Europe’s business aviation community has become accustomed over the past 10 months to regular pummellings – verbally and financially – so the news of the collapse of fractional ownership start-up Jet Republic after such a high-profile promotional campaign surprised few.
No sooner had the axe fallen on the Lisbon-based company at a shareholder meeting on 19 August when whispers of its demise began to filter through social networking sites. The majority were resigned to the fate of Jet Republic, which less than a year earlier has launched its venture with great fanfare and huge optimism.
With orders and options for a record 110 Bombardier Learjet 60XRs – the first set for delivery in October – and wealthy Austrian and Mexican backers at its side, Jet Republic aimed to take on NetJets as the leading provider of fractional ownership in Europe. Its intention was to sell aircraft shares to the rich and famous. It claimed it would be buoyed through the recession by luring businesses that were trading down from aircraft ownership. It promised flight attendants, hot food, fresh coffee and in-flight connectivity as standard on its midsize business jets.
LACK OF FINANCING
Headed by former NetJets Europe executive Jonathan Breeze, Jet Republic blamed a lack of financing for its collapse, but many observers suggest the business was doomed from the start.
“The launch of Jet Republic – one week after the collapse of investment bank Lehman Brothers – was ill-timed,” says one leading business aircraft operator. “Many leading economies, including Europe, were heading into financial meltdown, wealthy people were losing millions, companies were being shut or forced to lay off workers – nobody was going to buy or lend money to buy a share in a business jet from an untested company in these conditions.
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“With hindsight it would have been wise to delay the launch, but if you’ve got your aircraft at a good price, and you’ve got keen backers – it is brave to pull the plug on the venture so late in the day.”
Audaciousness coupled with deep pockets were the essential ingredients in Jet Republic’s quest to conquer NetJets – Europe’s only business jet fractional ownership company. Since its conception in 1996, NetJets – also based in Lisbon – has built a fleet of around 170 business jets and around 1,600 customers in its fractional and card programmes.
The Berkshire Hathaway-owned venture has also been hit hard by the economic downturn and has had to suspend aircraft deliveries and cut pilot duty hours to counter dwindling customer numbers. It is working aggressively to attract new customers to the fold by expanding its sales force across the continent.
“NetJets wasn’t going to let an upstart like Jet Republic threaten its market share,” says another operator. “This is a relatively small market, so if Jet Republic had identified a customer you can bet that NetJets has them in their sights or already offered a better deal. To take on the competition and do it well you have to be ready for bare knuckle selling and be prepared to price crumble.”
Ian Clark, aviation lawyer and fractional ownership expert, says “deep pockets are needed to make fractional ownership work as it is vital to reach critical mass with your fleet – not only to reduce the costly empty legs, but also to ensure that your customer has his aircraft when and where he wants. It would have taken Jet Republic a long time to get to this stage.”
Brian Humphries, chief executive of the European Business Aviation Association, questions whether Europe has fully embraced fractional ownership. “This region isn’t a traditional marketplace for fractionals – and even after 13 years of NetJets it’s still a tough sell here, particularly for newcomers,” he says.
Europe is littered with failed fractional owners programmes, including a venture from rival US fractional Bombardier Flexjet, which withdrew its offering less than three years after its launch after hefty financial losses.
LOST APPETITE
For David Savile, chief executive of Air Partner, one of Europe’s biggest aviation brokers and charter operators, Jet Republic’s demise was mainly due to a lost appetite for fractional ownership.
“Clients are voting with their feet, saying we’re not happy – fractional ownership is past its sell-by date,” he says.
People are no longer “cash rich”, he says. “Those with money no longer want to tie it up in an asset that is likely to drop in value at the end of their contract term, particularly when there are so many other no-risk options for business aircraft travellers.”
The plummeting price tags of used aircraft over the past year has exacerbated the problem, wiping millions of dollars off the values of fractional shareholdings and forcing many reluctant customers to sell at a hefty loss or renew their contract terms in the hope that values start to climb. “Many people have had their fingers burned,” Savile says.
Thomas Flohr, founder, owner and chairman of business aircraft operator VistaJet, says fractional ownership is an antiquated business model. “People don’t necessarily want to buy a fraction of an aircraft. It’s not financeable and you cannot mortgage it. In this crisis finance is difficult. To resell a fraction, you can only go to the incumbent who sold you that fraction. There are a lot of non-transparent elements which we feel are not serving the customer.”
Source: Flight International
