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Wednesday, July 17, 2024

NC trend: A turbulent aircraft market grounds Greensboro’s Jet It

Glenn Gonzales

Below, Appalachian forests drift through the morning haze. Piloting an F-15 jet fighter over Afghanistan was nothing like this for Glenn Gonzales, who followed his military career with a fast rise in corporate aviation. His military aircraft included dozens of screens, dials and toggles that, among other things, could fire his ejection seat.

When Gonzalez takes control of the jet featured by his closely held company Jet It, the instrument panel looks like an SUV’s. Take off requires pushing a button that says “start.” Two 2,000-pound thrust turbofan engines atop the wings spin to life. Once aloft, a digital display reads 420 knots, or 480 mph. 

HondaJet’s $7 million, six-seat business jet, which was first delivered in 2015, has helped put Greensboro on the global aviation map. About 800 employees assemble the aircraft near Piedmont Triad International Airport. Plans call for 280 more as Honda Aircraft prepares an 11-passenger model.

Gonzales parlayed a position as a HondaJet executive into Greensboro-based Jet It, which he founded in 2018. The business sold and managed fractional ownership mostly in HondaJets, much like vacation-home time-shares. 

Two years ago, Ernst & Young named him Southeast entrepreneur of the year. In 2022, Jet It ranked 11th nationally in flight hours, jumping 10 places in one year. It operated more than two-dozen planes and employed several dozen people. Gonzales, 46, regularly appeared on the covers of business publications, including this one in February 2023.

“I wouldn’t quite call him a superstar,” says a Greensboro executive who lunched with him as recently as July. “But he was on his way.”

In May, Jet It crashed, leaving its fractional owners nationwide scrambling to recoup their investments. The company had raised $16 million last year from New York investor Michael Loeb and the Louisville, Kentucky private equity firm Blue Sky, according to Flying magazine.

Gonzales’ love affair with Honda spiraled into bitter recriminations and a lawsuit, which was settled earlier this year.

Attempts to contact Gonzales were unsuccessful. The company is in a “holding pattern” and its lawyers are telling officials to not comment, says Akir Khan, Jet It’s chief of staff. As of mid-August, it had not sought to reorganize in federal bankruptcy court.

Interviews with more than a dozen sources suggest Jet It grew too fast by undercutting competitors’ pricing and misinterpreting a temporary spike in its industry as permanent good fortune. 

Jet It rushed into what Craig Fuller, CEO of Flying magazine, calls “a massive bubble.” It emanated from the COVID-19 pandemic that sent business owners, doctors, lawyers and other wealthy individuals flocking to private jets to avoid crowded commercial flights.  

Frenzied demand for flights meant that the cost of paying pilots and mechanics and buying small jets soared faster than expected, says Fuller, a former Jet It shareholder. 

“You had a lot of not necessarily high-worth individuals, but people worth, say $10 million to $20 million, who saw they could get into jet ownership in the $800,000 to $2 million range,” says David Hernandez, an aviation attorney at Chicago’s Vedder Price law firm. “You had a huge influx of companies like Jet It that didn’t understand what was happening. They used lower prices to attract customers.” 

The pricing didn’t make sense, says a former fractional owner, who asked to remain anonymous. “Jet It lost about $900 every time I flew,” he notes.

The collapse went public on Friday, May 26, when Gonzales told employees to clear out of Jet It’s downtown Greensboro office. One says he wanted the staffers “to have a path to move forward” and trim costs. Jet It’s space is on the market, says a spokesman for NCR Management, the leasing agent.

Almost simultaneously, in a terse message to hundreds of small-jet share owners, Gonzales told them to dispose of their jets as best they could. 

A former owner in Tennessee says he paid $630,000 for his 10% share of a HondaJet in October 2021, and sold it in July for $405,000. “The first year, it was great,” he shrugs. Then began scheduling and maintenance delays, missed flights and unreturned calls. “At least it wasn’t hard to sell. We sold it in two days.”

A 1999 Air Force Academy graduate with an MBA from the University of South Carolina, Gonzales served as a trainer and pilot for Uncle Sam before leaving active duty in 2009. After a stint at jetmaker Gulfstream, he joined Honda Aircraft in 2014. He rose to regional sales manager before leaving for his own venture. 

“He’s a great pilot, hard worker and brilliant man,” says Julie Hughes, who worked with him at HondaJet. The first woman certified to fly the jet, she retired in 2022 and is executive director of the 800-member HondaJet Operators and Pilots Association. “I’m as puzzled as everyone else.” 

Gonzales’ fighter pilot background opened doors. “He’s an entrepreneur, a great American who served his country honorably,” says Khan, echoing how Gonzales was widely regarded in the Triad.

His relationship with his former employer became less positive last year, when Honda sued Jet It in a contract dispute settled in December. Before the agreement, Gonzales fired off a letter to Fuller and other owners, lamenting Honda’s “ineptitude” and “shocking lack of support” for its planes.

He grounded Jet It’s fleet, claiming the HondaJet had a history of accidents, including about 20 “runway excursions,” when it overshot landings. There were no injuries.

Hughes says she’s seen no design flaws in the plane. “So far as we can tell, there’s nothing wrong with it.” Other fractional companies have continued flying the jets.

The Federal Aviation Administration has found no issues to ground the HondaJet. Fuller, who is a pilot, doesn’t see a problem, either. “Every plane has a different personality,” he says. “You just train for it.”

Gonzales used the safety issue as a smokescreen to cover his failing business model, Fuller adds. “The economics of Jet It were incredibly bad. In hindsight, you know why they went under. Their charges were well below costs. Everybody assumed they’d figured out how to make this work. They hadn’t.”

Gonzalez had blamed a net loss of $23.2 million in 2022 on its inability to get enough planes amid the pandemic bubble. (It lost $2.6 million in 2021.) He projected an industry turnaround, and suggested the company would earn $108 million in 2025. 

That forecast involved adding customers by undercutting competitors, Fuller says. But its fixed costs for owners ran about $3,500 a month, in line with peers, while its per-hour charge for actual flying time was $1,600 an hour, or about half of its rivals,
he notes.

Jet It also agreed to forego fuel surcharges as costs rose during the pandemic, unlike some peers. “The economics of Jet It were incredibly bad,” Fuller says.

The future of Jet It is dim, say former employees, several former owners and outside analysts. The rush to fractional-jet ownership has fizzled since pandemic fears eased in early 2022, says Hernandez. “Once the music stopped, they were gone.”

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