VistaJet CEO Thomas Flohr has defended his company’s financial situation following reports that the fast-growing private jet company is facing cash and debt problems.
Speaking to CNBC’s Dan Murphy, the Swiss entrepreneur turned aviation disruptor denied that VistaJet’s high debt levels were scaring off investors.
“Look, none of this is new. All documents and data were still available to our equity and debt holders,” Flohr said.
VistaJet offers a charter service that it says eliminates the expense and burden of owning a private jet, instead using a subscription model that charges per hour flown and offers private trips to and from airports around the world in as little as 24 hours in advance.
A report published this week by the Financial Times said VistaJet’s net losses totaled $436 million over the past four years and its debt “more than doubled last year to $4.4 billion” as the company’s fleet is depleted. expanded to 360 jets, a 50% expansion after its acquisitions of charter companies Air Hamburg and JetEdge-based US. The FT cited the companies’ disclosures to investors and bondholders.
Auditing firm EY warns in a report on the company’s 2022 accounts that “there is significant uncertainty which could cast significant doubt on the group’s ability to continue as a going concern,” the article said.
Flohr denied that the points meant a risk for the company, which is headquartered in Malta and serves 1,900 airports in 96% of the world’s countries, according to its website. He pointed out that VistaJet is profitable based on EBITDA, which is the company’s primary objective.
“As a company, both shareholders and bondholders, [are] focused just on EBITDA, the cash creation of the business,” Flohr said. “Adjusted EBITDA was over $800 million in 2022. We’ve never focused below the EBITDA line .”
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, and is a way to measure a company’s income before a host of deductions. If a company’s investors see a good rate of growth in its EBITDA, they can use this metric to gauge future growth and potential return on investment.
EBITDA is not a true indication of cash flow, as the final figure after interest, taxes, depreciation and amortization is usually significantly different. Berkshire Hathaway executives Warren Buffett and Charlie Munger mock accounting metrics.
Flohr also explained his company’s depreciation schedule, which is when the cost of purchasing an asset — like a jet plane — is gradually amortized over its lifespan.
“The company has a very conservative depreciation policy, where over 13 years we depreciate our planes to zero. It is as a private company that we choose to have this conservative policy in place, but we could change it in the future.” Thirteen years is a relatively shorter useful life compared to the industry average, which is between 15 and 25 years.
“If we just valued our aircraft at market price, the business would be very profitable,” the CEO added, referring to an accounting strategy that provides the current market value of company assets. Mark-to-market valuation would calculate jet values by comparing their cost to their value under current market conditions, rather than once they fully depreciate.
An aircraft from the VistaJet fleet.
Courtesy of VistaJet
Flohr said he might consider using mark-to-market accounting this year rather than what he describes as a “very, very conservative 13-year-to-zero” amortization policy, which he says would then mean that the company is making a profit. He pointed out that the company has a clear EBITDA growth path.
“Going forward, this infrastructure will really allow us to grow EBITDA from around $800 million to $1.5 billion in EBITDA,” he said.
The FT report also notes that VistaJet had $831 million in prepaid flights on its books at the end of 2022, but only $134 million remained in actual cash.
Flohr stressed that this was not cause for concern, explaining that the company only needed about 22% of customers’ upfront payments to fly the jets they booked.
“It’s not a problem at all. It’s a snapshot of December 31st. Think about when customers pay us money in advance – we only need about 20-22% of that number to serve our customers for the direct operating expenses of those flights,” he said.
He pointed out that these deposits are non-refundable and are not money that customers can withdraw. “We have a subscription business model. The key to this number is serving those hours. It costs us about 22% of those numbers to get them flown.”
“We’re very confident … when we look at the first quarter of these new net hours that we’re adding every year,” Flohr said, citing 9,000 flight hours added in the first quarter of this year and the “same kind of pace” in the second. quarter.
“When you look at absolute debt, you always have to relate it to the EBITDA produced by infrastructure, and in fact our EBITDA has grown more in relative terms than our debt and therefore the business is extremely comfortable” , did he declare. “The same goes for shareholders and bondholders with the capital structure that the company has in place.”
Demand for private jets has exploded in the years following the Covid-19 pandemic, as travelers and businesses shifted to safer flight options and the wealth of wealthy individuals soared. This, combined with supply delays due to the global supply chain and staffing difficulties, has made the increasingly popular sector even more expensive.