Former rivals unite to form air-taxi network

 - October 2, 2007, 9:35 AM

At first it might seem like an odd couple: Don Burr, People Express founder and low-fare airline pioneer, and Bob Crandall, controversial megastar of American Airlines. Fierce competitors in the 1980s, the two men are now combining their talents and their money to develop a national on-demand, regional-based air-taxi network with hundreds of very light twinjets. Crandall is chairman of the new venture and Burr is CEO.

The company, which is searching for a new name after dropping the planned iFly Air Taxi moniker, announced that it has already ordered an initial batch of 75 Adam A700s, an order valued at $150 million, according to Cameron Burr, son of Donald and president of the venture.

The younger Burr said the idea for such a network germinated years ago, but he said that it’s only been in the last few years that the concept could be made to work on both aneconomical and technical level. He cites data gained from NASA’s Small Aircraft Transportation System (SATS) program, and the proliferation of small jet engines introduced by Williams International and, more recently, by Pratt & Whitney Canada and Honda/GE. Add to the mix the resurgence of low-cost carriers and the inconveniences associated with airline travel, and the concept can take wing, Burr asserts.

“Back in the 1980s People Express represented a fraction of the seat miles now categorized as the low-cost carrier market. Now, about 25 percent of available airline seat miles are being flown by low-cost carriers. We think the same will be true for very light jets,” Burr said.

“For years and years there has always been an entrepreneur out there wanting to build a very light and affordable jet for personal transportation. But for a variety of reasons there hasn’t been an alignment of engine technology, avionics technology, new manufacturing techniques and an airline system that’s failing miserably to serve the public. We see a redistributed transportation model serving some 5,000 small uncongested airports. It’s just too logical not to happen.”

Burr and his partners “believe strongly” that within a 10-year period they will have 10 regions in the U.S. that will each have somewhere between 75 and 100 very light jets operating within a 500-mile radius of the principal city within each region, such as New York in the Northeast. That’s between 750 and 1,000 airplanes. “So the real question,” Burr said, “is how fast manufacturers can build these airplanes.”
The company will own, operate, crew (two pilots per airplane) and maintain its aircraft in-house. Pilot training will be a combination of in-house and contracting with a recognized company such as FlightSafety International. Service will be totally “on demand,” Burr emphasized. There will be “no contract charter, no jet cards, no package deals, no monthly costs, no retainer fees. Nothing up front. It’s just like calling a car service.” Each airplane might log as much as 1,000 to 1,500 hours annually, both in revenue and non-revenue flying, according to Burr.

How much is it going to cost? Appearing last month on CNBC’s Bullseye, Crandall responded, “Something on the order of $3 to $4 per mile, which is half or less than half what it costs to fly that way [air taxi] today. We’ll be able to move people to places they want to go at very economical prices. We believe that the air-taxi industry [using very light jets] is a big space and we hope we’ll be one of the first into it.”

Answering a question about the huge financial risk, Crandall said, “I never heard of any business idea that some analyst wasn’t worried about. This is a brand-new business. Nobody knows when you start whether it will work or not. But [at about $2 million apiece] the capital cost of getting into the business in terms of the historical cost of airplanes is low.

“One of the great attractions that we think we’ll be able to offer is a very high level of efficiency and high level of service at quite a low price relative to what you have been able to buy [air taxi flights] before.”

Funding: ‘We’re There’

In response to a question about where the venture stands financially, Burr quickly and emphatically responded, “We are done, we’re there.” Investors include Crandall and Don and Cameron Burr, along with the other members of the firm’s board: Dave Hurley (vice chairman of charter/management company PrivatAir) and Mike Hodge, who is representing the lead investor–hedge-fund manager Julian Robertson, founder of Tiger Management.

According to Burr, close to $8 million has been raised so far. “We’re going to have to raise more equity capital,” he conceded, “but considering who our current partners are, we’re confident that they will re-up at the next round of funding.”

Burr is not overly concerned with the flying public’s aversion to small airplanes. Some corporate aircraft passengers at first are leery of even traditional-size business jets because they are smaller than airliners. Burr believes the “halo” of professional training and the excellent safety record of professionally flown two-pilot, twinjets will help deflate concerns. On top of that, he said, “If we can drive our price points down to where we think we can, it will be a magnitude of difference [from today’s typical charter rates] that customers are going to find a way to use us irrespective of the size of the airplane.”

A Rose by Any Other Name

Two recent developments put the kibosh on the venture’s original name. For one, the FAA frowned on the use of the word “taxi” in the name because it could be confused with taxi clearances by ATC. The venture dropped “iFly” early last month when it learned that regional airline Atlantic Coast Airlines is rebranding itself as Independence Air, with a slogan and Web site name of “Flyi.”

“To avoid getting embroiled in a long and expensive lawsuit, we decided to drop the name,” Burr said. A new name was expected to be chosen by this month.

At least one aviation analyst questions the viability of the venture. In his latest business jet overview and forecast, Teal Group’s Richard Aboulafia said, “We’re air-taxi atheists and skeptical of more than one or two new manufacturers bringing any microjets to market.” The Fairfax, Va. research company projects a total of 6,413 deliveries of traditional business jets between now and 2013, but projects only about 450 of them (about 7 percent) to be very light jets.

Two years ago a company known as the Nimbus Group never came close to raising the funding required to purchase any of the 1,000 Eclipse 500s it said it would buy for a planned nationwide air-taxi operation. The company, whose principals had no aviation experience, was immersed in controversy over its veracity from the start.
Will Crandall’s and Burr’s dream turn into reality? The track record and background of the principal players, in addition to the funding already in place, give the venture a more realistic chance of succeeding than previously ill-fated attempts such as Nimbus. Of course, success assumes–and this is a big assumption–that the aircraft of choice does in fact get certified, meets operating-cost targets and rolls off a production line quickly enough and in sufficient numbers.

“We [Don and Cameron Burr] are the entrepreneur side of the ledger,” Cameron Burr said. “Crandall is the straightforward, hard-nosed manager, tactician, very disciplined.” He dreamed up the frequent-flier program, created the Sabre airline reservation system and built the largest airline in the world. “That kind of institutional following is important to us,” said Cameron Burr, and, presumably, essential to the success of the program.