.R. Sincock: know, decade or number of years, least maybe not, maybe since COVID, let's say, versus the ones that haven't. so, yeah, I think that's gonna be interesting.

Jessie Naor: So if you're running a fuel farm, maybe look for a period when the airlines aren't gonna be that busy because fuel prices may be a little bit lower versus the spring break, March where everything, addition to the war, ⁓ issue, ⁓ really impacts us too, yeah.

C.R. Sincock: Yeah, yeah, no, absolutely. Absolutely. Yeah, as airline demand fluctuates, definitely has an impact on ⁓ fuel specifically as compared to, you know, how expensive jet fuel is as compared to its sister refined products, you know, like diesel or whatever. So.

Preston Holland: Yeah, no, that's really interesting. so like, does the fluctuation of business jet fuel like, I guess, what's that relationship like, so that I understand because I'm, you know, I'm not very smart. And so like understanding like, airlines, like, do they have do they have excess capacity? And then we like, I imagine in my mind, an ad fuel truck driving over to the airline and being like, Hey, I see that you have some extra gas, would you like to sell it to me for cheap?

Jessie Naor: very smart-pressed it.

Preston Holland: And I know that it's way more complicated than that, but that's, I think that's like my mental, ⁓ mental picture. is, is a key driver for business jet fuel too? Cause I, ⁓ or maybe the reframe of that question is do we in a vacuum or are we completely reliant on kind of airline, you know, supply demand?

C.R. Sincock: It's a little bit of in the middle in the sense that we don't definitely don't exist in a vacuum, but there's again, I would say 99 % of the time, I will just answer. There is more than enough fuel to go around. And it's, you know, it is really just becomes a case where the price solves the, you know, the supply and demand, you know, Challenges right the price just keeps rising until until the demand meets the supply or keeps falling right until you know if it's so So so yeah, it's you know airports. It's very rare to have a you know now there are these these Rare freak events, know hurricanes fires refinery outages ⁓ shutdowns, you know, there's there's random things like that that can happen that I mean, that's why, and that's why, kind of back to what I was saying earlier, like, companies that are thinking more strategic are generally concerned about their supply reliability, because they could make or lose a whole lot more money during that one in a, you know, one in a rare event than they will by whether or not they bought their fuel at a penny more or less expensive, you know, so, you know, if they can get fuel when no one else can, you know, when it's when or they have a backup, you know, lot of these airlines or very large, you know, corporate jet operators will look at it that way too. They'll look at it as having redundancy, right? Just like you want redundancy in anything, you know, in an airplane, you want redundant safety systems, you know, so the same kind of thing, you know, if you are, you know, if you're UPS or FedEx or a huge passenger airline at your hub, Do you want to have your entire hub supplied by one supply source? And then it's probably fine for like 99 % of the time, but then that 1%, you're just like, So start to look at that as a supply redundancy system. And even with AvFuel, for example, even if someone just works with AvFuel, it's not like we're getting our fuel in almost all cases one source. ⁓ Usually we have two or three terminals that we can pull that fuel from. Yeah, one or two of them are gonna be farther. so the fuel on those loads might be more expensive, but at least they're there, right? And so obviously we try to bring as much as possible from the closer terminal, but at you have those other ones as a backup, right? So.

Preston Holland: So, all right. Well, CR, we want to wrap up the episode with a couple of rapid fire questions might be a little bit off the wall, but that's what we are known for the VIP seats. So totally random might be in industry outside of industry. So I will kick us off with rapid fire question. Quick answers. Biggest risk right now in the business aviation supply chain.

C.R. Sincock: Yeah, biggest risk in the supply chain. I'm going to kind of interpret that a little bit liberally and go with I think the biggest risk to the industry is just continuing to make sure that we as an industry fight the PR battle to kind of our relevance, our stewardship, our, know, being good citizens, showing the value we bring to communities, the economy, the workforce. I think that it's very easy for business aviation to be a target because there are lot of very wealthy people that fly and that's okay. mean, they have to around too, but I mean, but it's, but you for whatever reason, sometimes people get angry and frustrated at people that are very financially successful. And so we have to sure that we're doing what we need to to show that, look, we're employing lots of people, creating tons of value for the economy and doing good and being good citizens of communities that we work in.

Jessie Naor: that we just had a post last week that went kind of viral. We had like 3 million views and it was, and some of it was complaints about, that fuel being spent. But I'm like, there's no other way for these people to travel. I mean, think about the security environment that we're in. You know, you like, we have people getting shot all the time. You know, we had the United executive, ⁓ ⁓ cannot go commercially. They just cannot. ⁓ And on top of that, there are lots of people like us that love this business, aircraft mechanics, pilots.

C.R. Sincock: No. Right. Yes! No, absolutely not. Yeah.

Jessie Naor: FBOs, line workers that they are great, great job. So yeah, I've just had to second that and yeah.

C.R. Sincock: Yeah, they're great jobs. tell you, look, mean, like there are ⁓ whether it's security for the reason you just mentioned, which a real reason, as we've seen very vividly ⁓ recently, unfortunately, right? Or whether it's like very, very just practical business. for example, I mean, I guess you could argue our business is one of the best use cases imaginable, but like, We could not do what we could not do without our corporate aircraft. mean, our sales team, supply team, quality assurance team will fly around and in some cases visit like three or four airports a day. And I mean, that's just not possible in any other way, right? Because we literally land and like we are at our meeting, which is at the FBO, you know, or at the or the fuel farm or whatever, right? And so like,

Jessie Naor: Mm-hmm.

C.R. Sincock: or you look at a company like Walmart that legendarily built the company by, you know, all the planes, you know, going back into Bentonville and then leaving Bentonville at the beginning to go to all the different Walmarts all around the country, right? I mean, these kinds of things you just can't do. I'm not saying uses airplanes in as practical of a way as that, but there's a lot of very genuine use cases out there that need to, you know, really, you know, I guess ring our bell a little bit. Yes, yes, so.

Jessie Naor: fight our haters with. Yeah, yeah, for sure.

Preston Holland: All right, second rapid fire question. FBO consolidation net good or net bad for the industry?

C.R. Sincock: yeah, that's a hard one. ⁓ I think that ⁓ me put it this way. I think that some I'm going to hedge a little bit, but I think it's I think it's a valid hedge. So I think that some I won't even say consolidation, but I'll say some capital and the accompanying in the industry is good from the perspective of

Jessie Naor: Thank

C.R. Sincock: you know, just bringing in that investment into the industry, you know, the growth, the standards, the ability to think about the future, think longer term, make, you know, make capital investments, professional systems, management, whatever. But I think that, you know, it's at risk ⁓ of overboard, you know, like, ⁓ I it's kind of, so like, I'm, glad we have some as opposed to like, if you go back. I don't know, 30, 40 years ago, right? When like, you know, it was like, there was like none. Um, and I think the industry is very, you know, I was really taken a step up, but I think that it's also like, we have to be careful not to kind of shoot ourselves in the foot as an industry because as there's more and more capital and consolidation that comes in, prices get bid up, which is great for folks that, you know, own and operate these businesses. But then, you know, Ultimately, someone's got to pay the piper someone has to pay the bill right and and so who is gonna pay the bill? Well, the only way to pay the bill is to prices, right and then prices get raised and then you get complaints from operators about Like wow, why am I getting charged? You know XYZ crazy fee for you know, whatever or and then you get complaints to regulators about, such and FBOs are too much. we don't want to be on the radar as an industry. We're already on the radar enough. We don't want to be more on the radar. We don't want people to be like, ⁓ look, this industry is mistreating their consumers. And so I think we've just got to be a little careful about kind of the whole ecosystem and making sure that what we're doing is sustainable and we're not pushing it too far.

Jessie Naor: supply and demand curve. If you push pricing too much, the supply is going to go away. So got to be balanced.

C.R. Sincock: Exactly. Yep.

Preston Holland: Yeah. Last, last rapid fire question. If you had to pick one airplane to fly either in the front or the back for the rest of your life, what airplane would that be?

C.R. Sincock: Ooh, I'm gonna go with our Falcon 2000 LXS. It is the perfect plane ⁓ our business. There's perfect plane for every business out there, right?

Preston Holland: Yeah, very cool. Well, CR, it has been awesome to have you on the podcast. has been really helpful and I think a frame of reference for fuel in general, but also kind of for macro markets and what it means for operators, executives. We appreciate you coming on.

C.R. Sincock: Thanks a lot. It's been really fun chatting with both of you and getting to sort geek out about some of our industry. So thanks.

Preston Holland: Yeah, absolutely. Well, this has been another awesome episode of the VIP seat podcast. If you want to subscribe to the newsletter, go to the VIP seat.com. Leave us a five star review. If you liked having CR on, leave him a comment, tell him how awesome he is and, and how great this episode was. Leave us a five star review, Apple podcast, Spotify comments on YouTube. Those all help follow us on Instagram, the VIP seat at the VIP seat. just had a pretty awesome viral video from the masters. Thanks again to AB jets for sponsoring this week's episode of the podcast and we will see you all next week.