Helicopter share programs reinvent the fractional model

 - August 4, 2008, 7:40 AM

“What’s the difference between fractional helicopter operations and fractional business jet operations?” asked one fractional sales professional rhetorically. “Well, it’s like comparing a rare tropical orchid with dandelions. The orchid can grow and prosper in only a special and rather rare environment, while the dandelion sprouts up just about anywhere there’s sunlight and water. Like the orchid, the fractional helicopter operation needs a very specific set of market realities to grow, while the business jet fractional market can take a lot of damage and still survive.”

The success of fixed-wing fractional operations would seem to guarantee at least the basic viability of rotary-wing fractional ops. But not so.

“For years we operated under the assumption that, as far as the market was concerned, helicopters were just another sort of airplane,” said rotorcraft sales consultant and former helicopter broker Ron Bower, “but the sales curves for rotorcraft and fixed-wing are completely different. You might as well compare the sales curves for business jets and lawn mowers for all the linkage there is.”

A Tale of Two Providers

So far just two corporate-class fractional helicopter operations in the U.S. have achieved anything even remotely resembling success–Sikorsky Shares and HeliFlite Shares. The first, Sikorsky Shares, was started in 1999 when Associated Aircraft Group (AAC), a helicopter sales and charter operation based in Wappinger’s Falls, N.Y., began offering shares in a pair of S-76s in its fleet, one a C+ model, the other a B model–two rotorcraft of such distinctly different capability that Sikorsky Shares brings them to market under a two-tiered pricing structure. Today, Sikorsky Shares is a wholly owned subsidiary of Sikorsky Aircraft, and it is still trying to sell slices (usually one-sixteenth shares) of these top-of-the-line executive rotorcraft. And the going has been slow, with both aircraft just recently fully owned and leaving Sikorsky Shares pondering what type to add next.

“The biggest surprise in selling helicopter fractional shares,” said Sikorsky Shares president John Agor, “has been that selling each individual share is at least as difficult as selling an entire aircraft outright. Each customer has to be approached, courted and persuaded as if they’re buying a whole aircraft. And if they have the kind of money it takes to make a deal like this worthwhile, they’ve been approached like this before. They’ve heard it.

“The market is limited and very specific to the geography at hand,” Agor continued. “Here in the New York City/tristate area we’ve got some of the densest population concentrations in the U.S., as well as the Western Hemisphere’s major business center, all of it separated by water barriers and linked, after a fashion, by perpetually congested bridges and tunnels. If this isn’t the ideal location to sell fractional or by-the-hour helicopter travel service, I don’t know what is.”

All three of Manhattan’s public-use heliports are available for fractional operation on what amounts to pretty much a 9 a.m. to 7 p.m. basis on weekdays, although only one, the West 30th Street Heliport, is open on weekends.

As with other fractional programs, clients pay an upfront one-time acquisition fee good for the five-year term of the contract. In the case of Sikorsky Shares’ S-76C+, that’s a $500,000 one-time charge for a one-sixteenth share. On top of that there’s a $7,425 monthly management fee. All that buys 75 travel “units,” the heart of a system Sikorsky Shares uses to account for its clients’ travel needs along the Washington, D.C./New York/Boston corridor. New York to Washington amounts to five units. New York City to the Hamptons, that favored summer vacation getaway for the ultra-rich, takes three.

“Our units system works more or less like the zone system many big-city cab companies use,” said Agor. “Travel within zones costs one unit. Travel between zones costs more units.”

With its shorter range and higher fuel consumption, Sikorsky Shares’ Pratt & Whitney Canada PT6-powered S-76B shares out for much less. A one-sixteenth share is $234,325 for the one-time, five-year charge; $5,850 for the monthly maintenance fee and the same number of flight units: 75. Under both arrangements, additional units can be purchased.

Sikorsky Shares bases its S-76s at Dutchess County Airport in the mid-Hudson River Valley, dispatching them to the New York metro areas as needed.

HeliFlite Shares

While not owned outright by the maker of the helicopters it offers, HeliFlite Shares exclusively fields a pair of Bell 430s, aircraft that it too claims are also nearly fractioned out. Seating roughly what an S-76 does in a slightly smaller cabin that’s still a foot-and-a-half longer than that of its predecessor, the 230, Bell’s 430 has gradually made modest inroads into the difficult-to-penetrate corporate market.

When HeliFlite Shares first opened its doors in 1998, it tried to do business in the Dallas/Fort Worth metroplex, ground that did not prove fertile enough for operations to grow. Not long after, HeliFlite Shares moved its marketing focus to the New York area, sheltering its two-horse stable of on-call rotorcraft at Signature Flight Systems’ Newark Liberty International Airport (EWR) facility.

Bill Force serves as president of HeliFlite Shares at the pleasure of a group of undisclosed private investors. A former Marine Corps helicopter pilot who also worked for American Eurocopter and a variety of field operators, Force is no stranger to commercial helicoptering and what it takes to succeed in it.

“You can’t sell fractional helicopter operation like fixed-wing fractionals,” said Force. “An hour’s deadhead time can cost so much more and represents such a short distance traveled that you have to have a concentration of wealthy corporations and individuals who want service that’s more than charter but less costly than ownership.

“If you crunch the numbers and are flexible about availability, then charter is the way to go,” Force admits. “What we sell is service. The helicopter has to be there when it’s wanted. But there’s a lot more to it than just scheduling. If the client wants a particular brand of sparkling water in the bar and this morning’s Wall Street Journal on the seat and his wife is fond of a certain shade of orange roses, well then, all that’s there too. You’re not going to get our level of service on your basic charter ride to the Hamptons on a summer Friday afternoon.”

Of course, the charter client is going to miss more than the latest newspaper and that orange rose on his seat. The charter client is going to miss that hefty tax writeoff that comes with listing the up-front five-year investment fee and monthly operating expenses. HeliFlite Shares’ prices almost exactly mirror those assessed by Sikorsky Shares, the primary difference being that HeliFlite Shares records flight time in hours instead of Sikorsky Shares’ “units.” The difference is problematic. Both operations claim to charge only for occupied flight time, with no minimums and no deadhead, repositioning or ferry fees. (But ultimately those costs must show up in the fees the client pays.)

HeliFlite allows the monthly management fee to be readjusted along with the non-fuel-related components of the hourly flight costs on January 1 of every year of the five year term. Adjustments are based on changes in the consumer price index. And at the end of the five-year term, clients can sell their interest in the helicopter for “fair market value” or the membership can be renewed for another five-year term.

For the sake of perspective, charter helicopter rates in the New York metro area are around $2,400 for the 80-plus-mile flight from Manhattan to the Hamptons (that’s for a Eurocopter AS 355-F2 TwinStar based in White Plains, N.Y.) Costs for the same trip using a Sikorsky S-76 (at $3,500 per hour plus tax with a minimum-one hour fee) would run substantially more.

“But with charter you might be sharing the cabin with others, especially to a popular destination such as the Hamptons or Martha’s Vineyard,” said Force. “Or your luggage could be declared overweight. Or in the rush to get out of town that’s a fact of New York life on Fridays, and the rush that reverses direction on Sunday afternoon and evening, with charter you just might find yourself without a ride. That surety of service is another part of the fractional product.”

It’s just a basic fact of business life–owners get treated better than renters.