After changes, PrivatAir looks to future

 - May 17, 2008, 11:31 PM

Late last year, PrivatAir sold its U.S. subsidiary Flight Services Group (FSG) to Britain’s GAMA Aviation. According to the Swiss-based group, this move was not motivated by any problems with the U.S. Federal Aviation Administration over foreign ownership–as had earlier been the case with TAG Aviation’s ownership of AMI Jet Charter–but solely by low profitability and signs of a turndown in the U.S. market.

The spin-off reduced the group’s staff from 540 to about 350 and revenues for 2008 will undoubtedly be less than the $200 million recorded in 2007. Significantly, FSG founder David Hurley is staying on with PrivatAir Holding as vice chairman of the board. As a privately owned company, PrivatAir does not publish any financial figures beyond annual sales, but CEO Greg Thomas predicted that profits will increase this year.

With the sale of its U.S. activities acquired as recently as 2000, PrivatAir is also replenishing its financial reserves, which could fund the acquisition of one or more new subsidiaries. There are no current bids under way, but the company is on the lookout for opportunities.

For the time being, PrivatAir is concentrating on its core business of European executive charter and scheduled business-class-only airline services operated for Swiss, Lufthansa and KLM. Scheduled operation of large aircraft currently generates 65 percent of PrivatAir sales.

The company operates one of its Boeing BBJ2s on a daily service for Swiss between Zurich and Newark, as well as a BBJ1 and two Airbus A319s for Lufthansa’s transatlantic services and another BBJ1 for KLM. It also runs a corporate shuttle service for Airbus itself with two A319s. Now Lufthansa is considering a business-class service between Munich and Dubai to start this summer and Privat-Air hopes to sign additional contracts of this type within the near future.

Two Dreamliners on Order

PrivatAir also offers a Boeing 757 and a 767 for ad hoc charter, and two 787 Dreamliners are on order for delivery in 2012 and 2016. The company has a limited number of dedicated executive jets under management contracts and available for charter. It also acts as a charter broker booking flights with other operators. To support these activities, it maintains operating bases at Düsseldorf, Munich and Frankfurt in Germany, and one in Zurich.

Other than its Geneva FBO PrivatPort–a joint venture with Swissport– PrivatAir is not active in handling or maintenance, but Thomas indicated that maintenance and refurbishment is a high-profit activity that the company might buy into if an opportunity arises. However, PrivatAir sees itself primarily as a service company in a volatile market and is determined to maintain adequate liquid reserves to be prepared for variations in demand and market trends.

In Thomas’ view, charter rates for business jets are currently too low compared to the real operating cost, which explains why many owners are reluctant to charter out their aircraft. He also said this deters investors from acquiring aircraft for the charter market. PrivatAir owns just one aircraft itself–a BBJ1–with all others either leased or managed on behalf of their owners.

Thomas sees a rising demand for scheduled business-class-only services. These operations are seeking to plug a market gap between traditional airline service and ad hoc executive charter. In his opinion, they are also a response to a lowering of service standards among low-cost airlines.

PrivatAir has not yet decided how to use the two Boeing 787s it has on order. However, it is aware that with a 20-percent lower fuel consumption rate than the aircraft in its current fleet those Dreamliners should make the company more competitive for scheduled services and ad hoc charter.

Charter demand with large or smaller dedicated executive aircraft is a growing market in Europe, which has prompted PrivatAir to reinforce its charter sales team, increasing staff from three at the beginning of 2007 to eight a year later. The company also has plans to reinforce charter sales by setting up a new Web site allowing customers to book flights directly online.