Jet Republic remains tight-lipped on insolvency

 - September 30, 2009, 6:23 AM

According to the management of Jet Republic, the overriding reason that the company suddenly ceased trading on August 20 was because “the aviation asset finance market has completely dried up, making it much more difficult for potential clients to take out and obtain financing for fractional ownership of jets.”

And yet until a week or two before its Portuguese operating company was declared insolvent, Jet Republic continued to state that the credit desert of what experts view as a global financial crisis of historic proportions was exactly the right environment in which to build a fractional ownership business. One of the main planks of its sales pitch was that customers who couldn’t afford to buy and operate their own aircraft could still afford to buy shares in aircraft.

Not once in the 10 months since launching the program in mid-October–weeks after the apocalyptic collapse of the Lehman Brothers bank and when share prices were falling like autumn leaves–did Jet Republic allude to potential problems due to the lack of credit for purchasing fractional shares. So why did it suddenly become an insurmountable obstacle for the company in August 2009?

Jet Republic has switched to an almost complete radio silence since announcing the insolvency in a terse statement. CEO Jonathan Breeze, who had previously been available for media interviews almost on demand, declined an interview request from AIN and the company issued only the briefest of responses to questions about the reasons for Jet Republic’s demise and what comes next for existing customers and employees.

Similarly taciturn since the shutters went down at Jet Republic has been Austria’s EuramBank, which was the conduit for its assortment of unidentified financial backers. At the time of the company’s launch, Breeze told journalists that he had been turning away prospective investors who were eager to get behind the new venture.

Evidently, at a meeting on August 19, Jet Republic’s shareholders declared themselves to be unwilling or unable to continue providing capital just as the service was due to launch operations. So one obvious question is why the supposedly firm funding from Jet Republic’s backers was suddenly unavailable at the critical point in the company’s business plan when Bombardier was about to deliver the first of 110 Learjet 60XRs as part of a $1.5 billion contract hailed as the biggest in business aviation history.

“Until very recently we remained confident of meeting our objectives,” said the company statement. “But the aviation asset finance market has completely dried up, making it much more difficult for potential clients to take out and obtain financing for fractional ownership of jets.” Jet Republic said that it had held talks with a number of aviation asset finance companies but had been unable to get them to provide the funding needed to close deals.

But is it really the case that fractional ownership customers are dependent on getting asset-finance to buy aircraft shares? Not according to Thomas Flohr, chairman of block charter operator VistaJet, who told AIN that even in better times banks have not been interested in financing shares in aircraft, largely because the value of these assets is too intangible.

Jet Republic’s Switzerland-based holding company has been kept open and says that it will consider future “options” when the market recovers. It did not respond directly when asked what will happen to money existing clients already paid, nor will it say how many Learjet 60 shares it sold. Its response was simply that the holding company “is working with its shareholders to ensure that the interests of its existing clients, employees and suppliers are protected to the best of our ability.”

Interestingly, while established rival NetJets has openly acknowledged difficult market conditions, the U.S.-based group has not cited lack of credit as the core reason for a dwindling customer base. Jet Republic promised to give NetJets a serious run for its money, but, with its new management having taken firm cost-control action to stem losses, NetJets appears to have headed off this challenge.