Kenn Ricci on $175 turkey sandwiches

opinion

by Alasdair Whyte

November 19, 2024

Kenn Ricci explained why turkey sandwiches cost $175.

Kenn Ricci is one of the most successful business aviation entrepreneurs. This success also gives him the freedom to ruffle feathers. He did this on the first day of Corporate Jet Investor Miami last week when he identified threats to the industry. And they are not the ones you would expect.

First up, was manufacturers outsourcing non-recurring engineering expenses or NRE. “About 10 years ago, OEMs sold off their NRE. They went to the landing gear partner or APU partner and told them: ‘If you’ll do the R&D for our new airplane, we’ll give you exclusivity for the overhaul and the maintenance going forward’. Now, as these planes are staying in service longer, we are seeing NRE coming to light,” said Ricci.

He gave the example of the thrust reverser on two super-mid-class aircraft that Flexjet operates. “They have the exact same part number because it’s the same engine,” said Ricci. “One sold their NRE and its a $229,000 actuator, the other is $89,000. So, our $229,000 one never breaks. The 89,000 is the only one that ever breaks. You can tell right away which aircraft have been NREd.” He also criticised the lack of loaner engines from engine programme providers.

Ricci wants more competition in the aftermarket. He says that the business jet market needs to copy the commercial airline market and introduce Parts Manufacturer Approval (PMA) options. PMA companies create certificated parts as an alternative to a manufacturer’s own parts. Ricci already has Nextant which remanufactured Beechcraft jets as an example.

He also criticised the effect that private equity investment has had in the industry. “If you want to know why a turkey sandwich is $175, it’s because of private equity,” said Ricci.

Ricci says that larger FBO chains started charging a larger spread on fuel compared with the benchmark price and retail a few years ago. “Now that’s posted but we know that there’re discounts – including buying power from fleet operators,” he said. “But then private equity owners, who are very smart, caught on to that margin degradation. So, then they started with event fees. Then they started with tacking on cost to catering.”

Catering costs are a particular irritation for Ricci at the moment. “At Flexjet, I spend most of my time involved in capital deployment and long-term strategy. Things like our transactions with OEMs,” he said. “But I’ve had to spend time in catering because it’s such a problem.”

He says that Flexjet spends $43m on catering each year. He challenged the audience to guess what accounts for $6m of this: silverware. “Every time you order a turkey sandwich, they can charge you six bucks for the plastic wrapped napkin, fork and spoon. So, they show up with a turkey sandwich, and six serving pieces, just in case you want to split them,” he said.

He is also concerned about private equity investment in maintenance, repair and overhaul (MRO). “There’s been a lot of consolidation of MROs and maintenance. In five years, hourly maintenance prices have gone from $105 an hour to over $220 an hour. There is a maintenance company on the market now being re-marketed by private equity, and you would find a five-year projection that shows labour costs over $350 an hour. We know where this is going.”

Ricci is encouraging entrepreneurs to enter the market to help compete with private equity backed companies. He said he is prepared to invest in disruptors.

The past few years have been great for fractional operators. “I always tell people it’s a 40-year overnight success story,” he jokes. But he is not getting carried away.

“I think we’re going to have a downside surprise. I started off by saying business is good but paranoid. It’s been too strong for too long and so things are a little frothy. I think there’s going to be some downward move now,” he added. “I would just tell you that I’m a little paranoid going into next year.”