Euro VLJ taxis adjust to match weak demand

 - November 24, 2009, 4:21 AM

For Europe, the so-called very light jet (VLJ) revolution has turned out to be more a case of evolution in which only the most financially fit seem destined to survive. Undeterred by setbacks such as the collapse earlier this year of some new entrants (including Bikkair of the Netherlands), most of the continent’s VLJ air-taxi pioneers gathered for the VLJ Europe conference organized by MIU Events at Oxford, UK, in September to compare notes on just how challenging market conditions continue to be.

Production delays at Embraer’s factory and an associated bottleneck in the pilot training process for its new Phenom 100 VLJ have delayed the service launch of Jetbird. The company was due to have begun revenue flights from its initial operating base at Cologne, Germany, during September, but CEO Stefan Vilner told the conf-erence that this will now happen “before the end of this year.” Vilner told AIN that delays in initial Phenom 100 deliveries to Jetbird and other customers had in turn meant that too many pilots needed to access the available training infrastructure at the same time.

Jetbird is in the process of raising fresh capital and expects to complete this process soon. In September 2008 undisclosed Saudi Arabian investors paid ?10 million ($14.6 million) for a 9.3-percent stake in the company. Around that time JetBird also secured debt financing from Royal Bank of Scotland on the first 25 of the 59 Phenom 100s for which it holds firm orders.

Vilner told the conference that there is still a large price gap between airline premium fares and traditional light jet charters and that this is a gap that can
be filled by more cost-effective VLJ operations. In the current phase of the economic cycle, Jetbird has seen more interest from existing charter customers looking to downgrade to a VLJ, rather than the first-class airline passengers wanting to transition upwards into private charter that the company initially expected.

During September, after 15 months in commercial operation, UK-based Blink took delivery of its seventh Cessna Citation Mustang. In the first week of October it received its own aircraft operator’s certificate, having previously operated its flights under Tag Aviation’s UK AOC. It recently opened two satellite bases at Geneva and Jersey in the Channel Islands (a UK tax haven off the north coast of France). In 2007, the company placed firm orders for 30 Mustangs and has slowed the projected rate of delivery for next year to between three and six aircraft, compared with the 10 to 14 originally planned.

Despite a slow pick-up in demand earlier this year, managing director Peter Leiman remains convinced that VLJ air-taxi operators can achieve significantly increased annual utilization rates of about 600 hours per aircraft. “Our costs have proved to be 30 percent lower than we expected and we are gross margin positive sooner than we expected,” he told VLJ Europe delegates.

However, he acknowledged that it has taken time for the new company to adjust to the market’s peaks and troughs and that it has found demand to be “lumpier” than anticipated in that flight bookings tend to converge around certain busy periods and then disappear to leave periods when the fleet is idle.

Another Mustang operator, London Executive Aviation (LEA), has a much more conservative outlook on the VLJ sector two years after integrating the type into its fleet of larger jets. “In 2002, this [VLJ air-taxi] concept was being sold to bankers as the EasyJet [Europe’s major low-cost airline] of business aviation with stunning business plans that saw each aircraft flying up to 1,200 hours per year,” said CEO Patrick Margetson-Rushmore. “But seven years on it is clear that this is wrong because we cannot expect such high hours. We were wrong because VLJs offer lower costs, but they are still not that low, and so their charter rates are lower but not that low.”

In the current climate, he believes that even a target of 600 revenue hours per year is proving to be unrealistic and that most VLJs are actually logging no more time than the larger jets they are supposed to be challenging. LEA’s Mustangs are currently averaging 356 flight hours per year. “The market simply isn’t as sweet and rosy as some have been telling us, but I do hope the start-ups [such as Blink and JetBird] are right,” he concluded. LEA has delayed some planned Mustang deliveries and has cancelled some other orders for the aircraft.

Margetson-Rushmore said that Cessna has delivered its promise in terms of the Mustang’s operational reliability, with the company encountering only seven no-go incidents among more than 1,900 flight hours. He reported that LEA had had some early technical problems with the aircraft’s Garmin transponder and some separate fuel flow issues but that the number of defects has reduced with the more recently delivered aircraft.

The LEA chief executive also claimed that the Mustang is not achieving its promised range and performance and that the aircraft needs another 150 to 200 nm in range to serve LEA’s core business area. However, his counterpart at Blink insisted that its Mustangs are achieving greater-than-promised range.Another UK-based VLJ start-up that is due to take to the air before year-end is Ambeo.

In September, the company took delivery of its first aircraft, a pre-owned Citation Mustang that is now being refurbished by Marshall Aerospace at its Cambridge base. Ambeo expects to be issued its aircraft operator’s certificate by this month.

At the recent VLJ Europe conference, CEO Dr. Frank Noppel announced the formation of an alliance called JetWorld between Sky-Taxi, based at Rotterdam in the Netherlands, and Geneva-based PrivatAir. The operators will cooperate to provide aircraft for each other’s customers. Sky-Taxi also operates three Mustangs,
and PrivatAir’s fleet consists of much larger aircraft, including the Airbus Corporate Jetliner.

Reflecting on lessons learned in the first few years of the VLJ generation, Edwin Brenninkmeyer of London-based investment advisory group Oriens Advisors said that it could take as long as 10 years for a “disruptive business” such as VLJ air taxi to get established. “The last few years have taught us that cash flow is king, as seen when the funding dried up at DayJet and Eclipse,” he commented. “You must be conservative to start because we estimate that it will cost ?27,000 per week [to stay in business] if the aircraft aren’t flying–based on an operator with three aircraft like the Eclipse 500.”

Market Potential
Brenninkmeyer concluded that for an adequately funded business a downturn can be an opportunity to leverage market opportunities that might not have existed in better times. He singled out as an example EasyJet, which had ordered more airliners in the aftermath of the 9/11 terrorist attacks and negotiated its way into important but restricted airports like Geneva. “If you have a good business plan that needs only relatively small funding this will be attractive if you can prove that you will generate cash flow early on.”

According to Joe Leader, president of the U.S.-based Air Taxi Association, a lack of market awareness has held back early adoption of VLJ services by consumers. He said that the demise of DayJet had shown that prospective passengers can be quick to say that they intend to use a new service like air taxi but slow to do so.

There was broad consensus among conference speakers and delegates that the term “very light jets” itself probably does not help the industry in terms of how it projects itself. Leader advocated a switch to the terms entry-level jet or value light jet. 

Eurocontrol Ready for VLJ Influx

Eurocontrol is launching an awareness program on the integration of very light jets (VLJs) aimed at air navigation service providers, operators and regulators. The program follows operational trials conducted under the VLJ integration platform started by air traffic management in 2007.

According to Alex Hendriks, deputy director for network development at the air traffic management agency, the trials revealed that the biggest challenge for air traffic controllers was to deal with VLJs operating relatively slowly at higher altitudes among faster airliners.

Hendriks told the VLJ Europe conference that Eurocontrol is not setting any rules that would formally restrict VLJ access to higher flight levels but said that controllers will tend not to put slower aircraft in high-demand airspace.

Despite the overall dip in traffic growth across Europe precipitated by the recession, VLJ numbers are increasing. There were 1,400 VLJ movements during July 2009– nearly three times the 500 or so recorded in July 2008. In the VLJ integration trials, Eurocontrol assumed traffic volumes that are projected for 2010 but added an additional 10 percent in VLJ numbers and found that this would be manageable for controllers.   

Blink Ready To Challenge Airlines

With a fleet of seven Cessna Citation Mustangs and new satellite bases in Geneva and the Channel Islands, Blink is starting to achieve the economies of scale and efficiency on which the UK-based company’s business model was founded, according to managing director Peter Leiman. Another key plank of the business plan–the ability to lure travelers away from the business-class cabin of airlines–has not materialized this year, as companies have aggressively battled cost by restricting executive travel budgets. But Leiman told AIN that 2010 will likely see a change in attitude and fresh opportunity for Europe’s new generation of air-taxi operators.

“The market is now ripe for a challenge to the airlines because [fully flexible, business class] air fares are getting more expensive,” said Leiman. Blink tells companies it can be more cost effective than airlines for moving up to four passengers on flights of between 60 and 90 minutes. Many of the new customers who have turned to Blink this year have been trading down from chartering larger business jets.

The bases that the operator has established in Geneva and the Channel Islands allow it to offer more attractive locally based pricing for flights out of these locations. Blink will be basing some pilots in Geneva starting early next year, rather than running its entire operation from the London area. At the end of each day, the company’s aircraft make an overnight stop at whichever base is most convenient for the following day’s flying.

“The lower end of the market is where the opportunity [for air-taxi operators] is, and the traditional, regionally based charter operator [one permanently based in a single location] cannot offer a sustainable price like we can,” commented Leiman.
In October, Blink completed the lengthy process of securing its own aircraft operator’s certificate from the UK authorities. For the first 15 months in business, the company had operated under the AOC of Tag Aviation. Leiman said that having its own AOC has already given the company much greater flexibility, and it has used this to get clearance to operate at restricted airports such as London City and La Mole on the French Riviera.  

FlairJet Poised To Be First UK Phenom Operator

FlairJet has become the first UK operator of Embraer’s Phenom 100, with the company taking delivery of the first of two aircraft at the end of October. CEO David Fletcher recently completed a type rating for the new very light jet at CAE’s training center in Dallas, and two other pilots are being trained at CAE’s Burgess Hill facility in the UK.

As it prepares to begin commercial operations, FlairJet has appointed two more senior managers–ground operations director Mike Chamberlain and operations manager David Taylor, both reporting to chief pilot Gerry Rolls, who is operations director and training captain. FlairJet is managing the two Phenom 100s for a private owner while awaiting delivery of the first of the company’s own aircraft in 2012. It is based at Oxford Airport, which recently renamed itself London Oxford Airport.