The ‘third horse’ in the frax race isn’t losing any sleep

 - May 6, 2008, 11:23 AM

Competition in the fractional-ownership market is intense, and the players are constantly changing. Inevitably, as in any emerging market, those with the soundest, strongest and most aggressive business plan will likely expand and grow. So when Flight Options and Raytheon Travel Air merged in March to create the second-largest fractional fleet, Flight Options CEO Kenn Ricci characterized the business as “a two-horse race between Flight Options and NetJets, relegating the other providers to boutique markets” (AIN, May 2002).

That rebuff may have hurt some corporate feelings, but it was instead treated with indifference at Bombardier Flexjet, which currently stands as the number-three fractional operator in terms of fleet size. Neither the position nor the implication particularly concerns Flexjet president Clifford Dickman.

He believes the edge Flexjet has over other fractional businesses lies in its corporate connection. After all, the operation is a division of Bombardier, a $13.5 billion company that is itself the world’s third-largest commercial aircraft producer, and that provides advantages for both sides of the business.

“I report directly to the president of Bombardier,” Dickman said. “That gives us visibility and the opportunity to provide input and feedback. For instance, the super-midsize Challenger 300 that we’ll soon be producing; its design was partly based on our input. Our requests were communicated to the design team, and the aircraft would not have been as well suited [to us] without that input.”

Another unique advantage, Dickman believes, is that Flexjet is a company-owned store and handles only company brands, so if it’s not a Learjet or another Bombardier product, it’s not in the Flexjet system. That provides commonality for everyone involved, from mechanics to flight crews, and furnishes operational, maintenance and support efficiencies that simplify everything for both the company and the airplane shareholders.

“If a customer owns shares in a Learjet 45, his trip will be on a Learjet 45,” explained Steve Phillips, Flexjet director of marketing communications. “If he owns shares in a Challenger, it will be a Challenger that’s waiting for him at the airport, and we guarantee he will fly on a Flexjet program airplane 95 percent of the time. Nobody else in the industry does that. And if we can’t get a customer on his [specific model] airplane, we offer options. We guarantee to get you where and when, but generally you’re going to fly in what you buy.”

Another common theme is the aircraft–the entire individual fleets are identical except for the tail number. They all have the same exteriors, interiors and equipment, including TCAS and TAWS.

Because about 87 percent of fractional shareholders have no prior aircraft ownership experience, Dickman said that a major selling point for Flexjet is the ease of entry, along with the cost and the utility. He said this is based on three cash-flow elements–“purchase price, monthly management fee and accounting-friendly, dedicated owner-service people.”

Flexjet may have succeeded in making it look easy to its customers, but behind the scenes is a complex infrastructure. Pilots undergo recurrent training twice a year at Bombardier’s dedicated simulator facilities in Montreal or Dallas, and technicians use a Flexjet-specific maintenance program that has been developed based on the way the aircraft are used. Phillips said the reason Flexjet is able to provide the service is that Bombardier has committed and invested money and resources.

The Bombardier fractional operation began seven years ago with 22 owners and 15 aircraft. With an average growth rate of 20 percent per year since 1997, Flexjet has expanded its customer base to about 650 individuals and corporations and a fleet of more than 100 aircraft. Shares begin at one-sixteenth ownership (50 flying hours per year) and are added in 50-hr increments.

“About 60 percent of the business we get each year comes to us as a result of one of our current owners talking to someone they know about Flexjet,” Phillips explained. “The other 40 percent comes to us through more traditional marketing programs.”

The Flexjet system employs about 850 people, half of whom are flight crews, according to Phillips. The crews–who work a six-days-on, four-days-off schedule–are scattered throughout the country, generally in larger cities and close to Bombardier maintenance facilities. The aircraft, however, are homeless, with no specific base.

“We have quick-turn facilities through which the aircraft cycle for light maintenance,” Phillips said. Heavy maintenance is done at one of the Bombardier Service Centers, located in Dallas, South Florida and Teterboro, N.J.”

European and Far East Markets

“Europe is a variation on the [fractional ownership] theme,” Dickman said. “It’s different there. Ownership of a business jet is perceived by the public as a luxury, whereas in North America most people see it as a business tool. But because of the stigma in Europe, to own even a share is not the thing to do. Discretion is important, so we’ve modified the program.”

Launched at Berlin’s ILA 2002 airshow, the European service allows members of Bombardier’s Jet Membership block-charter program to book flights from Europe to North America, the Middle East and Africa. Members can join the intercontinental program with a minimum of 50 flight hours per year and add time in blocks of 25 hr.

Flexjet or Bombardier do not own the aircraft, but instead have an operating agreement with select charter operators of Learjets and Challengers to provide the aircraft within the framework of Flexjet’s marketing and services criteria. The UK operation, which uses only Challengers, is the most significant market. Overall, the company expects 30 percent growth in Europe this year.

In Asia, where much of the airline infrastructure is in its infancy, the company has a concept similar to the one used in Europe. Flexjet Asia uses a half-dozen operators to provide service.

A ‘Servant’s Heart’

The lion’s share of the employees at Flexjet’s Dallas headquarters are involved in making life easier for share owners. In addition to making the mechanics of scheduling, tracking and otherwise making flight predictable, Flexjet makes sure there are no surprises with other details. In the catering area, the company furnishes an 80-item menu to its customers, then provides caterers with the ingredients, portions and recipes of those choices to ensure uniformity.

“We are the first point of contact with our owners,” said Patricia Link, director of owner relations. “What they experience on demos is what we do on every flight. We manage expectations. After three flights we do a survey. Then we maintain their expectations.

“If a customer calls and tells us his fondest wish is, ‘I’d like to wake up in Rome,’ we can do that. We hire customer-service people; we can teach them aviation. I look for enthusiasm–what I call ‘a servant’s heart’–people who want to please.”

Pilot Unionization Ahead?

That may be true for the Flexjet employees who commute to the headquarters office every day, but some of those who spend their time in the cockpit are less positive. After the company laid off a number of pilots last year (before September 11), some of the survivors began
investigating the advantages of belonging to a union.

“Flexjet pilots came to us looking for assistance in organizing,” said Don Treichler, assistant director of the International Brotherhood of Teamsters Airline Division, “and right now it’s in the card-gathering phase.”

This means that, after individuals have started gathering interest from prospective members, the Teamsters develops a mailing list for its newsletters and sends “representation cards,” in essence ballots to indicate their interest in organizing–or not. By federal labor law, only 35 percent of the cards have to be in favor of a union for a request to organize to be honored, but the Teamsters prefer a 65-percent figure to ensure success.

“To get a union certified requires at least 50 percent plus one individual as a minimum,” Treichler explained. “In an election we send out ballots by U.S. mail, and the pilots have a minimum of 28 days to respond.”

Since the Flexjet organizing is in its early stages, Treichler could not say how things are going, but he added that there is a “constant flow” of cards being sent to the IBT.

“Their worries are more about problems in scheduling than anything else,” he said. “They want a contract in writing that’s enforceable–something that will give them some security, a board of grievances and something that will take away fear.”

Flexjet is not alone in being targeted for organization. Pilots at number-two fractional operator Flight Options represent another Teamsters project-in-progress.

Today, there are more than 3,600 owners and about 650 aircraft in the fractional market. Flexjet has an 18-percent share of the total owners and 16 percent of the aircraft and a compounded annual growth rate of 20 percent.