Jessie Naor: Good morning and welcome back to the VIP seat. We have a very special guest today talking about capital markets and business aviation. Sit back, buckle up, and let's take off.

Preston Holland: Well, Jessie we have a super exciting guest today. ⁓ This is the ⁓ M&A Gong. For those that don't know, we ring it anytime anybody transacts. so we have maybe ⁓ one of the most influential people in the M&A Gong ringing, Nick from Jefferies, Nick, thanks for coming on the show.

Nick Fazioli: Absolutely, my pleasure. It's good to see you guys and appreciate you having me.

Jessie Naor: Yeah, I think when I first met Nick, someone introduced him to me as it's our industry's banker and you've got to know him. So Nick, I'd love for you to tell us about your background just for those who don't follow Wall Street and the investment banking side so they can understand a little.

Nick Fazioli: Yeah, no, no, happy to do it. yeah, I've been extremely fortunate to get to be a very active participant in this particular subsector of the broader aviation market. And it kind of happened over, you you get involved in one thing, you get involved in the next thing. But so, yeah, from a a title standpoint, I'm the global head of aerospace and aviation banking, investment banking for Jefferies. For those of you who don't know. Jefferies, we are what we like to call a pure play ⁓ investment bank on a global level. We're based in New York. I'm based in New York. Just over 8000 ⁓ employees now. ⁓ But I had our aerospace and aviation vertical in particular, and so that does have ⁓ a sort of addressable market than just business aviation. ⁓ We advise clients in ⁓ commercial aerospace. Airlines leasing the whole MRO and supply chain across, you know, Bizav and commercial. And the product base is really everything. One of the best things about being at a firm like Jeffries is we're not just a debt specialist or just an M M&A shop. We really are kind of full service so we can do everything from M M&A buy side and sell side. We can raise capital that is debt, that is equity, public and private, that is hybrid. You know, and if things go off the rails on the other side, we have a very ⁓ strong restructuring practice as well, which does happen from time to time. So, you know, I do nothing but this industry and then, you know, sort of at the firm, we have product specialists in all the different areas. ⁓ you know, the business aviation side, and we'll talk about it a little bit, has not really historically been a very large part of Wall Street landscape, although that's changing rapidly. And we've been very fortunate to ⁓ to be a part of a lot of that. But our, our practice probably in any given year, I would say over half of what we do is involved in this, this sector, which is, you from a share standpoint, much higher than I think most other firms. So I've been at the firm 16 years. Prior to that, I had a career at Delta Airlines. I kind of grew up in the. commercial world, it wasn't really familiar with the BizAv world until I got to Jefferies and was very fortunate to, ⁓ when I first landed there to get synced up with Kenny Dichter when he was running Marquis Jet right about the time of their exit to ⁓ NetJet. So we were fortunate enough to be part of that transaction. know, candidly, that kind of ⁓ gave me my start in this sector and kind of one thing led to another. And you know, it happened to coincide. real pickup and investment for ⁓ this space. it's super fun, great people, ⁓ very, very interesting landscape.

Jessie Naor: You've seen the, you know, the arc from, you know, no one was in Vezas Aviation to now, you know, a lot more people being in it.

Nick Fazioli: Yeah, a hundred percent. mean, from a Wall Street standpoint, most people look at are like people who sit in my seat who are industry specialists. It's usually kind of A and D, right? Like aerospace and defense and to some extent aerospace defense government. Like those are like the typical kind of, you know, monikers are like the main, the main kind of buckets and you know, aerospace really just historically meant largely commercial. You know, it was basically like The commercial airline supply system and the maintenance system and the manufacturing and all that. And, maybe you would have your some companies that made things for Gulfstream as they did for Boeing, but it was really a commercial aerospace play. know, over in my, I've been at Jefferies now 16 years, that has really kind of come about where all of sudden there's that within that kind of aerospace category, you know, really has a life of its own. You have some very, very big companies. you know, very large transaction, you know, household name, institutional investors, and even some public market activity in that, that world. So, ⁓ you know, once there's a couple of good investments in the space and the sort of the herd starts to follow along and get known, it becomes more of a thing. So that's probably been the biggest change in my 16 years is just watching our sector ⁓ grow up. it's been, it's been great to watch because when you're in my seat, right, as my wife often tells me, like, she's like, well, you don't run the companies and you don't actually invest the money into the company. She's kind of like, what do you, what do you do here? ⁓ type of question. And, know, at Jefferies, we're kind of facilitators, right? There's institutional capital and investors that are looking to deploy money to work into the, you know, into the private and public markets. And my job is to go out and bring great companies, whether they're public, private, founder owned, whatever. You know, to them and sort of bring it so for us, it's very fulfilling to see. ⁓ You know, this type of activity build up around a sector that was once a little bit of a cottage industry.

Preston Holland: Yeah, I think a good place to start might be kind of piggybacking off that is what is the macro attitude towards Bizav right now? it's end of first quarter of 2026. There's a couple of publicly traded companies out there, but just I'd say like general sentiment towards our section of the industry.

Nick Fazioli: Yeah, and I'll speak broadly, but the groups that I typically speak for, just to clarify, ⁓ you know, and probably the largest and most active group that we deal with would be what I would call the private equity community, whether that's real private equity funds, family offices, or, you know, there's kind of different variations of it. But so let's just say companies that either make firms that make investments into companies, either for control or for growth, you have your debt. Investors, right, which are investing in a different side of the capital structure, and those can be in just sort of private debt deals or asset back like you grew up in ⁓ or publicly syndicated debt. And then there's the public markets, ⁓ which are obviously institutional investors, typically investing in listed companies. So there's different variations ⁓ of sentiment or ⁓ deal activity across all of them. But I would say We went through, so when I started back in, just to like step back for a minute, when I started with this at Jefferies in 2010, which is about the time of the Marquis transaction, you still kind of had a universe from a Wall Street eye. Now keep in mind, these are very big companies that are out there that just maybe haven't hit the radar that I live in, but you kind of had like the NetJets name that was out there under Berkshire. You had sort of flexes, which were again, very big companies, but sort of largely privately, closely held, ⁓ in some institutional investment in like the FBO landscape, et cetera, but ⁓ kind of leading up out of ⁓ really like the 08, 09 financial crisis and like jet gate when all the guys went down to Washington and their jets. And it caused like this whole terrible image for our industry. You started to see a real buildup of If you just take the charter operator side, like, you know, some big capital and big investment and big growth going into, let's just say alternatives to whole aircraft ownership. Right. And you saw that kind of build up significantly and then kind of with it came, you know, lot of the MRO and FBO activity. So started to get some real momentum. ⁓ You know, there were at that time maybe. people coming across with like innovative or different ideas or kind of maybe disruptive ways to try to play that space. And frankly, the capital markets and institutional investor activity across all these are quite available. mean, we raised a tremendous amount of capital for a lot of your household names, your vistas, your flexes, your wheels up ⁓ during that period. then obviously then we kind of led up to COVID, which ⁓ you know, absent a couple months where we were all scared to death about everything. This app kind of took an entire different plane, as we all know, right? And commercial kind of went down ⁓ and we saw a ton of activity. ⁓ Those were actually some of the craziest times, you know, we had during that because ⁓ particularly the strategics were making a lot of ⁓ investments out of necessity, meaning, you know, people that had sort of. guaranteed to their customers that they could provide lift at a certain price and availability and all of sudden their universe of sub charter operators were, know, either their prices were out of control or there was no availability. So there was this mad dash to come back in and acquire lift and pilots and fleet as fast as humanly possible to satisfy, you know, their rapidly growing business. ⁓

Jessie Naor: And then perfect time to sell a charter company.

Nick Fazioli: ⁓ It was a very perfect time to sell a charter company and it was extremely busy times for us doing a lot of that and there were certain people that just kind of had to have those assets and it worked out. In some cases it worked out well for both sides and some cases it worked out well for one side and things had to work itself through. ⁓ But now we're actually in a really good time now because I think Now we're pat, but then, the other side of that trade though was unfortunately no one knew what normal was. And that's actually one of the worst things from a Wall Street perspective is when you don't actually know what normal is. Cause you either have buyers and sellers with very different views of valuations because they see things one world, other people are like, Hey, you know, when you see the big hockey stick earnings and growth, like everyone's like, ⁓ do I really want to, you know, kind of step into that? So. for a period it actually then became a little difficult. And we had this in like the air cargo space too, right? Where everything was getting flown around because the logistics and supply chains were kind of in a mess. And all these kind of air cargo companies had the same thing. We couldn't find normal and that's really not good for my business. ⁓ So now we've sort of just seen this kind of leveling out, I would say almost like post maybe 2022 or 2023. things normal now, ⁓ there wasn't such a frenzy amongst the big, what I call like the branded charter operators. So like, I gotta have lift I gotta have this, like everything kind of got back to normal. And I think what comes out of that now is people just say, okay, we went from like kind of a cottage industry through some of these companies are really gaining scale both on the operator side and the supply chain side to like a crazy burst that then reset. But what it reset as it was just like a fundamental shift up and then back on a different trajectory, right? Because there was a real benefit to COVID in the sense that a lot of people, whether it's corporates, wealthy individuals, what have you, of out of necessity started consuming the product and started realizing that there's some real utility to this. ⁓ And I think that just, again, we just had a step change in like the size of the market and the acceptance, both from a customer and investment standpoint. Now we're actually in like quite a good place. A lot of the activity on the certain sectors of the market have picked up and then others have kind of cooled off, particularly like the charter management. We can talk about that a little bit. I would say we're in like a fairly stable, investable environment. There's been a lot of deal activity, capital raising, controlled M&A, you know, and such, and some really, really big. assets kind of trading hands or taking in investments, it's good.

Jessie Naor: And it feels like it's more, at least from my view, more infrastructure, know, the MRO, the FBO with physical space producing things versus, you know, the charter frenzy that was happening.

Nick Fazioli: Yeah, as a general matter, that's always the case. Like if you parallel that to like the aerosp- like the commercial aerospace, it's the same thing, right? Because you have a huge universe that for years and years before any of this biz-ev stuff was on the map, manufacturers of components and aerostructures and avionics and electronics, right? Like feeding Boeing and Airbus in that example, the MRO space, know, fueling, ground handling, airports, just kind of the whole- that has a much wider- TAM of investors that sort of are used to and comfortable with that, whether it's private equity debt or public markets. But the airline space, if you want to make the analogy, the people that actually operate the aircraft and have pilots and operations and unions and all this type of stuff, like that's actually a thinner group of people that, especially in the private equity world that kind of play in that space. So like you're always going to see a disproportionate ratio to the, to the supply side. Cause to some extent you don't have to pick. the winners so much, right? Like, especially in the infrastructure, like at the FBO, like if you control the FBO at, you know, name your key airport, like whether it's NetJet, FlexJet, individual part 91 operate, you you kind of win either way, which is why investors love that space. But no doubt, particularly from a private equity side, the MRO supply chain, ⁓ FBO, you know, related, even like some softwares and services and other things have. you know, have really become like very popular investments. And the good news is, like, it's just viewed as a sector that is an industrial sector that has above average growth trends to it. And another thing that people often forget, it's a very US story. So sometimes when there's like screwy geopolitical situations or a little bit unsure environments or, you know, currency things like The biz-av sector is a lot more US-based than commercial aerospace. You have a lot less dynamics about, well, how's China gonna react to Boeing if they have tensions with the US, for example, right? Like in our case, we don't have that as much here. So in some cases when that dynamic is going on in the world, biz-av also looks better as long as people believe in kind of.

Jessie Naor: And less concentration. mean, you know, we're you know, there's more competitive ability than, these large airlines and everything's down to a Boeing or an Airbus. Like we've got more OEMs. We've got more competitors.

Nick Fazioli: Yes, yes, exactly right. then the biggest fundamental shift that we have going on that benefits, I think the charter, you guys tell me too, but like the charter operator managers and to some extent the, know, the MROs and the FBO is not only is the just overall pie growing around business aviation, but also the, there's a shift going on of whole aircraft ownership to sort of other ways to consume the product into like these big companies that frankly have found a more efficient way to utilize assets and still provide a great service. like, you you kind of have growth within growth a little bit to the extent that you're in the business of either servicing or operating as a, you know, as a fractional or a big branded charter or a manager, you know, that's been one of the biggest changes, right? It is just. There's a lot of other ways in like owning your own whole aircraft and your own flight department and all that type of stuff. that, you know, there are puts and takes of who wins and loses in those dynamics. But ⁓ I think that's been something that is sort of well understood in Wall Street and people are big believers in.

Preston Holland: Yeah, I think that makes sense. mean, you look at you look at fractional and it's the only thing that's growing, you know, year over year post COVID. It's the only one that's on a significant growth trajectory. You know, part 91 traditional charter or traditional flight department is on a is on a net decline as is branded charter, just kind of at a macro level. And I think that your point about, you know, picks and shovel businesses, right. So like the MROs, the FBOs is like you don't have to pick. you know, the next winner of fractional or the next winner of charter, it's like you kind of win regardless, as long as that macro trend just keeps going up.

Nick Fazioli: Yeah, and you're regulated, what's like, you know, we were lucky enough to represent, you know, Weststar Aviation, right? And their latest transaction and sales of the Greenbrier Equity Group. Like, one of the things that investors loved about that business, big large scale independent, right? So they're not tied specifically to any... ⁓ You know, just Gulfstream or just Embrer. mean, obviously they have their concentration, but it's a very diversified from that standpoint, but also to it's regulated. Right? So back to your point of like, listen, a lot of this stuff is calendar driven. You don't have a choice. Right? It's either time driven, calendar driven, but like, frankly, a lot of it is calendar driven in their business. Those are the type of things. And it's why private equity and debt particularly loves aerospace and defense broadly is they just have, there's a perceived kind of higher bar. barrier from a competitive standpoint and a predictability to it. It's why you see, standard error, right? That's one of the names that touches our sector in a big way that has gone public in the last couple of years. you know, those engines are on cycle driven maintenance programs. Like you can't, you know, as long as those aircraft are flying, they're going to be maintained, right? And the costs keep escalating and going up and inflation and such like that. So I think You know, if you take an FBO analogy, it's the fact that you kind of have your barriers and long term leases on the airport. That's like their X factor and why that sector has become so popular, particularly infrastructure funds. And then the MROs within largely the private equity community, but some in the public equity community, just that regulated, you know, kind of nature to it and not again, most commercial MROs that we deal with, a lot of them have big exposure because to certain customers, because there's only handful of airlines in the world, there's such scale, you don't have that in the biz-av world in the same way, right? So private equity investors don't like to see 40 % of your revenue coming from one customer that could pull a contract at any time.

Jessie Naor: So something I'm curious about, because this happened when we did our exit, one of the things that's happening is the aircraft values are trending so much higher than they used to. The value just continues to climb. And even when we sold, even after putting thousands of hours on assets, the assets were worth more than when we purchased them. So mean, do charter operators still have that in their belt? Because it seems like values just continue to go higher and higher.

Nick Fazioli: Yeah, no, no, I think it is. gives so for like a... So take the debt side of the equation, which for most operators is usually almost like 60 to 70 % of your total capitalization, if you will, just like the way these things kind of work out. Strong or growing asset value, one, give you really good kind of... access to capital against your assets. So usually what most people do, right, and Preston, like you live in this world, you're going to first borrow against what can be your most affordable, efficient, you know, cost of capital, which is usually secured, secured asset lending, right? Just like any of us would borrow against our home, right? It's collateral. You get a better rate than like an unsecured loan, right? And then second, on top of that, you know, you'll see people tap unsecured markets or just kind of general corporate debt, even that while not tied to the assets, it kind of is, right? Because they're looking at, hey, okay, if the secured lenders have got 65 % LTV and I feel good about these values and I'm next in line, even though I'm not kind of directly secured by that, I kind of have that there as a residual value. really, and same with an equity investor, they'll say, okay, listen, I'm thinking about paying X for this company based on multiple EBITDA return on cashflow, kind of all the different valuation metrics. But then they're also kind of cross-referencing saying, hey, listen, there's a bunch of kind of embedded value in this fleet alone. And it's just another thing to like triangulate around and help, you know, and help feel comfortable with. Now, the other side of that is those that kind of live in an asset light model, whether it's a management company or, ⁓ you know, a business that kind of leases their aircraft or has some sort of tie up with underlying owners like. That doesn't mean those companies are uninvestable by any means, because obviously the other side of that coin is like, they don't have to put the cashflow out in the same way or take that risk and all the debt to do it. And they kind of operate on an asset light mode. Either of those can work from an investment standpoint. just depends. Honestly, at end of the day, it comes down to the management team, the relative position of those businesses. there's a place for all of that.

Preston Holland: Does the asset light providers have to be larger scale to attract institutional investor? Like I think about the companies that have largely managed fleets ⁓ to raise institutional capital versus I have my own fleet. So we've a couple of times about Jessie's exit. ⁓ In world, as a number of aircraft would not be necessarily considered a scale player if it was all managed at least. It would be a very small company. ⁓ How do you think about scale when it comes to these asset like companies as opposed to I own and operate my own fleet? what, like how does scale play into that?

Nick Fazioli: honestly, ⁓ think so from ⁓ seat where typically like our typical M&A deal, like if you just look at Jeffery's, right? Our average M&A deal is probably six or $700 million of ⁓ enterprise value, that is ⁓ wildly skewed ⁓ as I say to people, I only, we are practiced in New York for Jefferies is really only focused on commercial aerospace and business aviation. So like we're very narrow in what we do with meaning I have a whole nother set of partners, you know, who do defense and government and space. it's a different, another difference about Jefferies is there's multiple, you know, me's I run the group, but there's multiple of me's that are focused in other areas. So we are like in one little area. So therefore we're doing deals and transactions all up and down the size range and that we just prefer to be deep versus wide. And I think it works out well because oftentimes the people buying or investing at the bigger end are also our clients and it just sort of helps connect the dots. But I would say scale for what we see in businesses that we work with, almost regardless of asset light or heavy, there is a certain like... premium to scale, especially if you're trying to attract like traditional private equity. Public markets is a whole different thing. can talk about that. requires a public debt and public equity require an increasingly large scale unless you're doing something like a SPAC deal or something like that. But like a traditional IPO, you need to be in the hundreds of millions of EBITDA and up in enterprises value, kind of up into the billions to really kind of make it work. But in the private equity world, think regardless of business model, if you are You know how you define scale, you know, probably you can start like over 10 million of EBITDA but dot plus like there starts to be a pretty wide, ⁓ especially if you're in one of those. ⁓ What did you call it? The shovel business like the, industrial you're in more of the.

Preston Holland: Yeah, like picks and shovels like MRO, FBO software or something like that.

Nick Fazioli: know, there you can have, you know, five million, four million, three million, two million. But I think for the charter operators, because of what we said earlier, there has been this sort of like flight to quality and flight to scale theme going on in our industry. And that's, think, seen on ⁓ Street where people are going to be a little more careful about like really taking investment in a smaller player unless they have a very defined niche or a very, you know, Specific purpose for which they're taking on investment, whether it's Facilitate a, you know, a merger to go on an ⁓ and a. Kind of spree or or or what have you.

Jessie Naor: I think that is the world of the SPAC and excitement about taking over America, or whatever it is. I mean, feel like that's not as exciting or at least at the moment not as enticing to investors than it was five years ago.

Nick Fazioli: There's a pretty, for like emerging business models, disruptive business models, speaking purely with an aviation, there's kind of like a, there's a pretty big risk off on that in general. And part of it is just like, there's so many companies trying to go public. The M&A markets are so hot. ⁓ the moment, the last couple of weeks have been a little, obviously a little ⁓ but frankly, everything is kind of still for the most part pushing forward. But ⁓ I would say, There are so many opportunities out there for full on acquisitions for new IPOs coming to market for debt issuances. And remember we're in a slightly higher interest rate environment than we were during that SPAC raise where you couldn't, there was no risk free return anywhere else. So people kind of leaned out on the, you know, the risk curve, like that's not the case anymore. And so I think for our world, If you look at most investors, they're going to much prefer backing, even if it means that a higher premium, higher multiple, whatever backing the sort of bigger, more established players and brands. And that applies to charter that applies to maintenance. applies to, you know, FBOs as well.

Preston Holland: If you think like on that point, is there an opportunity for like a lower level roll up? Like, could you go back together 15 small charter operators and kind of rebrand? Or would you say that it's more the larger operators, like capital is going to gravitate more towards, you know, call it the wheels up the vistas who can opportunistically pick off the people that it makes sense, but they don't have to, they could just grow organically.

Nick Fazioli: So I think it depends. I'd be curious to see your guys take on this too. So one thing that I observed and it goes back to what we were talking about earlier. So I think for the people saying, hey, we want to be the big brands and sort of retail, meaning direct to consumer, business owner, whomever. I think there's a pretty strong belief now that you've got, you know, obviously you've got net jets and if it's from a US per second, largely you got net jets. You've got the flex family of brands, right? Which have grown rapidly over the last ⁓ decade. You've got Vista that has done the same. You've got Wheels Up that has become, even though they've sort of, they're in a mode of get smaller first to get bigger, but that's because they're transforming their entire business model and the level of ⁓ accomplishment they've had since the whole management change over in the Delta investment is actually, it's quite impressive, right? Refleeted everything rebranded, cetera. ⁓ You you've got your kind of handful of players and then you have, you know, the very long established sort of players like your plain senses of the world that have been out there for a long time and their end of the market. Like, I think if you came and said, Hey, we want to become the new retail player. And I don't know that's a perfectly right word for what I'm calling these guys, the branded operators. You're probably going to get some skepticism, especially as you pointed out earlier, there's just been. such a flock to, you know, kind of the big, well-capitalized kind of larger aircraft ⁓ fractional players. But what I find interesting and just you would be uniquely qualified to speak to this is one thing that happened though is any of those players, right, still rely from time to time or more significantly on, you know, your kind of more private label B2B subcharter, you know, whatever the correct... term people like to use and that space got really hollowed out for a period of time, yourself included, where they actually, you know, the players that, I mean, I think we did five of those on the buy side for wheels up alone during that time. And obviously Flex did a couple and Vista did three or four where a lot of those like, you know, B2B white label people kind of went away because they got consumed into the whatever customer was in, in most need of it. So actually that space has become quite ⁓ open in a lot of ways. By my eye, by the Wall Street eye, you don't have that like big.

Jessie Naor: player. Yeah, no, I I think the world is waiting for more of those like, you know, 10 to 20 airplane operators and they're rebuilding, you know, there are a couple out there that are on their way. But but like you said, I think it's at this point, those are kind of the organic growers, the ones who make the right choices, who control costs have good margins. That's the one, you know, eventually who's going to get rolled up in a good way for everybody and not just like, yeah, exactly.

Nick Fazioli: And so what my investors, like if we had a really promising CEO, founder, ⁓ entrepreneur who had one of these companies and maybe had its fleet and was building and was doing really good, kind of flying for. whoever for your NetJets or your Flexes of the world and making a nice kind of, you know, nice business kind of at a B2B way. And they wanted to take on an investor to go consolidate more of the space. I mean, that's where it really gets down to the quality of the team in the thesis, because any one of my, you know, private equity clients or asset managers would say, okay, this sounded interesting. You management team, tell me what is the benefit of rolling all this up and how do you handle? the certificate complexity and the fleet commonality and you know, what does it do? And like, if there's a good answer to that and a demonstrated path, that becomes very, that becomes very investable, right? you know, does that all make sense?

Jessie Naor: And that's the hard part is, yeah, when you have a nice, clean, consistent fleet that's running with one certificate, it's running like a well-oiled machine, it's great. And then when you try to consolidate and push them together, that's where a lot of the hard part comes in.

Nick Fazioli: Well, right. And public investors and a lot of people have seen this very publicly with the airlines, right? Every time the airlines try to merge, you know, get certificates and unions and this and that and fleet commonality issues. you know, I mean, that was the hard part that ⁓ Wheels Up had to manage when they were doing their, you know, kind of hyper acquisition. They would have assets sitting there ready to go, but pilots from a different certificate sitting there and they couldn't get in the, you know, like that type of stuff, like takes time to work through. ⁓ But I actually find that part of the market may be potentially interesting for new investment or private equity, entrance to kind of create a really big midsize B2B provider, if you will.

Preston Holland: interesting ⁓ trend in that in ⁓ you have a few operators almost seem to be the discards is the wrong word, I'm trying to come up like ⁓ Baker just bought a bunch old flex jet challenger ⁓ 300s. ⁓ have ⁓ Bel which now rebranded, who got a lot of old Vista Citation 10s and you kind Yeah, the XO fleet, there's a lot of, there's the, wheels up King Air fleet is now floating around there to a couple of smaller operators. So you have almost as the big players are consolidating or changing over their fleet, it's almost like there's this spill down same aircraft, right? The, the, the airplane itself is moving into a different operator. ⁓ but I would not say that at least to my knowledge that I know of anybody who's kind of climbing up from the bottom, they're not buying there's, or there's few, right? There, there's, there might be a couple that are organically stacking new or newer aircraft in order to be able to serve that supplemental lift for the large branded operators.

Nick Fazioli: I would add into Contour, right? Contour did a big deal with ⁓ Wheels Up on some of their old fleet too. And in some of those deals that I have knowledge of, that also comes back with contracted flying, at least for a moment. So meaning those groups acquire the excess fleet ⁓ in exchange because dropping all that out of your fleet when your wheels are Vista or Flex, like... there's a period of time or maybe an extended period of time where you're going to still need and want that lift. They're just trying to get their own kind of asset management strategy intact. And like, that's where you can create a real win-win versus like a contour or a Bel Air kind of saying, Hey, I'm going to like take these aircraft and then go try to be the big retail provider where my name's on all these commercials and this and that. Like, I think they've found, I mean, that there's a, there's an ecosystem that exists. It works in the commercial airline world, you know, as well where, You know, you can do that and you can make, you know, you have less, you know, kind of retail risk and you're kind of, able to, you know, take flights and missions as, you know, at a price that kind of earns you a return and also works for it. But yeah, I don't think you're going to see, I think is what you're saying Preston, like you're not going to see, or we have not seen someone make a big order with Textron to support that model or with Gulfstream

Preston Holland: Yeah, exactly. Like you don't have the B2B charter guys going out. Like, okay, our sponsor, ABJets, they bought three Challenger 3500s. That's three aircraft. That's not 30, right? So it's not like, here's our long-term scale play to be the non-branded operator. I know that Grandview had a lot of NetJets contracts, right? They fit the certain criteria that allowed for NetJets to go off fleet. Whereas I don't at least I don't see that in the market. There's not I wouldn't say that. yeah, let me point right there. ⁓ the person who provides all the supplemental lift to these operators.

Nick Fazioli: Yeah, and I think that's the opportunity and you've kind of named a bunch of the right. You're like you say your bakers your contours, you know, because fly exclusive right Jim. He's gone. I mean, that's kind of how at least when I met him. That's what they were doing. And then, you know, they saw a pocket and opportunity and sort of, you know, develop their own kind of brand and now they're off, you know, kind of competing more in that that bigger space. That was a big hole too. So like between acquisitions changes and strategies like ⁓ like fly exclusive and others like You know, it's an interesting model. like my investors, you know, don't think any of that's ready for the public market. So you could put that aside, but like from a private equity or growth equity standpoint or structured equity, however you do it, ⁓ if it's the right team and strategy and the economics sort of work, like that's absolutely backable for, you know, to get behind a, you know, to get behind a team. The key question though on the operator side is what's the end game for a lot of these? And that's been like the big, you know, question as this whole sector plays out, like what's the ultimate end game for some of these operators?

Jessie Naor: Well, the way that the way that I looked at it, you know, back when we were building was like, let's be the wholesale, you know, white tailed fleet for these big companies while we build the retail side, because you can't really build the retail if you don't have the scale. You know, your customer doesn't live.

Nick Fazioli: Hard to get scale just starting day one, you know, selling.

Jessie Naor: Right. Like, yeah, so you're going to have to do that wholesale side of it. But also, like, I just caution those listening, like, it's great to get into these deals. But there's also been cases where you have too many eggs in one basket. So you just need to make sure you're kind of balancing who all your whole and we've seen this with airlines to, you know, look at the.

Nick Fazioli: Look at the regional airline space, the SkyWest. mean, for every SkyWest, which is a very flourishing, well-capitalized public company, there are a lot of those that did not end particularly well because they got themselves too tied to United American, whoever. And then when they shift their strategy or go to a different provider, you're kind of ⁓ in a tough spot. ⁓ But I would say even for the big retail guys, right? I mean, obviously NetJets kind of lives, know, this thing, this whole thing would be very different if, if NetJets, you know, who's been big and large and the name brand forever was a public company. I bet you you'd probably see at least two or three more other public companies because the way the public markets work, they tend to like want to look at another perfect comp that's kind of already out there in the public space. And then they can make their relative assessments about valuation. You know, the tricky thing is for our space is we don't have other than standard aero in that itself is still largely, you it's got a big commercial aero story to it, right? I they're really into like large engines now, in addition to what they do in our world. But you don't have, you don't have really many comps, even the FBO space, right? So what's interesting now is you have very large institutional capital involved in flex. involved in Vista, obviously a public money and then ⁓ strategic investment and wheels up via Delta. And then the two huge FBO chains have giant name brand institutional investors behind them. Great assets, great trajectory. mean, all of these companies are approaching $10 billion and over. I mean, these are huge companies. ⁓ But none of them have gone public yet, at least as a pure play, because even Signature lived inside of BBA, which was sort of this odd conglomerate over in the UK listing. ⁓ And then Atlantic was owned by Macquarie Infrastructure that had power plants and natural gas. mean, it was all sort of, there's never been like a pure play asset. And so that's going to be the interesting thing, because when these companies get to this size, you know, you're either kind of constantly taking on growth or minority investors, eventually you're going to go public. And that'll be really interesting because then it'll finally set like a real public valuation on certain of these sectors, right? We know very clearly what the private markets look at, but the public markets have yet to be tested. Who gets there first?

Jessie Naor: That's a great transition. Well, I just wanted to bring up, ⁓ we want to have a conversation about EBITDA. ⁓

Nick Fazioli: It doesn't listen all it really is at the end of the day is people trying to normalize between different. Model business models of ownership right because if you're an asset heavy company, let's say you're a charter company and you own the vast majority of your assets. OK earnings before interest taxes, depreciation and amortization. Doesn't capture either. The depreciation. that comes from the assets, which of course is a financial non-cash metric. It also doesn't capture the interest costs associated with likely financing such a large fleet. of course it doesn't capture at least the equity portion of the capex required to maintain and or grow that fleet. So if you own four or five, $6 billion of aircraft assets and you're looking at EBITDA, you're not getting the full picture. On the other hand, if you're a very large operator that uses operating leases, you know, that's flowing through your income statement as rent and therefore is. And so like, if you're trying to compare those two models, you're going to get to kind of apples and oranges. So like, I don't think I view this as any investor or ourselves when we're assessing a situation, we very quickly normalized for that. And so EBITDAR, just like EBITDA is a shorthand. kind of way to look at operational cashflow. It's not perfect, but it kind of works for most situations. EBITDAR is kind of meant to be a way to like adjust for that to some extent. But at the end of the day, investors are really looking down to like, what's the ultimate ⁓ generation? What are the return on the assets? So, to me, when I look at someone that is asset heavy, I'm below and I'm saying, Depreciation is just a fix. That's kind of an accounting thing. So really what you're looking at is, okay, how much below the line, as we call it in our industry, and EBITDA needs to go back in to maintain? Because sometimes another tricky thing that you didn't ask about, but now I'll tell you about, is some operators have different accounting policies for maintenance. so like, it's flowing through the income statement. Sometimes they're actually capitalizing.

Jessie Naor: Sometime.

Nick Fazioli: Engine overhauls or cabin restorations or other things, and you wouldn't see that up here. It's down here. And so what we usually look at is we'll say, okay, take EBITDA as a starting point. But then if you've got a really big kind of asset intensity, what amount of capital needs to go into just maintaining the fleet, meaning your capitalized maintenance expenses, then there's sort of the replacement angle of it. Then there's sort of, well, then what do you need for growth? And that sort of kind of steps in for the DA part, Cause DA is accounting. I want to look at actually, you know, what kind of cash is going in there. And then that's going to be able to give you a better apples to apples view of someone who's just having, you know, kind of operating leases. like we, we preach like when we prep either when we're assessing a situation to see if and how we could help, or even when we're out in front of investors, we're very big on sort of transparency and giving people Access to the information they need to kind of come at it their own way because everyone has their own different way of looking at it and ⁓ things they like to think about. So we try to be very. It never makes any sense when you're running a process in my opinion, where you sort of put something on a page at a high level that looks really snazzy. You get a bunch of people interested and maybe bidding depending on, like, if you're running an auction situation. You know, they're bidding the book as you speak and then like, they get to the next round. You make certain decisions about who you want to spend more time with. And they haven't really seen the details they need. And then you just set yourself up for. Yeah, I don't even want to call it a retrade because that's not fair because they haven't seen the information, but we're very. Information forward unless there's a competitive, you know, something where you got to be a little guarded, but let's just say there's no competitive concern. Lay that stuff out there, allow people to kind of have the pieces of the puzzle they need and transparency so that they can do their own analysis. listen, I always say to clients, we may not like the answer, but I'd rather know the actual answer rather than someone kind of putting a number out there that's just going to disappoint us later. Because you could then very easily leave someone else behind who maybe actually had a more constructive view, and you were just kind of making decisions. So we try to. Front load access to the different kind of levels around that. again, even EBITDARs really just met none of this is. None of these are GAAP figures, even EBITDAR EBTIDA are right. These are all kind of investment world shorthand.

Jessie Naor: It really matters for these fleets. if investors don't understand where there's assets are on the depreciation curve, or the expense costs, you really need to be educated on that if you're looking at these first.

Nick Fazioli: Exactly right. And that's why kind of laying out very clearly like what you're spending below the line to just maintain them, right? Because there's a trade-off between asset acquisition costs and operational costs, right? And there's somewhere on the curve that is optimal. And frankly, that may be different for different business models, like, you know, acquiring five to 10 year old old fleet, like those could still be put into fraction. You know, if it's got like, I'm a big, you know, I worked at Delta, I'm a big Delta fan as a as a customer, like I know as sort of an industry person, I'll walk on and I know that plane's 25 years old, but like the cabin looks good, the wifi works, people have a smile and they leave, you know, the flights leave on time. I'm good. Right. I'd rather that than a brand new plane that, you know, looks terrible and doesn't work. like you can, you can buy down the curve and kind of have a, you know, better return than, ⁓ than otherwise. But I just think you really got to kind of lay it out. ⁓ very clearly and give people the tools they need to make their own decisions. You really can't. forced valuation down people, know, there's kind of set comps and every deal has it. And that's why we sit in a fortunate position with clients or buyers is like, we've often worked on the past transaction. So some people will say to us like, well, why did that trade for 14 times when I'm at here or this sounds like, well, you know, either like the forward numbers look like this, or you didn't see the capex or there was a big contract, you know, there's always, these aren't like publicly traded stock prices where the price is the price and it's very transparent. There's a lot of stuff. that goes into these, you know, even though.

Jessie Naor: Sometimes it's how motivated is someone to close sometimes.

Nick Fazioli: No, exactly right. And so there's a story behind every, know, multiples as advertised is really just a, you know, it's just an output of the analysis that it's just a common way for people to say, what was the price? What was the earnings at the time? That was the multiple, but that's not how people are getting to their valuations. They're thinking through how much do need to put into this fleet? How complicated would integration be? What are the commercial center? Like all that stuff is going into their calculus and it just ends up expressed as a as a multiple, just becomes an easy way for all of us to talk about, to talk about deals and things with assets are more complicated. The other thing that's made it a little easier now is, you know, with all the accounting changes, lease obligations are more now like on the balance sheet and there's, there's a proxy for them as debt, right? Cause that's the other unfair thing. Like if, know, you don't have all this liability before on your balance sheet, you know, now there's a way to kind of reflect that, which makes the EBITDA EBITDAR thing a little less relevant.

Preston Holland: Hopefully that helps. about cumulative losses, There's a lot of the public market comps that are out there, and I'm not going to name specifics because we don't want to get you in compliance trouble. But a lot of it feels like every earnings report that I read has a cumulative loss that feels challenging to overcome, right? So it's like you're to have to be in operation for a long time or get a lot more customers to overcome your cumulative loss. How does cumulative loss play into, that's probably more of a public market, but I would imagine that there's cumulative losses in the private market too. How should we as industry people be thinking of cumulative loss?

Nick Fazioli: Yeah, I so yes, and then there's sort of financial losses and then there's tax losses were actually in some cases cumulative losses are seen as an asset, right? Because you've got a model that, you know, there's a significant tax benefit to those who own assets for the most part. And obviously this latest tax change ⁓ kind of further magnified that or at least, you know, rendered them permanent for the time being anyway. So. ⁓ To be perfectly candid, probably don't get the level of attention you might think. Investors are typically very focused on the forward of the business and like what, even debt investors, right? They're gonna look at effectively, EBITDA EBITDAR da, less capex, less working capital. ⁓ investors basically just wanna know, are we gonna be able to get paid back? Because they generally have no upside in the business. All they wanna do is make sure they get paid back, right? So they're gonna look at the actual. earnings forget like the depreciation factors and other things that create, you know, kind of accounting or book losses. They're looking one way. And then other investors, they're kind of looking at, okay, where are we today? And where is this going? You know, from an earnings from an EBITDA from a competitive positioning growth, you know, maybe you'll kind of look into it to the extent that there are tax attributes that could affect value for a deal positive or negative. I've seen that where certain NOLs and other kind of tax driven losses. actually have a discrete value to themselves, ⁓ you know, that kind of get negotiated as part of the valuation consideration, but probably not as much as you would think on the balance sheet side, at least for private equity investors and to some extent public investors.

Preston Holland: Interesting. I learned something new today. Because I would have, in my kind of finite mind, I'm like, well, I have this big, you know, I have not made money for this long and it's accumulated this much, I have to get above zero to like be making, you know, making money, if you will.

Nick Fazioli: Yeah, mean, it's all in the past. You're probably going a step further than most do, which maybe we all should. But yeah, it doesn't get the level of attention you might think. Right, because you go look at that statement of shareholder equity or whatever you have, and you see these big kind of negative numbers. But I think a lot of that's viewed as accounting loss, if you will.

Jessie Naor: Interesting. The other sticky topic that I want to get to before we run out of time, there's like so many things we want to ask. E VTOLs how are investors looking at that space right now? What's going on lately?

Nick Fazioli: Yeah, so I think the EVTOL space during kind of the COVID through kind of boom 21, 22 days, we saw a lot of them get public either directly or via SPAC deals. We worked on a couple of them, including the EVE transaction, which was the spin out of Embraer. A lot of them are out there. They have a public value kind of stated on there. Frankly, none of them really have revenue, right? So every quarterly update is basically just product on, it's basically progress on certification and then cash burn and liquidity and then like other commercial agreements and such. Like there's not, you know, there's not much there. ⁓ You know, today's world you can ask. So if you're a public eVTOL operator, For some, you can access the public markets, ⁓ whether it's with a traditional follow on offering or ⁓ there's a product that's become quite popular called the ATM, which is the at the market, which is effectively, I'd almost call it like an equity revolver where you can kind of dribble in every day of trading. can kind of raise capital kind of in the.

Preston Holland: go you can go to the ATM if you will if you put your pin in. That's not lost on me.

Nick Fazioli: You can go to the ATF. And the higher your share volume traded, the more you can raise. It's kind of looked at as like a percentage of how much is out there, how much you can kind of dribble in. it's become like actually a fairly, not just for EVTOLs or more emerging companies, it's become a really big product in just sort of Wall Street generally. It can ⁓ be really efficient for public companies. ⁓ Private investment. Into that space, whether it's pipes into the, know, which is a, um, a private investment into a public company. Um, or, or other capital raising. Is a little bit difficult right now, like, everyone knows. Where the sector is going, and I do expect it to be a huge part of. You know, society, right? I mean, there's some real very clear use cases and some interesting things that could change a lot for the aviation industry. But then you're just getting into picking, picking the winners back to 1. you said it earlier about the charter like. It's not exactly where a lot of investors want to be because it's really difficult to tell. You're going to have to see some consolidation. You've seen a couple of them kind of go away or sell their IP or assets or, you but it's like from a private equity standpoint, like where the mass majority of like MRO and distribution and, know, more pick and shovel. Is that what we're calling it? Pick and shovel guys. Picks and shovels. That world is not really open to the... For the, it's just, it's too speculative and like, again, right now, you get interest rates higher than where they were. And you've just got a lot of other. Investable opportunities, so, like, people would much rather invest in. The IPO standard aero right a real company with significant earnings growth and market presence. Then kind of picking a winner or, you know, on 1 of these names. So a lot of the investment we've seen in that space has either been further follow on investment. from the existing investors or sometimes like a strategic that has a angle into that, like, hey, I'm gonna be the engine manufacturer for this type and I'm gonna make an investment alongside it. But it's pretty limited other than that.

Jessie Naor: So regardless of business model and what people are working on, I think a lot of people that listen to the show are entrepreneurs. What do they need to be doing? They're probably not thinking of, because they're busy running the operation. As someone who sees a lot of deals all the time, what are the spaces they need to pay attention to?

Nick Fazioli: So this sector in particular has a very high percentage of real material players in the space that are still founder led or entrepreneur led and in many cases in a very kind of public way, meaning like they're kind of the faces of their company, right? Like we see this way more in this than you would ever see in the defense supply chain or even commercial aerospace. A lot of these companies are just. older, bigger public, know, they just don't, they've been through multiple kind of iterations. We have a very heavy founder content here. And I would say even more so in the charter fractional management type of space. So. One of the one of the things there is like the most you can do to separate if you're going to look to actually sell or sell control or take on a very significant meaningful kind of equity investor, you're going to want to pretty quickly show that the dependency on that one person is not going to make or break the outcome because no matter what, even if someone bought 80 % or 90 % of your company and you rolled in, yes, they own it and control it economically and at the board level, but they can't run the company. They're still backing management. one of the really important things is like that depth of the team or a very clear transition path or just showing, listen, yes, I'm leading the strategic direction, but the company kind of runs itself. I'm not the one that knows personally every single customer and supplier to where. If I walked away, you that would be a risk. That's the biggest risk when you have a founder led business. And then the other thing is just extracting them from the business eventually. That's like the thing that makes, I think it's really why you haven't seen some very IPO-able companies ⁓ actually go public or saleable companies that have not sold in a full change of control way, ⁓ a Weststar deals like that. And why maybe you also haven't seen certain strategic combinations that could make a ton of sense for the industry and for everyone, because you've got founders who just their lives, you know, it becomes completely interchangeable, right? Their lives, their business, it's all intertwined. They love it. Like, clearly, a lot of these people don't need money anymore, but they just do it because that's what they do. And that's what they know. So like, when you're ready, you got to make sure you've had time to Work through that, or at least have a plan to work through that. So the investors know, you know, especially as you started kind of aging on up. The other thing I would say is I ⁓ would highly recommend engaging. Earlier than sort of I'm ready to run a process and now I'm going to go kind of interview a bunch of investment banks. Like, in many cases, we work for companies for free, right? We only get paid when deals happen, but we spend a lot of time. thinking through, working with, reviewing information, giving advice about, you should think about positioning this or hey, this financial thing is gonna be a real issue, you're gonna wanna, like that type of stuff because if you decided this is your moment to sell, that's just gonna elongate the kind of prep process or just put risk to the deal if you don't kind of have people involved earlier, at least in an informal way. ⁓ And then obviously cleaning, know, lot of people. if you're running a business for yourself, your financials can have a lot of things in it that are optimizing for your personal situation. And that's fine. That's totally understood and accepted, but like getting ahead of all that. ⁓ But the biggest thing is the bench and the continuity. You do not want to be seen. I know it's counterintuitive to a lot of people that are like hard charging entrepreneurs. They want to be seen as the one that, you know, I'm the one who makes everything happen, but that's actually a negative when you're thinking about doing something like this.

Preston Holland: All right, Nick, ⁓ one last question that I get a lot from people in the industry, of cocktail conversations is Bond getting a huge raise from KKR. Is there room for another scale fractional player that's maybe premium luxury? How do you view ⁓ how much more room there is kind of in the fractional space for multiple brands?

Nick Fazioli: Yeah, well, I so, so ⁓ I know I know Sergey and Bill very well. I've worked with each of them in the past. Think, think, think the world of those guys and they've they've obviously been very successful in their own right. ⁓ They have picked, ⁓ you know, an aircraft that is proven to be very popular amongst the fractional and frankly, the part 91 ⁓ space there ⁓ and there's some proven success. to their track records, right? ⁓ In the past, and I think that, we did not work on that transaction at all, but I'm very familiar with the situation and know the principles very well. ⁓ The track record of prior success with KKR, ⁓ with JetEdge, so with Bill, ⁓ when you find success ⁓ with someone and someone you've been in business with before, makes it a heck of a lot easier to go back and kind of. ⁓ do it again. So I think that helped them significantly. And if you think back to the, what we were talking about earlier, this seems to be where the, you know, I'm a hockey guy, so like where the puck is going right now is to more of this fractional, it's part the tax benefits, part the service and the model, you know, seems to work well and appeal to investors. And if you're hitting the ultimate ultra kind of luxury tip of the spear, as I understand about their kind of plan, it's going to be, you know, even more discerning and bespoke from like a branding and service standpoint, you know, that's where you have literally the people that fly above the weather, right? So, you know, if that service is there and they can execute operationally in customer service, I would say, yeah, and I don't think that's a zero sum game, you know, where the pie then gets smaller for any of the other players. You know, I think a different offering in that space, I think there's plenty of room and I'm excited to see what those guys can do.

Jessie Naor: Me too. think too, I look at just the shadow that NetJet's cast across the whole industry. If you look at their activity versus every single other operator, it's unbelievably smaller. So I tend to agree that there is room for more and bigger ⁓ and to keep challenging the traditionals.

Nick Fazioli: Yeah, no, I think it was good for the industry. It spurs competition and innovation. And, know, there's plenty of capital out there as, you know, as these guys found with, you know, with basically a sheet of paper, right? That's happened a few times now where, you know, people who are proven executives in the space have sort of an idea or concept like the market will be there. And there's a lot of creative ways, ⁓ you know, to do that and to raise capital. That's one of the best things that came out of COVID ⁓ where Remember we were talking earlier about the dislocation of ⁓ no one could find normal for like a full sale. Like it was like, know, sellers were thinking here, buyers were thinking here. What kind of created itself out of that was all these different structure. We could do minority, we could do structured off your assets, we could do convertibles, we can do prefs. There's so much technology now and all these big fans. So like KKR, probably an example. They're known as a buyout shop historically. Like they were like the original like private equity LBO guys, but they're basically a giant asset manager. have, mean, they manage insurance money. They have debt, they have infrastructure. They have regular private equity. mean, the availability of sort of capital, you you almost like what I always tell our clients when we're doing something other than like just a broad auction or IPO is like, let's just start explaining the company. and what you're looking to achieve, your objectives, whether that's for the business or you personally or your shareholders. And then let's not go out with like a term sheet of this is how we're doing it. Describe the situation and then let each investor try to solve it in their own way. And if anything, because these investors all have their playbooks they go to. like, you know, obviously in that situation, they had run this playbook once before, right? You know, at least with Bill's private company. So then they kind of know what they go back to and everything kind of works efficiently. Like let these, let the investors kind of go to their ways they're used to working or have found success and propose something to you. And the beauty is then we get to step back. have all the cards of how people are basically offering to solve our problem and we can either pick one or take the best ideas from other people and try to get into something versus being overly prescriptive on like how you want the capital to come in. There's way more creativity out there now, ⁓ which is just a positive for everyone. It's good for the investors and it's good for the clients, your listeners.

Preston Holland: Well, Nick, we have really appreciated you ⁓ being on the podcast. This was a fascinating conversation. ⁓ Is there anything else that you want to leave our listeners with? like a little one little more. If you have one more nugget of wisdom or like, you know, blow some minds right here for the end of podcast.

Nick Fazioli: I think I kind of left it all out on the field, we appreciate it very much being involved in this. Jess, I've known you for a long time and I love what you guys are doing. Our industry needed something like this from a modern day communication standpoint. Thank you. Like I said, we always welcome meeting new companies, new executives or new investors well ahead of. anything actually going on. We live in a very small world, so look forward to meeting more people and helping where we can.

Preston Holland: Awesome. Well, thanks Nick. ⁓ To wrap this up, that has been an awesome episode of the VIP Seat ⁓ If you liked this one, we need you to leave us a five star review and say how much you loved having Nick on the ⁓ that it was awesome. Leave us comments on share it with everybody you know in business aviation, whether they are ⁓ someone who works in management, someone in finance, someone who is in acquisitions. ⁓ This is a playbook for setting up your company for private equity rounds or raising capital or selling your company. This is a great place to do it. Go subscribe to the newsletter at thevipseat.com for my awesome co-host, Jessie Naor and our great guest this week, Nick Fazioli. Thank you AB Jets for sponsoring this week's episode of the podcast and we will see you all next week.