United BizJet Holdings plans to be a fractional front-runner

 - May 8, 2008, 6:59 AM

When UAL Corp. announced earlier this year the creation of United BizJet Holdings, and that the new stand-alone enterprise would include a fractional-ownership program, some in the industry considered this a plain and simple “if you can’t beat ’em, join ’em” strategy.

It was a rather swift assessment of the airline’s response to the growth of business aviation at a time when UAL’s primary subsidiary, United Airlines, was announcing major losses for the first quarter.

But in a recent interview with AIN, United BizJet Holdings president Stuart Oran made it clear that, in regard to the already established fractional programs, his company plans to both join them and beat them.

Some Wall Street analysts questioned the wisdom of the move by UAL, suggesting that a company already struggling financially was in a poor position to launch a new business aviation subsidiary. Oran disagrees emphatically. He sees the success of United BizJet as closely tied to a positive public perception of the company’s ties to the parent company.

In fact, said Oran, a key factor in the decision to launch United BizJet was related to the results of an extensive study to determine the public reception of a fractional-ownership program with links to a major commercial airline.

Public Perception
The first study group was made up of those who had expressed an interest in buying a share of a business aircraft. Oran said that when asked to choose between an existing fractional program and a new fractional program that delivered the same high level of service and quality product but was also linked to a major airline, 74 percent said they would sign with the latter program.

A second study group consisted of individuals who were aware of the fractional-ownership concept but were not interested. Asked the same question, said Oran, “a third of them changed their response from ‘not interested’ to ‘would be interested.’”

When individuals in both groups were asked to explain the increased and new interest, Oran said it was a matter of perception based on confidence in an established brand, such as United Airlines. Among the specific reasons were the expectations of better-trained pilots, more carefully controlled processes and procedures, better mechanical oversight and reliability and the prospect of market longevity.

“What this told us,” said Oran, “was that the public can and does distinguish between positive and negative attributes, and that if we could provide service and products, we would be a formidable competitor.”

United BizJet does indeed expect to draw heavily on the technology and experience available from its United Airlines parent whenever applicable. “From an operational perspective,” said Oran, “there are similarities based on management of a large fleet, including crew and maintenance scheduling and flight planning and flight following.”
United BizJet is still determining a price structure, and Oran said that while it would be “similar in most respects” to existing fractional-ownership programs, “we expect to be item-by-item better.”

United BizJet plans to field a fleet of some 200 business jets by 2006. At the Paris Air Show in June, the company announced orders for 12 Gulfstreams and options for another 23. The firm orders included seven GIV-SPs and five GVs. Options include nine GIV-SPs and 14 GV-SPs.

Also at the Paris show, United BizJet signed a letter of intent with Dassault Falcon Jet for the acquisition of 100 Falcons. A source at Dassault said on August 17 that the letter of intent was expected to be converted to a firm order “within days.” The letter of intent inked in Paris called for a firm order for 10 Falcon 900EXs and a mix of 30 Falcon 2000s and Falcon 2000EXs, with options for an addition 10 900EXs and 50 more 2000EXs. He added that this might be expanded to include the additional acquisition of a number of Falcon 50EXs.

Oran intends to have a total  of 20 aircraft in service by the end of next year and a fractional-ownership fleet that  will eventually total about 200 airplanes, more than 1,000 pilots and some 250 support personnel.

Personnel Issues
To that end United BizJet will begin searching for flight crews this fall, and Oran expects no shortage of resumés– despite indications that the industry is already facing a shortage of qualified pilots– and the company has expressed a desire to hire from outside the parent company’s main ranks. Supporting Oran’s contention, a source at United BizJet said the company has already received more than 1,000 pilot employment inquiries.

United BizJet has initially projected an average budget per pilot of about $95,000 per year in terms of salary and associated costs (insurance, social security, retirement and other benefits). Its budget per flight attendant averages $45,000 per person in salary and associated benefits, and United BizJet continues to stand by its earlier announcement that it would hire flight attendants from the “hospitality and corporate aviation industries.”

The decision to hire from outside United Airlines has angered many in United’s 26,000- member flight attendant union (AFL-CIO), whose representatives see it as a direct violation of their contract’s scope clause.

That contract, said a spokesperson for the Washington-based Association of Flight Attendants (AFA), is very clear. “If United brings in a new division or service, United flight attendants from the flight-attendant seniority list must man those flights.”

“United saw fit to negotiate around these requirements when it dealt with the pilots, but not with the flight attendants,” said AFA’s Dawn Deeks. “This is wrong.”

She noted that in the recent subsequent arbitration hearings during the attempted acquisition of Air Wisconsin in 1991, the flight-attendant scope clause was upheld. “The language was upheld to be what we said it was in that case, and we think it applies equally well in the BizJet case.”

Oran declined to discuss the hiring of flight attendants, other than to say bluntly, “The flight-attendant scope clause does not apply to BizJet business, period!”

Nevertheless, counsel for the union has filed an objection with the DOT, asking the agency not to approve United BizJet’s application for a certificate to engage in both domestic and foreign charter air transportation. The opposition filing stated flatly that if the DOT should grant the application and UAL does not receive a waiver from its contractual obligations with the union, “United flight attendants would be free to strike, causing a major disruption to the nation’s air transportation system.”

A spokesman for the DOT said as of August 17 approval had not yet been granted for either application.