Pogo Jet clarified plans to launch a charter service using Eclipse 500 very light jets in a registration statement for an initial public offering (IPO) submitted to the Securities and Exchange Commission. In a Form S-1 filed on September 13, the company revealed many more details about its planned charter operation and outlined the risks that it faces in trying to get the service off the ground.
Pogo Jet isn’t proposing to be anything other than an ordinary whole-airplane charter service operating under FAR Part 135. Initial operations will serve the Northeast, Mid-Atlantic, Ohio Valley and the Carolinas. The company claims it “will seek to offer customers lower prices and more consistent service than that which is generally available from existing private aviation services.” While Pogo Jet has not placed a formal order for Eclipse 500s, the filing noted that the company has “negotiated the principal terms of our initial delivery of VLJs.” Pogo plans to be headquartered at Westover Metropolitan Airport, a joint-use civil-military airport in Chicopee, Mass.
Pogo Jet hopes to begin operating in the first quarter of 2009, but that will depend on the success of the IPO. The company’s plans call for buying its initial fleet of 25 Eclipse 500s, obtaining a Part 135 certificate and getting ready for operations after the IPO is completed. By 2011, it plans to operate 100 Eclipse 500s.
According to the SEC filing, money from the IPO will pay for the next steps in Pogo Jet’s transition to an operating charter company, including negotiating purchase agreements for the Eclipse 500 fleet, obtaining financing for the fleet, securing Part 135 certification, developing and building information technology infrastructure and hiring managers, pilots and mechanics.
The Pogo Jet Eclipse 500s will be outfitted with three passenger seats and flown by two pilots. The company doesn’t plan to lease any facilities away from its Westover headquarters, so all airplanes would return to Westover every night for maintenance.
Chairman and CEO Robert Crandall, who was former chairman, president and CEO of American Airlines parent company AMR, leads a team that includes Michael Stuart, executive vice president of operations and former Comair senior vice president of operations; Michael Baur, senior vice president of customer service and pricing and a former vice president at NetJets; and Cameron Burr, executive vice president for corporate development.
In June 2006, after announcing that the company would launch the charter service using Adam Aircraft A700s, for which it placed a 75-jet order, Crandall told AIN that neither the A700 nor the Eclipse 500 had the “range-payload characteristics, operating costs and reliability parameters consistent with our business plan.” Earlier this year, however, Burr told AIN that Pogo Jet was considering buying the Eclipse 500.
Two other manufacturers are “currently producing or planning to produce VLJs that we could consider as possible replacements for the Eclipse 500,” the IPO filing stated. These airplanes–possibly the A700 and Embraer Phenom 100–do not offer similar operating and financial advantages as the Eclipse 500, Pogo Jet said, and there is no guarantee “that they could be certified by the FAA and produced in time to meet our proposed start-up date.”
The advantage of the Eclipse 500, according to Pogo Jet, is that it is FAA certified and has some limited operational experience and it costs about $1 million less than the only other certified VLJ, the Cessna Mustang. According to the company, the Eclipse’s lighter weight and “efficient design” mean that it will cost less to operate, too. Typical loads will be one to two passengers, and typical flights will be about one hour.
Pogo Jet claims it will offer alternatives to users of traditional charter services and also to airline passengers who would rather fly point-to-point instead of through busy hubs. Growth in the “private aviation market” and a 190-percent increase in charter hours flown from 2000 to 2005 “demonstrates that private air travel is an increasingly attractive option and that there are significant opportunities to capitalize on this growth by providing a private aviation service with advantages over current air travel alternatives.”
Despite the strong growth in on-demand charter, Pogo Jet’s service should appeal to customers who are “dissatisfied with the high cost, administrative complexities and inconsistent performance of many existing private aviation services.” Existing charter companies don’t offer the same scale or consistency as Pogo Jet, according to its promoters; they use more expensive airplanes and “frequently charge consumers additional or hidden charges, such as the cost of transporting empty aircraft to the customer’s points of origin and departure, known as positioning fees, surcharges and other forms of add-on cost.” Charter companies also can’t always deliver exactly the flight the customer wants and often schedule travel in airplanes that they don’t own, according to Pogo Jet, which further causes inconsistent service.
To differentiate itself from other charter providers, Pogo Jet plans to offer all-inclusive pricing “that is straightforward and simple to understand.” This means that a charter quote includes all costs, and there are no add-on fees such as fuel surcharges, landing fees, ramp fees, overnight charges for the crew or positioning fees.
Pogo Jet plans to employ airline-style operational techniques, with a central systems operations center that would handle customer service, maintenance control, flight planning and pilot scheduling. Pilots would be assisted by flight planners who monitor the weather and deliver flight packages. “This operation is similar to procedures used by major scheduled airlines and large fractional jet service providers and enhances the safety of the operation by providing qualified people to assist flight crews with important decisions.” This also would help minimize pilot duties between flights, which should increase pilot and aircraft utilization. Each flight would be handled by a “cross-functional team” that includes a customer service representative, a maintenance representative, a flight planner, a scheduler and the captain of the flight.
By the end of the third year of operations–2012 if the IPO proceeds on schedule–Pogo Jet expects to be flying each of its Eclipse 500s 2,000 hours per year, nearly twice as much as a typical fractional jet and four times as much as corporate jets. To achieve that number of hours, the company is planning a “high-quality maintenance program utilizing industry best practices in coordination with Eclipse Aviation.” Pogo Jet also plans to maintain spare airplanes in reserve.
Founded in 2004, Pogo Jet currently has an accumulated deficit of $5.75 million and expects to “incur substantial net losses for the next several years as we develop our base of operations, acquire our fleet of aircraft and begin operations.”
The money from the IPO is expected to provide enough working capital for the next 30 months, but this is contingent on the company’s obtaining necessary financing for Eclipse 500 purchases. Pogo Jet plans to finance 70 percent of the cost of the first 25 airplanes and 80 percent of subsequent deliveries.
The company plans to use the OpenIPO process for the public offering. This means that “the allocation of shares and the public offering price are based on an auction in which prospective purchasers bid for shares.” The ultimate price of the shares is determined after the auction closes, and bidders may or may not be able to buy all the shares that they bid on.”
Crandall receives no salary or stock options from Pogo Jet, according to the S-1 filing, except for reimbursement for business expenses. Burr and Crandall have no stock options, but they are partial owners of the existing Pogo Jet pre-IPO stock. Crandall owns four million shares (9.18 percent of the total) and Burr 3.36 million (7.71 percent).
The IPO clearly explains to potential investors the risks that Pogo Jet faces. These include:
• No operating history
• Uncertainty of market acceptance
• Dependence on a single manufacturer to supply aircraft
• Aircraft acquisition financing risks
• Risk of cash shortage
• Compliance requirements and costs resulting from extensive governmental regulation
• Demand may be negatively affected by circumstances beyond our control, including adverse changes in general economic
conditions, incidents of terrorism, war and political instability
• Increased fuel prices could adversely affect operating and financial performance
• Business would be adversely affected if the proposed operating base were no longer available to house civil aviation operations
• In the event of an aircraft accident, we may incur substantial losses that may not be entirely covered by insurance
• All the financial risks associated with any IPO.