Air taxis: Funding woes bring high ambitions down to earth

By Kevin Done Published: May 4 2010 00:07 | Last updated: May 4 2010 00:07 Many fledgling aviation ventures hatched during the heady days of the bubble economy have failed during the recession. Those still flying have been forced to rein in their ambitions and restructure to survive. High hopes were placed in particular on the start-up of low-cost private jet businesses – sometimes dubbed air taxis – seeking to exploit the arrival in the market for the first time of four-passenger very light jets. These ventures have proved to be among the most vulnerable, however, as sources of capital dried up and demand shrank. The latest notable casualty is Ireland’s JetBird, the most ambitious venture planned in Europe. Its failure to get off the ground has come as a serious setback for its founder and chairman, Domhnal Slattery, a leading Irish financier, and has robbed Embraer, the Brazilian aircraft maker, of its most important customer in Europe for its new range of Phenom 100 very light jets. JetBird appeared the most promising of the ventures setting out to make private jet travel more affordable at prices up to 50 per cent below those of existing charter operators. However, Stefan Vilner, chief executive of JetBird, says the business has been “put into hibernation”, after the launch was abandoned at the last moment. The pilots, hired and trained to fly the Phenoms, have been made redundant. The initial six aircraft built by Embraer for JetBird were never delivered and are being sold to other operators in North America. By contrast, Blink, a UK venture founded by two young former investment bankers, Peter Leiman and Cameron Ogden, which began revenue operations in June 2008, is still flying and reports a recovery in demand in the early months of this year. “We have seen a significant improvement since December,” says Mr Leiman. Inevitably, growth has been much slower than originally forecast, and Blink has been forced to defer deliveries of its chosen jet, the Cessna Mustang, due during 2010. Mr Leiman says that Blink is planning to resume capacity expansion in 2011, however. It expects to add three to five aircraft a year to its existing fleet of seven, as it gradually takes delivery of the 30 Mustangs it had placed firm orders for in mid-2007. All should be delivered by 2014, according to the present plan. Mr Vilner, previously chief commercial officer of Sterling Airlines, the former Danish low-cost carrier, says JetBird missed a number of planned launch dates last year, but was finally forced to abort the start of operations because of its inability to raise sufficient equity capital. Funds promised by an investor from Saudi Arabia, and announced as a done deal in September 2008, failed to materialise and left JetBird at risk of failing to meet key covenants in the aircraft financing deal it had prepared with United Technologies, parent company of Pratt & Whitney, maker of the Phenom engines. The Middle East investor was supposed to inject €10m ($13m) to secure a stake of 9.3 per cent, joining Mr Slattery, the leading shareholder, whose Dublin-based Claret Capital had previously led the initial fund raising that had brought in €21m in December 2007. JetBird was planned to be the first pan-European operator of very light private jets. It was one of the most ambitious ventures planned by Mr Slattery, formerly managing director of the structured asset finance business of Royal Bank of Scotland, who made his initial fortune in aircraft leasing. It placed a firm order in 2006 for 50 Phenoms with options for another 50, and had 15 due for delivery by December last year. “Things never work out the way you thought,” says Mr Vilner. “We were ready to launch, but finally we wanted to preserve shareholder funds until other investors were ready to put equity in.” The aircraft financing deal had included covenants on the minimum cash requirements for running the business and “we were not comfortable we could meet these requirements”, says Mr Vilner. “We decided it was too risky.” The JetBird business plan was based on reaching a significant scale quickly, and breaking even with a fleet of 18-19 aircraft. Staffing has been cut from 34 prior to the planned launch, to eight, who are concentrating on trying to find equity backing and on negotiating a revised deal with Embraer. The Brazilian aircraft maker says it is “currently discussing a new purchase agreement for aircraft deliveries in the future”. JetBird is not taking delivery of aircraft, says Mr Vilner. “We want to go out and do a thorough equity search. It is difficult right now. There are very few parties wanting to invest in private aviation. We would rather preserve our cash and keep a low profile.” Mr Slattery has decided to concentrate his efforts for the moment on more lucrative prospects back in his old field of aircraft leasing. Mr Leiman, one of the co-founders of Blink and a former UBS investment banker, has reasons for greater optimism. Blink was the first in Europe to test the very light jet model, and after nearly two years of operations it is still flying. It has gained its own air operator’s certificate and is learning to handle often extreme seasonality. It is experimenting with online pricing and booking, and in the London market it is working principally from low-cost Blackbushe airfield on the Hampshire/Surrey border in preference to the much more expensive nearby Farnborough. Mr Leiman says the biggest problem facing Blink is building awareness of the brand. “It is expensive. It depends on cash on the balance sheet and the return on the spend. That is the real question.”

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