FlyExclusive to be Volato aircraft management services provider

HondaJet fractional and jet card operator Volato is in merger discussions with FlyExclusive as part of the pending flight agreement.

By Doug Gollan, August 31, 2024

FlyExclusive has signed a letter of intent to become Volato’s aircraft management services provider. It expects to begin operating the former’s aircraft as soon as Sunday.

(Updated Sept. 3, 2024 @ 8:39 am to include SEC filings)

The deal pairs North America’s 5th and 17th-largest charter/fractional private jet operators.

‘This management agreement marks a significant milestone for our Company as we expand our footprint in the private aviation industry’

– Jim Segrave, FlyExclusive Chairman and CEO

Sources tell Private Jet Card Comparisons that the duo is discussing a potential merger.

Late this afternoon, Volato announced widespread layoffs, including for pilots.

However, the layoffs are part of the transition, with some impacted Volato employees, including pilots, expected to join FlyExclusive.

Both private jet flight providers went public via SPAC mergers last December.

FlyExclusive Chairman and CEO Jim Segrave tells Private Jet Card Comparisons that the deal doesn’t impact his jet card or fractional customers.

He declined additional comment.

FlyExclusive internal memo

However, in an internal memo obtained by Private Jet Card Comparisons, employees were told, “This management agreement marks a significant milestone for our Company as we expand our footprint in the private aviation industry.”

According to the email, “(Volato) aircraft will be moved to the FLYX certificate over the following months.”

The internal FlyExclusive (FLYX) email recapped:

FLYX will manage all flight operations, sales and expenses of the Volato fleet. This fleet currently consists of: 13 fully fractionalized aircraft, 8 leased aircraft and 4 managed aircraft.

FLYX will execute the flights for the Volato customer base of approximately 184 fractional customers and 265 block customers (the equivalent of our club program) in addition to Volato’s retail and wholesale business.

Total additional accretive FLYX annualized revenue from operations projected to be in excess of $75m.

Over the next 30 days we will work to move all customers over to FLYX agreements.

FLYX will receive a software license to leverage the Volato proprietary software program to improve efficiency.

(Editor’s Note: The number of Volato fractional and jet card customers has been updated per FlyExclusive’s SEC filing on Sept. 3, 2024.)

Under the section, why does this deal make sense, the email stated:

Very little additional infrastructure is required for FLYX to execute flights under the AMS. FLYX will be able to take advantage of significant synergies that will immediately and substantially reduce the operation cost of Volato flight operations.

The Volato revenue is expected to be fully accretive to FLYX, and by taking advantage of the synergies, the structure provides the opportunity to generate immediate accretive bottom-line profits to FLYX as well.

Volato will continue to sell Honda Jet fractional aircraft and the Gulfstream G280 aircraft.

Volato will grant FLYX an option to cause Volato to merge with FLYX. The option may be exercised in the sole discretion of FLYX.

The successful Vaunt program (subscription program giving access to empty legs) will continue to be grown through the proprietary software developed by Volato. FLYX will provide a portion of our empty legs through this program that could increase the total number of legs available by as much as 500%. Volato expects this additional availability from the FLYX fleet to increase the Vaunt customer base significantly, which could ultimately benefit FLYX as well.

Volato jet card members

In an email to jet card holders, Volato told customers it “has signed a letter of intent (LOI) to enter into an Aircraft Management Services (AMS) agreement with FyExclusive (FLYX).”

It continued, “We expect to have the AMS executed and for FLYX to start managing operations on behalf of Volato on or about September 1, 2024.”

According to the email, “Under this agreement, FLYX will provide services to perform Volato ﬂight operations, management of fractional aircraft, aircraft leases, and migrate pilots, required SG&A, and operational expenses of the aircraft to FLYX as part of this arrangement.”

It said, “All revenue and expenses of the operation will be handled by FLYX going forward,” noting, “The combined Volato and FLYX operations will eliminate signiﬁcant operational costs.”

As part of the deal, FlyExclusive “agreed to provide ﬂight services to Volato customers and a way for you to utilize your funds on account at Volato.”

According to the email, Volato jet card clients are being offered three options:

Option 1 – No additional up-front funds required

Your existing balance will be transferred to FLYX in the form of a promotional ﬂight credit.

Your Volato balance can be used toward FLYX ﬂights at the rate of 30% per ﬂight.

You will have to fund 70% of the ﬂight estimate via credit card or wire prior to departure. One-third of your current balance on your Volato account is available per year in this option until funds are exhausted.

You are only able to use these funds on the HondaJet ﬂeet.

Option 2 – Immediate Credit

Your existing balance will be transferred to FLYX in the form of a promotional ﬂight credit.

FLYX will credit your account for the amount of new funds deposited toward a FLYX program, plus your remaining Volato balance, up to 100% of your Volato balance.

By way of example, if you have a $50k balance with Volato and you deposit new funds of $50k with FLYX, in addition to the $50k FLYX will credit your account with 100% of your $50k balance for a total of $100k of funds available.

There will be no restrictions on how fast you can use the And you will have full access to the entire FLYX ﬂeet.

Option 3 – Additional Funding Credit

Your existing balance will be transferred to FLYX in the form of a promotional ﬂight credit.

If you deposit twice your current Volato balance with FLYX, FLYX will give you a 130% credit on your Volato funds.

By way of example, if you have a $50k balance with Volato and deposit $100k with FLYX, in addition to the $100k of new money funded FLYX will credit your account 130% of your $50k balance for a total of $165k in funds available.

There will be no restrictions on how fast you can use the And you will have full access to the entire FLYX ﬂeet.

General Terms & Conditions:

New Agreement Required: To continue enjoying your membership beneﬁts, you will need to execute a new agreement with FLYX. Someone from the FLYX and/or Volato team will reach out soon to assist you with this process and answer any questions you may have.

Refund Policy Update: Please note that, under the new agreement, your fund balance will no longer be refundable. We understand this is a change from the current terms, and we want to ensure you are fully aware of this adjustment. FLYX owns and operates a large percentage of their ﬂeet. Some portion of funds are used to purchase the aircraft required to execute member ﬂights. Since funds are used to execute the service in this way making them refundable is not feasible.

Access to Diverse Aircraft: With ﬂyExclusive, you will enjoy access to a much wider range of aircraft options while continuing to have access to Volato’s former HondaJet ﬂeet at the same dynamic terms you are accustomed to.

Three-party agreement: To take advantage of any of these FLYX options you must agree to terminate your Volato Insider agreement and sign a general release that will terminate the deferred revenue ﬂight liability we currently have with you.

Next Steps:

You will have 60 days to decide how you would like to proceed with your membership. We will send a follow-up communication to remind you of this deadline.

Our team will contact you via phone to ensure you receive this information and answer any questions you might have.

Additional details about changes to beneﬁts and services will be communicated at a later date.

Volato fractional owners

A separate letter was sent to Volato fractional customers.

It notes, “As part of this transition, Volato’s fractional operations will move from our FAA certificate to FLYX’s over the coming months.”

The email to fractional customers touts savings on the 7.5% FET since FlyExclusive operates a Part 91k certificate in addition to its Part 135 certificate.

Volato fractional flights had been operated under Part 135.

The email notes, “Once your aircraft is on the FLYX 91k certiﬁcate, it will eliminate the Federal Excise Tax (FET) on ﬂights you have historically been charged. This is an immediate 7.5% savings for you on your domestic ﬂights. Pending FAA cooperation and capacity, our goal is to have all Volato aircraft on the FLYX certiﬁcate within 90-120 days.”

Other benefits include “access to a wider range of aircraft” through interchange options, upgrades to the CJ3 for flights requiring a fuel stop on the HondaJet, and an expected increase in revenue sharing as the HondaJet fleet is streamlined.

According to the email, the “owner revenue share rate will be adjusted to a ﬂat $200 per total hour, regardless of share size.”

However, Volato says the decrease will be mitigated by:

Increased Hours Expected: With enhanced operational capabilities and the consolidation with FLYX, we anticipate a signiﬁcant increase in the total number of hours your aircraft will be ﬂown.

Paid Per Total Hour: To simplify the accounting, revenue share will now be paid on all ﬂight hours, not just per revenue ﬂight hour. This means you will receive a revenue share for every hour your aircraft is in use, like positioning, rather than only for those hours that generate direct revenue.

The letter concludes, “Our goal and FLYX’s is to ensure that, once the transition is complete, you will continue to enjoy the many beneﬁts of your fractional ownership as well as some enhanced ones by being services by FLYX. We appreciate your understanding and patience as we work through this transition together.”

Text of the letter to fractional owners:

What Does This Mean for You?

While this transition brings some changes, we want to highlight several key points to help you understand what to expect:

Removal of Federal Excise Tax (FET): FLYX operates a Part 91K certificate (in addition to their part 135). All FLYX aircraft operate on both certificates. Once your aircraft is on the FLYX 91k certificate, it will eliminate the Federal Excise Tax (FET) on flights you have historically been charged. This is an immediate 7.5% savings for you on your domestic flights. Pending FAA cooperation and capacity our goal is to have all Volato aircraft on the FLYX certificate within 90-120 days.

Access to a More Diverse Fleet: You will have the flexibility to access a wider range of aircraft (light, mid and supermid jets) through interchange options, allowing you to select the ideal aircraft for your specific travel needs.

Complimentary and Guaranteed Upgrades: Complimentary Upgrades: Any trip requested on a HondaJet that would require a fuel stop, which could be avoided by flying a CJ3, will be upgraded to a CJ3 at no additional cost to you, charged at your applicable HondaJet owner rate.

– Guaranteed Availability Upgrades: You can request an upgrade to a CJ3 at any time with guaranteed availability for 1.25 times your applicable HondaJet owner rate, providing greater flexibility and convenience.

Changes to Owner Revenue Share Rate: We want to inform you that the owner revenue share rate will be adjusted to a flat $200 per total hour, regardless of share size. While this is a reduction from previous rates, there are two key factors to consider:

– Increased Hours Expected: With enhanced operational capabilities and the consolidation with FLYX, we anticipate a significant increase in the total number of hours your aircraft will be flown. Over the past month, Volato eliminated 5 leased aircraft. Due to the size of FLYX’s fleet, they have the ability to provide back-up lift on peak days, and it is expected that as many as 8 additional leased aircraft can be removed from our program. A smaller leased fleet should result in many more hours flown on your aircraft.

– Paid Per Total Hour: To simplify the accounting, revenue share will now be paid on all flight hours, not just per revenue flight hour. This means you will receive a revenue share for every hour your aircraft is in use, like positioning, rather than only for those hours that generate direct revenue.

A representative for Volato says further details will be announced next week.

READ: What happens to your jet card and private jet membership deposits?

Option to Merge

According to an SEC filing this morning, Sept. 3, 2024, by FlyEXclusive:

(Volato) hereby grants (FlyExclusive) the right to cause the Company to merge with and into (the “Merger”) a wholly owned subsidiary of the Service Provider (the “Option”).

The term of the Option shall expire on the date that is twelve months from the date hereof; provided, however, that the term of the Option shall continue until the closing of the Merger or the abandonment of the Merger by either party or both parties (the “Option Term”) so long as the Service Provider provides notice of its intent to exercise the Option prior to the expiration of the Option Term.

The Merger shall be subject to a fully executed mutually agreed upon definitive merger agreement and any required regulatory, board and shareholder approvals for both the Company and the Service Provider.

The Service Provider shall have no obligation with respect to consummating the Merger in the absence of such approvals. Consideration for the Merger shall be in the form of the Service Provider’s common stock or in Service Provider’s discretion, cash.

The purchase price for the Merger shall be based on the volume-weight average price (the “VWAP”) of the Company’s common stock for period prior to the earlier of the public announcement of (i) the exercise by Service Provider of its exercise of the option, or (ii) the signing a definitive merger agreement. VWAP means for any date, the price determined by the first of the following clauses that applies: (A) if the Company’s common stock is then listed or quoted on a trading market, the average of the daily volume weighted average price of the Company’s common stock for the thirty (30) trading days immediately preceding such date on the trading market on which the Company’s common stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time) determined without regard to afterhours trading or any other trading outside the regular trading session or trading hours), (B) if OTCQB or OTCQX is not a trading market, the average of the daily volume weighted average price of the Company’s common stock for the thirty (30) trading days immediately preceding such date on OTCQB or OTCQX as applicable, (C) if the Company’s common stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Company’s common stock are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the average of the daily volume weighted average ask price per share of the Common Stock so reported for the thirty (30) trading days immediately preceding such date, or (d) in all other cases, the fair market value of a share of Company’s common stock as determined by an independent appraiser selected in good faith by the Service Provider and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Service Provider.

To the extent that the Company receives any verbal or written offer from a third party, Company shall notify Service Provider of the terms and conditions of such offer and Service Provider shall have an right of refusal to meet the terms of any such third party offer.

READ: FlyExclusive SEC filing and Volato SEC filing

Flight Hours

The news comes as operators battle weaker demand and pressure on pricing against increased costs.

According to ARGUS TRAQPak, North American fractional operators saw a 12.4% year-over-year gain in flight activity during the first six months of 2024.

The results countered declines in Part 135 market (charter operators) and Part 91, non-commercial flights.

Part 91 saw the steepest drop, down 5.5%, while the charter and jet card flights dropped 5.2%.

Altogether, private aviation flights in North America were down 2.7% in H1 2024.

Both FlyExclusive and Volato countered the downdraft through June.

Volato had an 11.1% year-over-year increase. FlyExclusive saw hours increase by 14.2%.

Together, they flew 38,703 hours, still fifth, but closer to Wheels Up, in fourth place with 50,702 hours.

Market leader NetJets and its charter arm, Executive Jet Management, flew 330,399 hours in the first half of the year.

Flexjet was second with 117,803 hours, and Vista Global followed with 65,529 hours.

However, the latter recently said it plans to sell about 40 light jets and Citation X super-midsize aircraft.

What’s more, pricing is under pressure.

Jet card fixed/capped rates for programs with guaranteed availability are down 6.8% from their peak in December 2022 as of June 2024, according to the Private Jet Card Comparisons database of over 500 program options.

READ: Why private aviation’s supply chain and labor crisis isn’t going away

Fleet News

Last week, Volato announced that the leases on five HondaJets had been terminated, leaving it with 21 VLJs.

It affirmed its previous statements that it expected to receive eight to 10 more by year’s end.

The 2021 start-up also took delivery of the first of four Gulfstream G280s earlier this month.

FlyExclusive has been selling off older aircraft, which it says were losing up to $3 million monthly.

During NBAA-BACE last October, Segrave said he would exit 10 Citation Ultras.

So far, it has sold 15 of the 37 loss-making jets.

For its fractional program, it is replacing those aircraft with up to 30 new CJ3+s directly from Textron Aviation.

There was also a 2022 order for 14 Citation XLS Next Gens and Longitudes.

Earlier this year, FlyExclusive said it would replace its large-cabin Gulfstream fleet and older supermidsize jets with up to 20 recent-vintage Challenger 350s.

Financials

FlyExclusive announced a $25 million preferred equity investment on Aug. 12th.

Despite losses in H1 2024, the company said it had turned the corner as it pared down money-losing legacy aircraft and other costs, including some related to the IPO.

Headcount is being reduced to around 600 employees, down from a peak of over 800.

At the same time, Volato saw its net loss in H1 double with a negative EBITDA of $24.5 million.

Pressure on the bottom line is reaching to the industry’s highest echelon.

Revenues from aviation services at Berkshire Hathaway, which owns the world’s largest flight provider, NetJets, Executive Jet Management, and Flight Safety said businesses – increased 10.4% in the second quarter and 9.5% in the first six months, year-over-year.

However, compared to a year ago, profits declined 8.0% in the second quarter and 9.1% in the first six months.

In its Q2 financials, Berkshire said the narrowing margins were “attributable to increased maintenance, personnel and fuel costs, as well as higher depreciation expense.”