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Elliot Epstein – Running a Model Aircraft Business

My guest today, Elliot Epstein, founded Geminijets, a company that makes metal diecast commercial airplane models.

Episode Description

I’m a big aviation geek. I love flying, looking at airplanes and seeing where they’re going via Flightaware on my phone, and collecting model aircraft. My guest today, Elliot Epstein, founded Geminijets, a company that makes metal diecast commercial airplane models. Beyond just the aviation nature of the company, this is a fascinating business for its relationship with hobbyists and collectors, the airline industry and current trends, all in addition to being a manufacturing and distribution business.

In this episode Elliot shares why he started the business, the process of creating a new model from start to finish, how coronavirus and the 737 MAX program have impacted sales and shipping, how the model business has evolved, and available growth opportunities for the company.

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My guest today, Elliot Epstein, founded Gemini Jets, a company that makes metal dye cast commercial airplane models. Beyond just the aviation nature of this company, this is a fascinating business for its relationships with hobbyist and collectors, the airline industry and current trends, all in addition to being a manufacturing and distribution business. In this episode, Elliot shares why he started the business, the process of creating a new model from start to finish, how coronavirus and the 737 Max program have impacted sales and shipping, how the model business has evolved, and available growth opportunities for the company.

As you know from my previous call, I’m an airplane geek, so I’ve been really looking forward to this episode for quite a while. I love your business. I have owned your aircraft as a kid and we have since donated them to try to create other aviation geeks in my family, but I would love to hear about how got started in the business and how you started Gemini Jets.

Well, okay. It was back pretty far. Obviously, we all have an interest in aviation in order to do something like this. So, I grew up, actually, in the Philadelphia area. I was born in 1961. So, I was fortunate enough to have experienced, even as a child, I have vivid memories of the planes that flew back in the ’60s. For anybody that’s in aviation, they’ll probably all admit that the dawning of the jet age was without a doubt the most exciting years in aviation, especially in this country. Because it was such a big proliferation of 707s, DC-8s, Convair jets, and all these loud, smokey airplanes that, of course, would be admonished today.

But back in those days, as a kid, you just were like, “Oh, my, how cool is that?” I was fortunate, too, to see the tail end of the Western Air come to an end, where I got to see Constellation’s DC-6s, DC-7s, and all the Convair props transitioned to the jet age. Although, I was very young, by the late ’60s I was old enough that a lot of these stuff was still flying. A lot of these prop planes were still flying and the first generation jets were starting to slowly transition into the second generation jets. So, for children that were around in those days, jet airplanes were just like really, really cool.

It’s different than what it is today. It’s vastly different, but the noise and the smoke of these planes are really what attracted people to them. They just found it fascinating that something like this could fly like this. So, we lived on the flight path for Philadelphia Airport. Every Sunday my mother would take me and my brother to watch the planes at the airport. She would take her Sunday Philadelphia Inquirer newspaper with all the advertising inserts in it. Even back in those days, if you look at a major newspaper publication, back in the ’60s or even in the ’70s, these things were like phone books. They were huge.

A newspaper those days, everybody read. There were lots of advertising. So, she would just sit all day long in the car reading her newspaper. My brother and I would have our faces plastered against the fence and just watch planes. Like I said, those planes back then, the Caravelles, Convair Jets, just all of the stuff that unfortunately nobody gets to see today. You grow up with that stuff, it really sinks how cool these planes were. So, as time went on, unfortunately, I was blessed with bad vision. So, a lot of kids growing up in the ’50s and ’60s, they want to be pilots.

Back in those days, in order to be a pilot you had to have 20/20 vision, even being corrected was not acceptable to 20/20. You had to have natural 20/20 vision. Military would never consider you without anything but perfect vision. So, it was disappointing. It left me in limbo because my eyes actually were fine until I turned about 17, 18 years old, right when it was time for show time in your life. I was in a dilemma. So, I started doing other things because my dream was shattered, to be a pilot. As the years went on, I was actually … my primary background is in the casino office.

I was at a management in a casino business, it was on the ground floor back at Atlantic City, when gaming passed back in 1978. So, I spent my early career in the gaming business, but all through this my interest in aviation was always there. I probably should have considered a career in airline management, something to do in the airline business, but for whatever reason I just didn’t do it. I kept it more as a hobby, but after about 10-year stint in the casino business I actually started a junket company. We had our own company that operated a bunch of different airplanes for operating casino junkets.

Bringing gamblers into not only Atlantic City but into Las Vegas, into Mississippi. So, I finally got my wish to be in the airline business in a backdoor way. The neat thing about being in the junket business was a lot of these casino charter operators were flying a lot of a hand me down type equipment. We were operating Electras, Convair 580s, 720Bs. We had a lot of pretty eclectic fleet of planes flying people all over the place. So, it allowed me to get closely involved with aviation without being a pilot.

I wound up taking all in a full time position at an airline back east originally that I transferred out to Las Vegas, that’s why I actually wound up in Las Vegas, and that was back in 1995. So, at that point, I got out of the casino end of the business and actually became full time in operations and director’s position, management positions for a few different airlines prior to Gemini Jets. I was a collector of model airplanes my entire life. It never stopped. I have collected airplanes since I was four or five years old.

So, I have amassed just this insane collection of planes that probably no one in a million years could ever accumulate. I’ve never really talked about that. That’s kept quiet, but the collection probably, if I told you, is between 25,000 to 50,000 model airplanes is probably what I have now. That’s on top of everything else I have collected, which includes postcards, timetables, stickers, you name it. Anything to do with airlines, it’s stuff that I just … this stuff was readily available back in the ’60s, ’70s, and ’80s.

But then, unfortunately, as the electronic generation came on, a lot of this stuff started getting weaned away by airlines to save cost. But I never sold anything, I never got rid of anything, I’ve just accumulated it. So, now, it’s my retirement, I guess you could say. But getting back to your core question, I had an opportunity back in 1996, ’97 while I was in the airline business to … an old friend of mine had approached me and said, “Hey.” There were two model airplanes on the market at that time, Herpa Wings and Dragon Wings. They were doing a good job.

They were putting out a product that nobody had really done as well before and I thought that we could do it better. There was still room for improvement. So, that’s really what started Gemini Jets, and that official day was in December of 1998, that we actually opened Gemini Jets. Prior to that, we spent a couple of years flying back and forth to Asia visiting with factories. It was a lot of flying going back and forth. But when we put it all together, that was about December of 1998, and we sold our first model starting in January of 1999.

What was the first model you sold?

Well, we had four original first models. We’ve released four models initially, and you’re going to test my memory but I believe it was two Virgin Atlantic 747-400s, an Air China 747-400, and the United Battleship Gray 747-400. So, that’s the only tooling we have when we first opened up. We only had one mold that was a 747-400, which was a good one to start with, because back in the ’90s just about everybody flew 747-400. So, that’s what everybody was really interested in. Then, we added, in ’99, after we got the ball rolling, we added the 707 and the 747SP tooling. So, in our first year we had those three tools.

So, can you walk us through what it looks like when you are designing on the next series of models to create and then how you actually go back creating them in the molds, and getting the decals correct, and actually ordering and shipping them? How does that whole process look?

Well, molds, designing on molds and designing on what to release for the new month are two completely different aspects of the company. Mold choice is a very long term drawn out process. So, just suppose today we want to start making a 737 mold, assuming we didn’t have it, okay? It’s actually about a two-year process. It involves a lot of back and forth with the factories, CAD drawings, resource materials, it’s just a very drawn out process. Even with newer technology, with 3D printing, it doesn’t really work well for our products.

3D processing, for some reason, has not been mastered with making replicas of model airplanes. It’s fine for making a vase, it’s fine for doing basic things, but unless you’ve got equipment that cost millions of dollars in the way of a 3D processor printer, it won’t work. So, we’re stuck still in the dark ages of making, tooling, and molds, where there’s just a lot of back and forth labor copying, adjusting, fixing that goes in this process. So, that’s why it’s a very separate different process than the monthly choices of what we make.

So, that’s phased into the monthly choices of what we make. Obviously, there’s a lot of input from collectors. We don’t have a day that goes by that we don’t get 20, 30, 40 emails from our customers saying, “When are you going to make this? Can you make this? Can you make that?” Some of the requests are very legitimate requests and was already on our books, while some of the requests, unfortunately, are too personalized. If somebody flew on a Air Zimbabwe twin auto or something when they were five years old and they’re 50 years old now, they got to be realistic.

Anything we do has to have a commercial success in some way. We just can’t put out models that people personally had an experience on so they want to see it. Well, as much as we’d like to do that, we have to look at the big picture and say, “Okay, is this thing going to sail? Is the person in Paducah, Kentucky going to buy this versus the person in Tokyo?” We are a worldwide business. We have to appeal to everybody and we do a pretty good job at spreading what we put out every month to appease the worldwide market.

But again, at the same time, there has to be a commercial viability to the choices that we make to make sure that whatever we choose, at least in one market it’s going to be a strong sell. Because at the end of the day, we’ve got to make a profit. If we’re not making a profit doing this, the company is not going to exist, that doesn’t help anybody. But let me focus on the final part of that equation, of what we pick. So, customer input is important to our decisions. It’s not just them, it’s our retailers, our distributors.

They say, “Hey,” say we’re in Malaysia, “we got a big demand from Malaysia Airlines models.” Well, of course, we’re going to make a Malaysia Airlines model for our Malaysian distributor, because that’s obviously what’s going to sell in that region versus a US Airways plane, say over here. So, the worldwide market causes us to take input in from everywhere, the collector’s input, distributor’s input, my input, I read. Part of what I do in this business is I’m very, very involved in the airline business. So, I studied the airline business very closely.

I have my whole life. It’s gone from it being a hobby to being part of my work. You really have to know what airline is ordering what, what their plans are. So, I get various publications that we subscribe to that has a lot more inside information than the internet does. The problem with the internet is it’s great for about 75% of your information, but it does not cover everything. There are certain, you have to get certain publications to have a better input as to what is happening in the airline business.

The other problem with the internet that I have found is, even if there’s an article, say, about Delta Airlines ordering more airbus planes, the internet tends to give you a very skimmed version of the story. It’s geared to keep the attention level of people that are only on the internet. Most internet people are not interested in sitting there reading an hour long article. They want to read a 45-second article that tells them what they need to know, the bare minimums, so they can move on. Where printed publications tend to delve into the subject matter more.

So, in a case like Delta ordering new airbus models. Well, why did they order new airbus models? The publications will tend to go in deeper as to why they did that and what their future plans are tied to that order. So, you take all these that I do with collectors, retailers, distributors, what I read and everything, and it forms a formula for me to decide what we’re going to put out every single month in releases. Like just right now, we already have the next six month’s models planned. There’s an average of 20 models every month, 20 different models.

So, we’ve already got 120 models in the pipeline over the next six months. Now, obviously, there are some changes that will occur. If an airline goes bust, we may pull those products off the list. If an airline all of a sudden announces a new livery design, a special livery plane, Alaska just did it with a couple of airplanes. We’ll definitely make it a priority to pull those in and push some of the regulars ones back. So, it is a juggle game constantly. The only time we get into a little bit of a lockdown is anything within 90 days cannot be changed.

Once we’re inside that 90-day window of production, that stuff, that schedule, so that would be 60 models, 20 models this month, 20 models next month, 20 models the following month, those are pretty much not touchable. They’ve got to stay on the course of production, but that window from the back, 60 models, are a lot more flexible to make the changes. So, that’s really how it’s done for choosing what we’re going to make.

I’d be curious to hear if the 737 Max incidents, have they affected sales of your Max models because they were suddenly not flying anymore? Did you have more inventory of Maxes available or fewer sales, or have they changed recently? I’d be curious to hear how that’s gone.

It’s a very good question. So, we lucked out with a Max because what had happened was the Max flew just long enough for a few years that it was a hot item, so we got a lot of Max models out in that first couple of years. Right when the problem started with the plane, we had really gotten out most, I would say 75% of our initial plan were already out on the market and sold through to a point that when the problem started happening our schedule for the Max had really thinned down. Now, that’s not to say that we wouldn’t have gone back and reissued United Max models, more popular Max models.

Without a doubt, your question is a good question because sales of the Max completely dried up. We still had some inventory left of certain models, not only the sales pretty much dry up, but as a manufacturer, we stopped making all Max models. To try and profit off a model where lives have been lost, some of our competitors unfortunately have gone that route, we will not do that here. You’ve got to have some code of ethics, some class in what you put out versus people’s lives and families suffering. So, we had stopped. We had probably about four different Max models that were on the production schedule.

I immediately picked up the phone to the factory and said, “This stuff just cannot be produced. It has to stop.” They understood. They were accommodating for that. So, we really, for two years, ceased all Max production. We did resume production of Maxes in the last 60 days. They’re not out on the market yet, but they are going to be hitting the market here pretty shortly. Coinciding with the aircraft, the real aircraft reentering service. But we definitely saw drop in sales and we stopped all production of Maxes during that two-year period.

Now that they’re starting to fly again, how do you think sales are going to perform with the models going forward?

I think the models will be fine. I think the real plane will be fine. We’re a pretty resilient country. We can talk about the US versus the rest of the world. I’ve lived long enough that I’ve been through this catastrophic events with aircraft. The DC10 had a horrible track record back in the ’70s. It went on to become a very good airplane. It was actually a very good airplane even in the ’70s, but certain things happened that are beyond designer’s controls. They see these problems, they address them. Situation with the Max, I don’t want to get in the political opinions, or stockholder opinions, or whatever.

I’ve been on the licensee of Boeing, I don’t want to say anything derogatory toward Boeing but there were things that probably shouldn’t have happened there. I believe that the media, at the same time, I think, blew it out of proportion blamed Boeing for everything. That’s also not fair either. The Max is going to be a very good airplane. Is it the answer for the future? No, it’s not. Boeing, even has openly admitted that the Max will be the last iteration of the 737 airplane. It’s a 55-year old design that it’s still a very good design, but it has its limitations.

Most of what you read are limitations that are not accurate. The fuselage cross section, this, that, and everything. That’s not what’s wrong with the 737. The biggest problem with the 737 is it sits too low to the ground. When the plane was originally designed, it was designed to be able to be operated at airports with minimal ground equipment, service equipment, so that whosever on the ramp at that time could easily work on this plane without having all these extra equipment.

As the years on and Boeing stretched and re-engined the plane, it lost its place as to what its original intention was. That plane was originally designed to replace propeller airplanes flying very regional routes between cities of under 500 miles. But as time went on, it became a long range transcontinental plane that the mission had changed so much. Its mission has outlived the usefulness of the airframe. That’s the problem that Boeing faces with that airframe. When a plane sits too low to the ground, you’re very limited as to how it could rotate a take off, what type of engines you could sling under the wing.

There’s too much working against it from its design perspective, not its economic perspective. Because economically, the Max can actually exceed the A320neo, which is a much newer design in many ways. So, the things you read about on the Max, there’s a lot of wrong information out there about that airplane. It’s a good airplane, aside from this issue with MCAS, which has been addressed, it’s an extremely efficient airplane that airlines will be able to probably squeeze 10 years out of making good money from.

Yeah, certainly. I’d be interested to hear a little bit more too about, you talked about the production of this aircraft and that process. What are some of the challenges of operating a business where you have some design here and then it’s manufactured in a different country and then brought back over here and shipped around. I haven’t talked to many distribution type businesses on the podcast, I just love to hear a little bit more about how that model works.

Well, that’s also a very good question. We’ve had challenges without a doubt. The company is going into its 23rd year. The challenges have mostly been when working with China, there’s a bit of a language barrier issue. We do have Hong Kong people involved that are in between me and the mainland Chinese people where the factories are located. So, we have surprisingly pretty good communication. The biggest hurdle though is, it’s probably about 95% good. That final 5% is where you will really be tested.

When you get 95% of the given project done and you get locked up on this final 5%, you may spend two hours working on that 95%, but you can spend two days on the final 5% that is not being understood between the two parties. That does happen frequently. It doesn’t happen all the time, but I would say of the 20 models that we do release every month, there’s always one that falls into that category where they just can’t get it right no matter what I say. So, with that being said, though, overall, it operates pretty good.

You wouldn’t think that we could be as successful as we are with that kind of scenario. But for all intents and purposes, it flows pretty good considering all the variables that could go wrong. Now, the past year is a completely different story, because we have a new Achilles heel and that’s called shipping. The shipping industry, we bring in several containers a month from China directly into our warehouse in Las Vegas. We never had a problem with this until the last year. Fortunately, or unfortunately, you can look at it either way, everybody is plagued with the shipping problems right now.

Ports are backed up. Shipping is backed up. We religiously, for our first 22 years, every five weeks we’ve got models on the market and you could set a clock to it, because everything ran smoothly including the shipping. Unfortunately, in the last year, with COVID, it has wrecked havoc on ports, especially in California. The State of California has been a little more strict with COVID restrictions. It has absolutely wrecked havoc, not only on our shipping, goods come through the ports of Long Beach and LA, but it has caused a domino effect. The Port of LA and Long Beach is one of the largest ports in the world.

A lot of ships transit through this port every single day. When you have a cog in a big wheel that’s now starting to bind, that effect starts getting spread all over the world and that’s what it’s done. Ships that are getting hung up in port in LA and Long Beach are the same ships that got to get to Hong Kong, that got to get to Johannesburg or wherever they’re going. If they’re stuck anchored offshore of Los Angeles and not moving, it becomes a big headache worldwide, not just for Gemini Jets. But you’re seeing shortages, this is the effect that you’re seeing with price increases at the stores, for everything.

Lowe’s, Home Depot, they have massive shortages on widgets and everything else, of stock that’s made overseas that they cannot get here. Shelves are going empty and this problem has not cleared up. I’m hearing that this problem may last the entire year, because they’re trying to play catch up and it’s just as fast as they’re trying to catch up. It’s just not happening. They’re so far behind the curve. So, our shipments, and we have seen delays, delays like we’ve never seen before. We’re experiencing two to four week delays on our releases and people are getting upset.

The collectors, they want their models. We tried to explain to people that if you don’t have your models, that’s not helping us either. We’re not making any money if you don’t have your models. I try to tell people, “Go to your local store. You’ll see, it’s happening everywhere.” Especially if the goods are coming from overseas. So, to answer your question, finally, I would say for 22 years things ran pretty smooth. On the 23rd year, I would say using the term nightmare is probably the most applicable word to use.

It’s completely out of our control. There’s nothing we can do about port delays. There’s another issue with trucking. We got hit with a perfect storm. January last year, the government and DOT imposed strict regulations on truck drivers in our country. I’m not sure if you’re familiar with this, but they imposed driving limitations. They have similar rules now with truck drivers, over the road truck drivers, that pilots and flight attendants have, where you can only operate for X amount of hours before you must take rest.

This is all tracked by GPS now, and the DOT is watching. If they catch a driver exceeding their allowed driving limits, they get fined severely. The trucking company will be fined and the driver will be fined. So, we went from basically a work atmosphere in the trucking industry, if somebody wanted to drive a truck 120 hours a week, they could. Well, those days are gone. So, it has caused a massive shortage of truck drivers. A lot of truck drivers have quit driving trucks because they can’t make a living anymore.

Drivers that were driving 75 hours a week, where some of these guys were making $75,000, $85,000, $90,000 a year. Well, now that they’re told that they’re limited to X amount of hours a day, they’re losing money. Their salaries have been cut in half. Now, a lot of these truck drivers that are making $40,000, $45,000 a year, they say they can’t support their families. So, they’ve left the industry. It’s left a big void in the trucking industry that has hit similar to COVID and all these other problems to form this perfect storm of logistics problems.

So, you have trucking, you have shipping, China is a separate thing in itself what’s going on there. So, it caused a lot of extra headaches that we did not have before.

What has caused you to rethink and at the same time what do you think can’t be changed even after all of these?

Well, ideally, it would be so nice to move this whole operation to the US, where we wouldn’t have to deal with China, we wouldn’t have to deal with shipping containers from overseas, not have to deal with ports. We’d still have to deal with truckers because they’re still hauling our stuff around, but I can deal with that. It’s when you get hit with so many different negative variables at once that makes it difficult. But the sad reality is, I have looked in-depth trying to manufacture these goods over here and it’s just not cost-effective.

It’s unfortunate that the way we do things in this country, we have a lot of regulations that are designed to protect us, specifically like the EPA. The EPA really would make making this product over here cost prohibitive. The main reason for that is, your question is asked by thousands of people, “Why don’t you just make the models over here?” Well, it’s for the same reason nobody makes anything over here in this country anymore. It’s a cost issue. It’s a regulations issue. It’s labor issues. The cost are just too high.

You get to the point, what I was about ready to tell you, if you wanted to manufacture here, one of the big luxuries we have manufacturing in China is even though they’ve instilled a certain amount of environmental regulations, the key one that they have not done is you can manufacture under one roof over there. You can do your multi-metal injection in the same factory that you’re painting the models, you’re printing the models, you’re boxing up the models for ship out. It’s basically one stop shopping.

Over here, because of EPA requirements, regulations, you can’t be injecting metal in one building and then in the next room over you’re spray painting and this and that. We have too much EPA guidelines that would prevent doing that kind of thing all under one roof. So, what you would be left with is your injection would be done in Illinois, your painting and printing would be done in Iowa, your packaging would be done in Arizona. Before you know it, you’ve got a logistics nightmare on your hands as to how you’re getting parts A, B, and C together to form part D.

Then, you still don’t even have the product yet. The product still has to come to you. All these regulation and cost that would be involved in this puzzle of moving all these goods around to finally get it to here in Las Vegas to ship it out to customers would absolutely run up your cost to a point, we’ve investigated all of this. We’ve researched all of this. Just rough numbers, a model that might cost us $20 to manufacture in China, you’re probably looking at $100 to $150 here to manufacture. By the time it hits the retail market, your one to 400 scale model is no longer $39, it’s $390.

Nobody is going to buy the product at that price. So, we have not been able to solve that issue. We have looked at other countries. We experimented in the Philippines, it did not work over there. We’ve considered even the manufacturing in Mexico, there’s always options but at the end of the day the cost involved of moving the operations, pulling up the operation, for now we’ve decided just it’s best to stay in China. So, that option just becomes no longer viable, but until that happens, that’s where unfortunately we’re going to have to stay.

The workforce is also, you have to understand, this type of product not just Gemini Jets, but the making of dye cast toys in general have been made in China for the past 50 years. They have the equipment readily available there. Workforces in China are actually geared to this type of manufacturing. If you ever visited a factory, you’d be probably amazed that the models come out this way as good as they do. Because, basically, what you have is 500 Chinese young people, aged maybe 17 to 21 years old, that know absolutely nothing about an airplane, a real airplane, an airline, the English language.

They’re the ones that are manufacturing all of this stuff. Not only for Gemini Jets, but everybody that’s in the market in this business. We’ve got a very unknown group of people that had been able to assimilate to making this product. So, that in itself is pretty remarkable. If somebody threw me [inaudible 00:38:31] and say, “Hey, you got to make squirt bottles.” Well, I’ve never made a squirt bottle in my life, how the heck do you do that? Well, that’s what they do with these people. They just basically sit them down, tell them what to do, and they do a pretty good job at it.

Where we’ve experienced, even in the Philippines, they didn’t do such a good job at it. There’s a lot of culture comes in, the people’s culture from these countries, where the Philippines is maybe very good at doing certain things, I don’t think they’re so good at making model airplanes. It’s not a negative comment toward the Philippines, because they can make things that they can’t make in China. But it just seems that toy related things in a higher end product, the more expensive product, China still continues to do a good job at it.

I’d be curious to hear more too about how your role has evolved in the company over the last 22 years since you started. You mentioned, of course, picking the models each month that you’re going to do, and it sounds like a lot of the communication between factories you take part in as well, but I’d love to hear what your job looked like year one versus now year 23.

Well, for the longest period in the beginning, my partner was actually over there. So, he was the hands-on person watching the actual manufacturing process. I had my responsibility over here, he had his responsibility over there. As time went on, he was not really happy with living in China, because he had to live there full time. That’s quite a change if you’re an American person having to live in mainland China. After a while, he wasn’t happy there. We felt that by that period that there was enough experience going on with the people, the local people over there, that it was no longer necessary to keep a local American person there.

I think it was very necessary in this pulling up of the company, but once everybody really got settled in, the position of one of our people being there full time was no longer necessary. My role, unfortunately, for me has gotten heavier. It’s as the company has grown, as more product is being made, when we started out, we were only putting out a few thousand models a month. We’re pushing 25,000 models a month now. So, it’s a lot. I wish I could tell you more in details as to what has changed at my job, but I don’t think it changed a whole lot. It’s just as the company has grown there’s just a lot more to do.

We have more licenses. We’re putting out more models. The customer base is obviously much larger. The reach of the company throughout the world, where it might have touched just a few countries, we’re probably in about 50 different countries now. So, it’s gone from a little small business to a worldwide business. Yet, at the same time, it’s still a small business. We’re not a Fortune 500 company. We’re never going to be a Fortune 500 company. This market, it’s a very limited customer base. People, everybody buys water, or milk, and eggs, or whatever it is.

That’s an unlimited customer base. The amount of people that want to buy airplane models is a finite number. It’s not an unlimited number. If you’re not interested in airplanes, you’re not going to buy airplane models. Plain and simple. Even though we’ve grown a lot over the last 23 years, I don’t see it doubling and tripling in size over the next 10, 15 years that maybe some other businesses would. It is a finite market for this stuff.

Is part of it been that there’s the challenge of handing off certain tasks that you do to employees, or is that something that you just prefer to do yourself, or is it just difficult handing that work off to somebody else?

Excellent question. I would say that it’s 50-50. I don’t really consider myself, what’s the term, the control freak, but at the same time what I have learned in my 60 years is a lot of times if you don’t do it yourself, it just doesn’t get done right. As the owner of the company, that’s very normal. It’s not just me. A lot of company owners, they have to be involved. They have to be hands on. Employees are employees. You have some good employees, you have some slacker employees. An employee is never, no matter how good they are, is never going to put the effort into something that … they’re just an employee.

They’ll do a good job for you, but it’s just the way it is. It’s human nature. If you don’t have a vested interest in something, you’re only going to put out so much. So, to answer your question, I’m part of the problem, I think, as far as expansion. We’re in a 10,000 square foot building here in Las Vegas. We outgrew this building probably about eight years ago. I should be in a 20,000 square foot building now, at least, or 25,000. I had some decisions to make eight years ago when we were outgrowing this building to, “Where do I go from here?

Do we take this to the next level or do we just stay doing what we do best?” Part of the problem that I’ve seen in this country, especially in the last 20 years, every company that I deal with has found it necessary to branch out into areas that they have absolutely no business branching out at. I’ll give you a perfect example, UPS. UPS is good at moving packages, that’s what they do. If you went into the profile of the corporation UPS today, you would be in shock at what they have their hands in. They have their hands in everything.

They’re in credit card processing, financing, all these areas that they’re not an expert at. I’m not just focused at UPS, I’m focused at all of corporate America, that they’ve had this desire and this necessity to branch out away from their core businesses and they don’t do a good job at it. We looked about, I want to say it was probably about seven, eight years ago, we had gone into … We expanded into the RC model business, radio control. I was dead against it. My partner was all for it. It was a disaster. I knew nothing about radio controlled airplanes.

Have I flown them? Of course, I did. That’s around more than over the years in my life, but I didn’t know anything about profit margins of radio control models, parts, and all the stuff that goes with selling a new product line of stuff. It’s the hobby business. It was a very, very different part of the hobby business. Against my better judgment, we took it on. It was a complete disaster. It’s not what I knew. He thought he knew it. He had knowledge to it. What he didn’t know was the financial side of it, and that was profit and loss, profit margins. It’s not a good business.

The radio control model airplane business, very low margins, high attrition rates, lots of accidents with these things, not to mention you got to worry about crushing into somebody’s car. Whether you’re going to be held legally killing somebody with an RC model airplane. It’s not unheard of. Accidents happen frequently. So, we wound up getting involved in something that I wasn’t comfortable with and I pulled the plug on it after about a year. Even so far as we had started a military line of fighter jets, Gemini Jets did. Fighter jets are not my expertise.

I know military planes more than most people do, but don’t know them like I know the commercial airliners. I found myself relying on other people for my product line to make these models and I automatically learned right there the famous, how we started the conversation, that if I don’t do it myself, it’s not going to get done right. Well, I relied on other people to run our 72nd scale military dye cast line and it floundered. I don’t want to say, it didn’t crush and burn like the RC thing did, but I found myself constantly struggling with this line.

It’s a very competitive line. There’s a lot of people making 1:72nd scale dye cast military planes. So, we’re already entering a market flooded with competition. If you don’t have something better than what the competition is offering, you haven’t achieved anything. You’re not going to prosper in a line that, number one, you’re not a professional at or have high knowledge of if you don’t innovate and have a product that’s better than your competition. You’re wasting your time. So, I made a decision a couple of years ago, “You know what?

I can no longer rely on person A, B, and C to keep this product line going because they’re not doing enough to bring it up and above my competition. I decided to bail out of it and just basically give it up. I received a lot of flack from people about it and I gave everybody the same answer. I’m not a military fighter jet expert. I don’t know enough about it to be better than the competitors. If I can’t do that, I don’t see a reason to even be in it. That’s why we got out of it. So, I continue to focus on what I know best, that’s commercial airlines.

I know military transport planes pretty well. So, we have that aspect of the military side still in our group. It does very well. People love the military transport models that we do. So, we do have a little bit of a deviation from the commercial airliners in that aspect. But there’s not a whole lot at this point that I can say I should get into this. It’s really best to take what you know best, innovate, and that’s what we’ve been doing. Our latest stuff, we’re coming up with cargo planes, with opening doors, and all kinds of features.

People love it. So, it’s taking what you know best and enhancing that. It’s really the best route to go, and that’s my opinion. Other corporations may feel differently. They feel compelled to expand left, right, top, bottom, and do all these crazy stuff that they’re not experts in, but it’s not where I want to go.

Yeah, I know earlier we talked about growth potentially through acquisition, but your comment was around, if you go look to acquire another model aircraft company you’re basically acquiring the same customer list. So, the assumption there is that Gemini Jets is the leading brand for dye cast metal aircraft. Is that true, and then how do you measure that potentially?

Well, yeah, it’s a very accurate conversation. We are the biggest, okay? We have, last count, we have nearly 200 different molds. We cover a vast range of model airplanes. Our closest competitor probably has maybe 25% of what we have as far as available tools molds to use. On the subject of acquisitions, yeah, this is a very unique business in that aspect. For us to acquire any of our competitors, it’s not an economically viable move. We all have the same customer base. So, you’re not picking up any new … In any business, when a company buys a competitor they’re buying out their customer base.

They’re buying out their facilities, maybe employees, fleets of trucks, whatever it is. There’s a benefit to buying your competitor and, of course, at the end of the day, the other key issue is you’re eliminating a competitor by buying a competitor. As Gemini Jets, I don’t see a real asset, a real advantage of buying any of our competitors right now. We all have the same customers. We all have the same product lines. We all use the same retailers. We all use the same distributors. So, it’s a lot of duplication out there. Again, I say it’s a unique business in that aspect.

Now, if there were a smaller competitor that wanted to buy us, that would probably be a much more advantageous move from the smaller competitor standpoint. But from my standpoint, for me to buy one of my competitors, there’s just really no benefit at this point in doing that.

Yeah, that make sense. You mentioned other avenues for growth being potentially new features. So, I’ve seen in your website the cargo planes with the doors that open, or certain commercial aircraft have their flaps down versus fixed. What are some other ways you’re experimenting or thinking about growing Gemini Jets?

Well, some of the things, unfortunately, I can’t say the proprietary. The last thing I want to do is tip off my competitors of anything we have planned. But we’ve developed an interesting side business that came with this hobby and that’s airport terminals and things like that. We are looking to expand upon the accessory side of the hobby. The models, we’re starting to reach a point where we’re hitting the ceiling with them. There’s a drawback to these better models. The more features you put on these models, unfortunately, the more you expose them to damage or breaking.

When I look back at the models we first made in our very start, they were basically blocks of metal that you could toss around, with fix landing gear. They were a much more durable product. As time has gone on and the collector’s demands have factored into our decision-making, it’s unfortunate that it’s also exposed the models to a lot more damage. The bottom line is, the more features you put on these models, the more delicate parts you have, like flaps, and rolling landing gear, and the antennas and all these other things.

The models were, without a doubt, far more susceptible to damage than those original models we made back in the late ’90s. Back in the late ’90s, I’ll give you a perfect example, we used a single piece of wing. So, you had a fuselage and one long, two wings were all one piece and it was stamped hard into the fuselage. So, it was just the fuselage, a wing. They were a lot more durable. The structure was a lot more stronger. Well, I don’t know, I want to say about 15 years ago one of our competitors decided to go with a left and right separate piece of wing.

By doing that, you eliminated the seam on the bottom of the fuselage of where the single piece wing would … When the single piece wing attached to the fuselage, you had a seam in the front and behind the wing on the belly. Me, personally, I didn’t think it was a big deal because it was on the belly. We had a much stronger model. But in order to answer the competition, we had no choice but to start changing all of our molds to these left and right wing style molds that eliminate the seam. That’s what the collector demanded, that’s what we’ve answered to.

The problem with that is this is the first stage of the weakening of your product. When you have a left and right wing versus a single piece wing, you now have exposed the model to weaknesses. A wing that’s entered without any support into a fuselage is not a strong support. What a lot of people must understand with this stuff is, unlike a plastic bottle airplane, when you build a plastic bottle airplane as a kid, when you have a tube of glue, there’s a fusion process that goes on. The glue actually melts the plastic.

When you’re fusing the wings to the fuselage, it melts the plastic. When it hardens, it’s a fused connection that’s very strong. When you’re dealing with metal and you’re using epoxy or any type of super glue, whatever glue you’re using, you’re only using a surface glue that’s connecting two pieces of metal with a non-fusion connection. It’s just the glue that’s holding part A to part B. There’s no fusion involved. So, it’s basically now just a sticky process, where the glue is sticking to one piece of metal that’s sticking to another piece of metal. There’s no fusion.

You drop that box, whether it’s the US Postal Service, UPS, FedEx, whatever it is, there’s a very good chance you’re going to break that connection of metal to metal, where this little thin section of glue is holding it together. There’s no fusion involved in the structural support to keep these parts intact. Now, with the antennas or flaps down, with all these extra moving parts, the models were extremely susceptible to damage. It’s unfortunate that it’s now become part of a headache in this business.

Fortunately, a lot of our customers have got accustomed to it. They keep a little tube of glue, the super glue and most of these things that come apart are easily fixed. Glue an engine back on, it’s no different than the factory glue in the engine onto the wings. But there are certain damages that do occur that are not repairable by the collector or by the retail, and that’s when the cost issues of returns and problems in that area begin to exacerbate. The more we put detail into these models, the more things that are going to break.

So, forgive my ignorance, so the best way to connect these metal parts is to glue them. Is that because welding them or heating them would damage the parts around it? So, if you think a small landing gear or engine, if you would reheat that up, it would start damaging the design of the engine or gear and so you couldn’t do that? You have to use glue, is that the reason?

Yeah, I failed to finish my thought process, but yeah. I should have gone into that. Welding would be completely out of the question. The only way you can really firmly attach metal to metal is by a welding process. Yes, your comment is 100% accurate. First of all, welding is a tedious process. It’s not something you could do in a high volume product, where you just have a little [inaudible 00:58:38], you did that, you put the piece together, that would put the piece together. When you’re welding, first of all, it’s not a safe process.

You got to have a proper equipment on, but most of all, the point you made is where the biggest problem would come in. The heat from welding would more than likely damage, because you have to understand when these parts are all … when a model is constructed it is all pre-painted. All the painting is done. The printing of the livery is done. Everything is done prior to assembly. Now, if you started welding, you’re going to have damage without a doubt, to the paint, to the printing process. It’s just not a viable way to construct a small product by using welding techniques. It just won’t work.

Got you. That make sense. Moving into some closing questions, what class would you teach in college if you could teach about any subject you wanted?

Well, that’s an interesting question. I think one of the biggest problems today, and I don’t want to put down the young generation, the young generation is a big part of our customer base and it has increased. It’s increasingly part of our customer base. I would say that 75% of our customers are under 25 years old. That’s how it’s got. I feel there’s a bit of a problem in the young generation respecting the older generations and their knowledge. Sadly, today’s generation is so technology savvy that I feel it’s given them the right to think that maybe they’re smarter.

They have all the answers because they can look at their iPhone and figure out 10 million things, where somebody my age has to stare at an iPhone for a few minutes before they even start texting. It’s not because we’re dumber, we’re just from a different generation. The one thing that I would love to see taught in school would be, you cannot replace experience. Years of experience of a person, a person that’s been through life and has done a lot of things both good and bad.

Experience in life and all the things that a person that’s 50, 60, 70, 80 years old, cannot be replaced by a 20-year old person that knows how to operate an iPhone 10 times better than an old person does, or can operate a computer better. That knows how to zip through programs on a computer. That’s all fine and dandy for that, but there’s still a real world out there, outside of your iPhone and your computer that you have to address. The only way you can solve the problems and deal with the problems of the real world is through experience and the through the eyes of people that have done it.

Have made the mistakes, or can offer suggestions as to why you should and should not do what I did wrong. I’ll give you a perfect example. My father was a very intelligent person. Unfortunately, he passed away a few years ago. He passed away about six years ago, but he was a very bright person. He was the kind of guy who spent his entire life researching. He researched everything, even things he didn’t have an interest in. He could have a conversation with anybody. Whether it was you, a 50-year old or a 100-year old person about anything. He used to sail boats all over the world.

He was able to navigate by the stars. Could you navigate by the stars? Probably not. He did things that a lot of people couldn’t do. He can hold conversations with anybody any age because he would just read, read, read, and research everything he did. I’ll never forget, I told him, this was in the late … right around 2000, I said, “Dad, you got to get a computer.” He was from a generation where they did not use computers. My generation, as I said, I’m turning 60 this year, we’re on the cusp. Unless you’re in business or work, you’re not going to be computer literate even at my age, let alone when he passed away, he was 83 years old.

But something I saw happened that we really laughed, and you’re going to enjoy this part of this story, and anybody watching this podcast will enjoy this. As intelligent of a man he was, I finally convinced him to get his first computer. He got a Macintosh desktop, I want him to get a PC but I had a brother that was in the Apple Macintosh so, he forced him into this Macintosh. He was a very proud person and he wanted to learn things on his own. He didn’t want to rely on people to teach him.

So, he gets this computer and my brother that got it for him was a tech, he was an early tech person and was not good at instructing and everything. So, he gets this computer, gets it all set up. My brother assisted him in setting it all up, but really didn’t give him instruction on how to use the computer. So, he gets the computer going and called me on the phone and say, “I can’t get this thing working right. Your brother is not helping me. Could you come over and tell me what I’m doing wrong?” Well, the first thing I walked in, you see my mouse here? He’s got the mouse up on the monitor.

Instead of on a mousepad, he’s got it on the actual screen of the monitor and can’t figure out why it’s not working. I laughed. I really laughed hard and just could not believe that this intelligent father of mine thought that he was supposed to put the mouse on the monitor screen in order to operate the computer. But as time went on, I looked back on that and I said, “I shouldn’t have laughed at him.” It’s easy to do that, obviously, if you walked in and saw anybody with a mouse, you would laugh. But this was a man that had a lot of intelligence far more than I had and far more than most people had, but he had stepped into an area that he knew nothing about.

Today’s generation, unfortunately, is encompassed in that world now of technology, where everything they do, that’s part of their life. It’s part of breathing now, this technology. For these older people, they are stuffed with a world of knowledge that unfortunately is not applicable to most 20-year old people’s lives today. To me, that’s very sad, because it’s a locked up thing of knowledge that will never be taken and imported into these younger generation because they feel they don’t have a use for it. So, to answer your question, yeah, if I could ever teach something, that’s what I would teach.

To not look down on older people that you think are useless, because they do have experiences in life that are useful. Just because they’re not tech savvy, that doesn’t mean that they’re not of any use.

What’s the belief you used to hold strongly that you’ve changed your mind on?

Oh, okay. Well, that’s an interesting one, too. You’re going to laugh at this, but it’s not the same kind of laugh. How about owning a home? Home ownership, a financial adviser will shoot me listening to me, but home ownership is very overrated. I own a lot of homes. I have a nice home I live in but I also have a lot of rental properties, and I’ve invested a lot in real estate. I would never deter anyone from not investing in real estate. Real estate is a very good investment. It’s a proven investment. It’s a longterm investment. Anybody who has invested in real estate in recent years is doing very well.

But like any good things, they’re all cyclical, they will come to an end. You will have dips in real estate as you do in the stock market, whatever you invest in, whether it’s bitcoin or whatever. There’s ups and downs in all investments. But to get back to why I say home ownership could be very overrated is because for years I’m always under the impression you got to own a home, you got to own a home. Well, the problem today is, when you own a home the cost to maintain it could be very damaging to somebody’s financial situation. In the old days, when you called somebody out to repair something, your repair people were very honest.

They charge you a $20 visit to come out, and here’s the repair, it’s done, and you walked away with a $75 tab. Now, if you own a home and you are not savvy with plumbing, electrical, or whatever it is, air conditioning systems, it is very easy to get ripped off. There’s a lot of dishonesty in up keeps of homes today, especially with plumbing, heating, and air conditioning, where you can literally spend tens of thousands of dollars in repairs if you’re not careful and not knowing what you’re doing. This shifts back to our first question we just completed, older people have a lot of experience with this.

Young generation people, they’re getting ripped off left and right and so our senior citizens, they’re getting ripped off by a lot of these services that come in their homes and charge them for things that they don’t need. Unfortunately, people just don’t know any better. The problem is, back in the old days, most of these services were honest. America was a very honest place. It’s not like that anymore. Every company that’s coming to your house wants to make money. If they see an opportunity, they’re going to take advantage of it.

It’s happening every second in this country. So, if you’re a homeowner today, unless you really know what you’re doing and you’re careful, it’s very easy to lose your rear end versus just going out and paying rent. Look, I know people the rent houses, the minute something goes wrong, they pick up the phone, they call the landlord, it’s their problem. If you’ve got a house that you live in or apartment, or whatever it is, the rent is good, and you got a good landlord, don’t rush to buy a house. It will come.

Once you’re financially stable, then you go buy a house where you can take the hits and the downsides of home ownership that everybody thinks is some utopia. Didn’t expect that, did you?

No, no, my wife and I are talking about getting a house at some point in the next five years or so. So, that’s actively becoming more and more on our mind, but that’s good to hear your perspective on it. What’s the best business you’ve ever seen?

That question, I can honestly say, I’ve never seen the best business I’ve ever seen. The reason I say that is because I think being my age now, I’ve had enough experience in seeing the world, in seeing corporate America, and businesses. What’s good today may not be good tomorrow. Any business that you’re in, I would say 90% of the businesses out there are cyclical. Anything that’s good yesterday could be bad today. Anything that’s bad today, could be good tomorrow. Everything goes through cycles. If you really look at what I’m saying, it is so true.

There are certain things that will always be there. Grocery stores, even though people are starting to order their groceries online, I would say that a grocery store business is one of the few business that’s going to be here not only today but into the future. But look what’s happened to cinemas. Something so simple as a cinema. That industry is absolutely dying right now. It really got triggered, now I could say it got triggered by one event, it killed the movie industry, the cinema business. But the cinema business, as you know, was on a gradual downfall as Netflix came on and all these online platforms.

They were starting to already chew away at the cinema business. Then, along comes COVID and they get hit with it almost like a death block. You see this in so many businesses, something that has been so prosperous, COVID did a real disservice to the travel, entertainment, and hotel business. If you’re in those categories, or the bar business, the restaurant business, anybody as I said, in those group, took a horrible hit. A lot of them went out of business. Just prior to COVID they may have been thriving. Airlines were making tons of money.

Everybody was making tons of money. It was boom time. COVID just really took out a lot of what we would always think were business as, “Oh, I wish I owned that. I wish I owned this. I wish I owned that.” You quickly find out that not everything is forever and COVID really woke up a lot of people to say, “Hey, we’ve been very fortunate.” The hobby industry, which was already on a massive decline, the hobby industry has really gone down. Over its last 30 years, it’s consistently gone down, down, down every year. Hobby shops have closed up. It’s no longer cost effective to own a hobby shop.

It’s just your operating cost exceed what you can make. But we are in a different category. We’ve always actually prospered all through the good and bad years. During COVID, anybody that was in the hobby industry had a massive Renaissance. People were stuck at home and the hobby industry prospered. But if you would ask the same question 18 months ago, would you go on the hobby business? People would look at you and say, “You need your head exam. It’s on a course of death.” You’ve seen this with travel agencies, 25 years ago, owning a travel agency was really cool.

It was like nothing was going to happen to a travel agency until the airlines and the cruise ships and the hotels figured out that they didn’t need you anymore. All of a sudden the travel agencies just shut down overnight. Dry cleaners. When I grew up, there was a dry cleaners at every single shopping center. How many dry cleaners do you see now? There’s still a necessity for it, but it’s a fraction of what it used to be. Barber shops, what used to be a huge thriving business, well now, it’s Supercuts and Fantastic Sams, that’s where a lot of people are … We don’t have barbers anymore.

So, the point of my answer is, there is no answer to your question. What was great today could be a disaster tomorrow. Unless you’re somebody that’s capable of getting in and out of a business real quick, you have to just accept that whatever you get involved with, you have to figure the variables, “Okay, what could go wrong? Where could it go up, where could it go down?” So, for that reason, I don’t have an answer to your question what is the best business out there. It all depends on what’s going on.

I’d still consider it a good answer, but thank you for sharing it. Thank you sharing your time today, too. I’ve really appreciated having you on the show. I really enjoyed our chats about airlines and aircraft, and just running your business. It’s really fascinating to me as an aviation geek. So, thanks for sharing a little bit.

My pleasure, Alex. Anytime

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