Karen Walker/ATLANTA
COMFORT, RELIABILITY AND value for money; that is what the customer wants. It is a description long familiar to the motor industry, but it is now an equally well-rehearsed part of the sales pitch of business aircraft manufacturers.
Value for money in the corporate-aircraft business, however, means different things to different owners, depending on what they are trying to achieve. It might even mean choosing not to buy an aircraft outright, but instead to purchase a fractional share in a Raytheon Hawker 1000 or Canadair Challenger 604. In the light of what now appears, finally, to be the recovery of the corporate-aircraft market, the buyer has more options than ever before in aircraft types and in ways to own them.
Fractional ownership has become the latest buzzword, admits Jack Olcott, president of the US National Business Aircraft Association, but not because it is a new phenomenon.
"It has really been around since 1988, but it has only been within the last two years that people have taken a strong interest in this kind of ownership," says Olcott. Executive Jet Aviation (EJA) is the pioneer of fractional ownership and is still its main player. The US company's NetJets programme is, by all accounts, a highly successful operation offering one-eighth and one-quarter shares in Cessna Citation S/IIs, Citation Ultras, Hawker 1000s and Gulfstream IV-SP business jets.
FLEDGLING COMPANY
EJA is no longer alone in the fractional-ownership business. In June 1995, FlexJet was launched - a programme run by Business JetSolutions, a joint venture between AMR Combs and Bombardier - using Learjet 31As and 60s and Challenger 601-3Rs and 604s. This fledgling company is reticent about revealing the number of customers it has acquired, but says that it is "very, very pleased with the response since introduction".
Bill Koch, vice president of marketing and development at AMR, says that a lot of detailed study, had to be completed before it was decided to launch the venture, but it has so far "...exceeded our expectations". The company now has 20 aircraft in its fleet and expects to have 30 by the end of 1996. Koch says that, within just six months of owning a one-quarter share, some customers have already increased their shares. "They come in and get their feet wet, then they get accustomed to using business aviation and see how much it benefits them, so they increase their share from, say, a quarter to a half," he says.
Fractional ownership appears to have found its niche in the market-place and now sits comfortably with the marketing departments of aircraft manufacturers because it is regarded as a means of bringing in new customers to the overall scene, rather than as a competitor for aircraft sales.
"Fractional ownership is a way of providing a company with a business-aviation service and achieving it at a lower entry cost. I think it is a resource that fits between chartering and the owning of a full flight-department," says Olcott. He points out, however, that it has both advantages and disadvantages.
On the positive side, fractional ownership offers substantially smaller entry costs - perhaps $1 million instead of some $5-6 million for outright ownership of an entry-level light jet - and the costs are well defined. Pilots and maintenance are provided as part of the service, making it a relatively hassle-free introduction into business-jet operation. There is also a well-defined exit strategy if needed. For people with a low utilisation requirement - perhaps between 150h and 200h a year - these benefits may prove overwhelming.
On the down side, fractional owners may not always get the same flight-crew or aircraft and, if their utilisation increases substantially, they may find it more cost-effective to run their own flight departments. "I personally feel that, because the entry costs are less, fractional ownership will introduce more companies to business aviation, but I am also convinced that they will want to expand their use of business aviation as they realise the benefits. This will lead to more flight departments," says Olcott.
Indications, however, are that the transition of fractional owners to full owners will be small - perhaps less than 10% - because fractional owners have particular needs. They may be companies with their own flight departments, which need to purchase additional capacity to meet "surge" requirements or to provide a long-haul service on an occasional basis. Or they may be semi-retired businessmen or sportsmen who had access to corporate aircraft through their previous companies or sponsors, realise the benefits and want to maintain some hassle-free access to this service. These types of fractional owners are unlikely candidates for full ownership, but might have been heavy charter users until part ownership became an option.
This view of fractional ownership's place in the corporate-aircraft business is shared by at least two key industry chiefs. "I don't share the mass euphoria that we have seen about fractional ownership, but it is providing an effective mechanism of bringing in people who wouldn't be there otherwise," says Roy Norris, president of Raytheon Aircraft. "Some will migrate to full aircraft ownership, but I don't think it will be a mass generator of full owners. What it has done is brought out of the woodwork a whole host of buyers who were not in the market before."
Cessna vice-chairman Gary Hay has a similar outlook. "We will see, in my opinion, a modest amount of migration to full ownership, but it will be less than 10%. Fractional owners are looking for something different - they are looking for a turnkey solution that is dedicated to them. They elected not to get into ownership because of their low usage and they don't want the hassle of setting up their own flight department and managing it. They want transportation," says Hay.
Both Cessna and Raytheon are in the happy position of being suppliers to fractional-ownership companies at the same time as seeing traditional sales take a positive turn. The manufacturers see this recent upswing in sales as attributable, in part, to a healthier economy which has put confidence back into corporate boardrooms, particularly in the USA, which accounts for around half of the business-aircraft market. No manufacturer can survive in this post-recession era by simply floating on the waves of a buoyant economy, however. The customer is demanding choices, and lots of them.
"We think it is beneficial and right in today's environment to have a range of products to meet a range of needs," says Hay, who adds that a philosophy of having the right product for the right customer "...is not rocket science - it's about listening to the customer". Cessna's new light wide-body, the Citation Excel, is a case in point, says Hay. Almost 100 Excels have been sold before the aircraft even enters its certification programme. "That's because it's at a price, that is sensible and it does everything the customer wants," says Hay, who adds that the top three demands for this aircraft - from customers - are that it should have the highest possible level of reliability, that it should be able to get in and out of runways of 3,500ft (1,100m), or shorter, and that it should have a stand-up cabin with plenty of room and comfort for six or seven passengers as well as ample room for their baggage. "We had to make a composite of those things and come back with a responsive solution," says Hay.
Creative financing packages can also be of help to potential owners, but usually only at the lower end of the market, where a buyer most probably has good credit, but is operating on a shoestring budget. Higher up the chain of available types, creative deals are almost never sought, says Hay, because the companies involved usually prefer to use their own financial organisations. Cessna has just forged a deal with banker Fleet Financial, however, to create a private-label arm, called Fleet Credit, which can supply customers with advice and financing options. "We have used them in ten or 12 deals over the past year and people have been effusive about them," says Hay.
PREMIER SUCCESS
Raytheon, meanwhile, is enjoying similar success with its newly launched Premier I, which Norris also attributes to finding the right aircraft design to meet today's new demands. Norris says that the company has witnessed "...the strongest January and February I have ever seen" in terms of business taken and says that the Premier I is a major factor in that success, although sales of all aircraft types are up. "We are elated with the response to this aircraft and are just scrambling to see how we can increase production, which is now sold out to the year 2000," says Norris, who adds that Raytheon is seeing an almost exclusively new customer base for the Premier I.
More new models will be introduced over the next four to five years, promises Norris. "The real key to expanding sales, especially in the USA, has been through the introduction of new models that bring better performance at a lower price. It's very difficult to do that through modifications of traditional designs, so new-product development is important to us," he adds.
New products and new ways of owning them may now be the keys to how the business-aircraft industry will go out of the 1990s in a much healthier state than it entered them.
Source: Flight International
