CAA: GA News, "Business Jets Flying High"

["Stephen Irwin" <stepheni@xxxxxxxxx>]

Saturday, January 12, 2002

Business Jets Flying High


CHICAGO (Reuters) - It may be the ultimate luxury. Call up with a few
hours notice. Drive to a nearby airport 10 minutes before takeoff. Avoid
all lines. Hop on board your well-appointed personal jet and fly off. 

Whether the agenda is the midday meeting across the country or dropping
in for an Aspen ski vacation, owning your own business jet, or at least
part of one, is de rigueur. 

The market? Corporate executives, celebrities, professional athletes and
wealthy individuals afraid of flying on commercial airlines or just fed
up with hassles and outrageous fares. 

Interest in business jets has risen dramatically since the Sept. 11
attacks in New York and Washington. Business jet operators and
manufacturers are betting an expanding range of customers are ready for
this form of travel, weak economy or not. 

The business jet market more than tripled in value between 1995 and
2000, according to Richard Aboulafia, analyst at aviation consulting
firm Teal Group, and is now much larger than the combat aircraft
industry. He predicts that, over the next 10 years, nearly 7,000
business jets will be produced worth $95 billion in 2001 dollars. 

Strong corporate profits in the late 1990s drew companies to business
jets as they sought travel efficiencies. Since Sept. 11, security and
convenience became added considerations. 

``Prior to last September, a good many of these same individuals would
have hesitated to rely on private aircraft, reasoning that a larger
plane must be safer,'' said the Robb Report, a magazine devoted to ``the
luxury lifestyle.'' The publisher recently put out a 152-page issue
dedicated to private air travel. The tag line: safer, faster, smarter. 

NAME YOUR PRICE 

The growing sector is divided into three segments: charter, fractional
shares and outright ownership of a plane. 

There are many brands of small jets from a handful of manufacturers,
each hoping for a piece of the expanding pie. 

The names include Cessna by Textron (TXT.N), Falcon by Dassault Aviation
(AVMD.PA), Gulfstream by General Dynamics (GD.N), Learjet and Challenger
by Bombardier (BBDb.TO), Beechjet and Hawker by Raytheon (RTN.N). At the
very upper range are Boeing (BA.N) Business Jet and the ACJ from Airbus,
majority owned by European aerospace company EADS (EAD.PA. 

The fractional market is currently the hottest segment, growing at 45
percent a year. It was pioneered in 1986 by Executive Jet when it
created the NetJets fractional unit. 

Warren Buffet's Berkshire Hathaway Inc. (BRKa.N), a company that has
made fortunes for its shareholders by buying up other firms, bought
Executive Jet in 1998, and others are seeking a way to hop on board. 

Starting at about $150,000, a card entitling you to 25 hours worth of
rides may be bought from an outfit called Marquis Jet Partners. The New
York-based firm is carving up and reselling NetJets shares for a young,
wealthy client base not ready to buy a whole share. 

Despite the rising interest, Alan Clingman, chief executive of Marquis,
cautioned that only NetJets makes money in the fractional arena. He
expects to sell 1,000 travel cards a year. 

``We believe that our market, which is half the number of hours (of a
traditional share), is a potential 500,000 people,'' Clingman said.
``It's enormous.'' 

SOME CONSOLIDATION 

Late in December, Raytheon's Travel Air announced plans to form a joint
venture with privately held Flight Options Inc. of Cleveland to offer
fractional shares. 

Aboulafia said the partnership shows the intense pressure on all
segments of the industry to achieve critical mass. 

``They need to join forces to improve service and negotiate better terms
from manufacturers and other suppliers,'' he said. 

In addition to Flight Options and NetJets, players in the fractional
share market also include Bombardier's FlexJets, Cessna CitationShares
and, more recently, UAL Corp.'s (UAL.N) Avolar, a sister company to No.
2 U.S. carrier United Airlines. 

Stuart Oran, Avolar's president and chief executive, told Reuters he
sees revenues of more than $400 million for his company in 2002 and more
than $1 billion annually at the end of five years. Oran said there are
only 3,000 fractional share owners right now, but a potential 300,000
industrywide. 

``From our perspective, the market is huge today,'' Oran said. ``We have
no doubt that demand is many times in excess of what's been purchased to
date. Demand will continue to outstrip supply. In reality, very few
people know about this business.'' 

For its part, Avolar intends to sell shares in 250 planes over the next
five years. So far, 306 jets from four different manufacturers are on
order. 

NOT EXACTLY CHEAP 

Avolar's prices begin at $434,700 per 1/16th share, entitling the buyer
to 50 hours of flight time. That does not include the monthly management
fees or actual costs of flying like fuel and maintenance. Prices for a
bigger Gulfstream V are much more -- $2.8 million for a share and hourly
fees from $5,000 to $6,000. 

Despite the daunting cost of entry for travelers, the number of business
jets in service continues to rise. 

Boeing (BA.N) Business Jets, for example, expected orders for six
airplanes per year at a base, unoutfitted cost of about $35 million
each. Instead, more than 80 of their ultra high-end planes, derived from
the 737 series, were ordered. 

So how do you decide if the price is right? According to Executive Jet's
NetJets fractional share unit, owning a share of a plane is most cost
effective for those needing 50 to 400 hours of flying time per year. 

Below 50 hours, charter is recommended. Buying a whole plane makes sense
for more than 400 hours a year. 

Open wallet. Get ready for takeoff. 


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