SPECIAL REPORT FRACTIONAL& CHARTER

Wheels Up is scheduled to take delivery of its first nine King Air 350is by year-end. Operations are part 2 set to begin this month serving regional clusters in the Northeast and Southwest. market Wheels Up: A New Flight Access Program Takes Off Jet card and membership programs, which aircraft access, including card and lease products provide guaranteed access, block charter rates and on-demand charter, but “I don’t see us selling he fractional market has under- Brokers have always generated the major- and a variable menu of other perks, are report- fractional in the club. The common theme is going gone severe contraction this year, ity of charter trips, and that industry is about ing growing demand this year. Card and mem- to be ‘asset-light,’” he said. with CitationAir nearly out of to undergo some regulatory changes in the T 21 bership sales are up 22 percent at Magellan Jets, In September Wheels Up announced 15 ap- the business of commercial busi- U.S., with a proposed rulemaking offered Ridesharing now available for charter seats 68 percent at Flexjet and 102 percent at JetSuite, pointments to its executive corps, including CFO ness jet operations, Bombardier’s Flexjet by the Department of Transportation. It 21 Wheels Up: A new flight access program takes off sold to Flight Options parent Directional remains to be seen how that will affect the Ridesharing now available for charter seats according to the companies, and now a new pro- Carl Thornburg from Marquis, Robert Garrymore Aviation Capital and Avantair forced into charter industry, but the rules have been From fractional to total washout: vider, Wheels Up, is set to enter the arena. (former president of EJM) as president for ven- involuntary bankruptcy. promised for a long time and may actually 22 by James Wynbrandt & Matt Thurber Established by Marquis Jet founder Kenny tures, and Rob Patris, executive v-p for flight op- The charter market has not seen much in be implemented someday. When a fractional operator goes bust ber, Lyft and Sidecar are private air travel, is now live.” Dichter, CEO of the new company, New York City- erations, from NetJets. the way of consolidation this year, and many In this second part of AIN’s two-part 24 Charter community welcomes broker NPRM becoming familiar names not In any case, whether or not rideshar- based Wheels Up is scheduled to be- The company will complement companies have reported staying decently busy. Fractional and Charter Market Special U only in the high-tech world that ing companies try to put their spin on avi- gin selling memberships and providing its air transportation offering with In fact, this market is about to expand with the Report, we explore these issues facing the 24 What’s next for the fractional field? created these ridesharing web- ation, per-seat charter, the shared-flight/ lift on November 1, on a fleet of its own Wheels Down, an “off the ramp, expe- launching of the Wheels Up King Air 350i pro- commercial portion of the general avia- sites but also among the people who use reduced-cost air-taxi concept, continues King Air 350i twin turboprops (opera- riential arm,” as Dichter calls it, pro- gram by Marquis Jet founder Kenny Dichter. tion industry. o these services to arrange for ground trans- to attract would-be providers that know tor yet to be named at press time) and viding members access to exclusive portation outside the traditional com- how to operate within the applicable reg- aboard Switzerland-based partner Vista- activities and experiences, such as pri- mercial operator framework. Naturally, ulatory frameworks. JumpSeat, Surf Air Jet’s Bombardier Globals. vate concerts, intimate gatherings with taxicab and limousine companies–which and Arrow Flight Club are among recent Wheels Up ordered up to 105 new noteworthy figures and tickets to ma- are regulated by various government enti- entrants into the arena. BlackJet (which King Air 350is (35 firm and options on 70 jor sports events, which Dichter said ties and must in many cases own a medal- began as Greenjets and re-launched more) in July, worth $788 million at list was an important component of Mar- lion or license allowing them to provide as BlackJet in October 2012) recently Kenny Dichter, price, touted as the largest propeller air- Wheels Up CEO quis Jet’s success. “We believed own- these services–are upset that ordinary driv- unveiled a major route expansion, a sign craft purchase in general aviation history; ers knowing each other and having fun ers can carry passengers without any gov- that the concept may be gaining traction. with maintenance agreements, the deal is report- with each other and sharing common interests is ernment or insurer approval. Per-seat travelers give up the luxury of edly worth up to $1.4 billion. The first nine aircraft really important to these types of flier, and we’re In California, the state Public Utilities having the cabin to themselves, the con- are slated for delivery this year and the fleet will be going to make that a big facet of the Wheels Up Commission has grappled with this issue trol of specifying when to take off and, in operated from seven or eight “regional clusters,” and Wheels Down story,” Dichter said. (NetJets, by formulating a set of requirements with some cases, what airports to use. But they beginning with service in the Northeast and South- which operated the aircraft Marquis customers which ridesharing companies and their still avoid hassles ranging from security west, according to Dichter. flew on, acquired the company in November 2010 members must comply. These include lines to the delays and cancellations that background checks on drivers and man- come with airline travel. And per-seat sav- Wheels Up’s membership fee is $15,750; from Dichter and his investors, at which time the datory insurance coverage. While join- ings over traditional charter can be con- hourly rate for the King Airs is $3,950 and, for the program had some 4,000 active cardholders.) ing a ridesharing company in California siderable. BlackJet guarantees a seat on a Globals, $15,950. Dichter estimates the average Dichter believes Wheels Up will “broaden the as a driver is still simpler than hanging Los Angeles-New York flight for $3,500, member who accesses King Airs will fly about 20 pyramid” of business aviation users rather than out a taxicab shingle, the move does pro- its highest fare. XOJet, which helped bring to 30 hours per year while Global users are pro- take fliers from other programs, and he predicts vide a bit more oversight to the rideshar- transparent, point-to-point pricing to the jected to fly some 150 hours annually. Wheels Up that within seven years the company will have a ing industry. charter industry, charges $25,300 or more is working with Beechcraft to develop a custom- membership base of 10,000 to 15,000 individ- But this raises an interesting question. for that route. What’s more, per-seat pro- ized Wi-Fi-equipped version of the 350i for its fleet. uals and corporations logging at least 200,000 What if the owner of a twin-engine tur- viders pledge to maintain the quality level Dichter told AIN the company anticipates adding flight hours and spending between $100,000 boprop or light jet decided to offer ride- associated with charter. light, midsize and super-midsize aircraft catego- and $125,000 per year. That adds up to annual sharing services? Or what if the founders ries to the program before year-end. Eventually, revenues of between $1 billion and $2 billion for of Uber, Lyft or Sidecar decided to add an Booking Options the club will offer a “full waterfront of options” for Wheels Up, according to the company. –J.W. “aircraft seats” ridesharing service to their Per-seat providers fall into two basic systems? Could this be done under the cur- categories: arrangers and facilitators. rent FAA regulatory framework, or even in Arrangers broker or operate per-seat popular markets. Santa Monica, Calif.- have 10 aircraft by next year, enabling it other countries where the definition of ille- flights; facilitators provide the platform based Surf Air bears many hallmarks to expand service to Las Vegas and Lake gal charter is a much grayer area? for would-be per-seat passengers to hook of a per-seat charter arranger, but offi- Tahoe, Nev.; and in California to Palm This question might not seem valid up and book. cially ranks as an airline because its Springs, Sacramento and the Sonoma/ because FAA regulations are clear about BlackJet (and its Greenjets incarna- three Pilatus PC-12 single-engine turbo- Napa area. when expense sharing is allowed, and tion), which fits in the arranger category, props make scheduled flights. The com- Arrow Flight Club inaugurated per- these regulations don’t seem to open the has brokered more than 1,000 per-seat pany, which launched in June, operates seat flights in July between its base at door to ridesharing in this manner. How- flights between New York, South Flor- between Burbank, San Carlos and Santa Seattle’s Boeing Field and Oakland and ever, the investors in per-seat charter bro- ida and Los Angeles since 2009 and has Barbara, Calif. It offers “all you can fly” San Jose, Calif., aboard Piaggio Avanti II kerage BlackJet include Garrett Camp, recently added service to and from San memberships for a monthly fee of $1,650, twin-engine turboprops operated by Ken- also an investor in the Uber automo- Francisco, Las Vegas, Boston, Chicago, and members can hold bookings on up more Air. Individual and corporate mem- bile ridesharing service. So far, BlackJet Seattle, Dallas and Washington, D.C. In to four flights at any one time. Reserva- berships (the latter covering four people) remains a membership-only charter bro- addition, it has introduced an iPhone app tions can be made from three months to cost $200 and $500 per month, respec- kerage that sells empty charter seats. But to expedite bookings and has reduced its three minutes in advance via Apple and tively. Round trips between Seattle and the non-aviation media seems to think that annual membership fee to $2,500 from Android smartphones. the San Francisco Bay Area run about BlackJet is an Uber for airplanes, at least the previous $10,000 minimum. CEO Operated from general aviation FBOs, $1,000. Arrow also plans to connect Oak-

according to some of the breathless head- Dean Rochin claims BlackJet is succeed- the PC-12s are below the weight that land and San Jose with Los Angeles via © 2013 AIN Publications. All Rights Reserved. For Reprints go to www.ainonline.com lines that surrounded BlackJet’s “launch” ing, and he attributes that partly to its requires passenger screening, allowing Burbank and Orange County airports, a year ago: “People Behind Uber Want high-traffic routes. travelers to board and disembark as they with fares starting at $299. to Do the Same Thing for Private Planes Two upstart arrangers, Surf Air would on a private aircraft. Surf Air oper- With BlackJet” or “BlackJet, the Uber for and Arrow Flight Club, now also serve ates 16 flights per day and would like to Continues on next page © 2013 AIN Publications. All Rights Reserved. For Reprints go to www.ainonline.com

www.ainonline.com • November 2013 • Aviation International News 21 FRACTIONAL& CHARTER market part 2 Continued from preceding page

When a fractional operator goes bust

by James Wynbrandt Avantair’s Clearwater, Fla. headquarters are currently secured by the bankruptcy trustee. In this photo, the he involuntary bankruptcy of scheduled departure, or in some cases company welcomed back employees after last year’s three-week grounding. publicly traded Avantair, the left them waiting at an FBO for an air- T Clearwater, Fla.-based pro- plane that never arrived. But–as is com- vider of Piaggio Avanti twin- mon in fractional programs–co-owners provide. At the time of the service sus- those inspected had numerous discrepan- turboprop fractional ownership, Jet Edge didn’t know one another and had no way pension many owners didn’t know the cies and lacked key components, includ- Card and Axis Lease programs, left a trail to communicate or act in concert. But location or airworthiness of their air- ing engines. Within days of the hearing, of unpaid vendors and creditors, broken when management sent an email to own- craft, and the forum became a bulletin the agency revoked the airworthiness cer- airplanes and more than 600 out-of-luck ers and inadvertently left the recipient board for owners looking for their air- tificates of every aircraft in the former owners. Nothing suggests Avantair’s col- list uncovered, Joel Trammell, a software craft or co-owners. fleet. A subsequent Service Bulletin (80- lapse reflects any industry-wide malady, entrepreneur from Austin and a one-six- Avantair’s management became 0409) detailed the steps required to have but it illustrates what can happen to own- teenth-share owner, used the list to start increasingly unresponsive as the suspen- the certificates restored, which include an ers when a program provider goes belly an Avantair Owners Forum in January. sion continued, owners say. Trammell, estimated 140 hours of inspection per air- up–an event previously discussed only in “My last two experiences with Avantair the forum founder, and three other Texas- craft performed by a maintenance spe- hypothetical terms. have been very disappointing,” Trammell based owners joined in filing a Chapter 7 cialist trained by Italy’s Piaggio Aero. Avantair owners experienced ser- wrote in the forum’s first post, detailing involuntary bankruptcy petition in July, vice problems that left many without lift recent service misadventures before con- which was granted on August 16. A Cratered Investment well before the company was forced into cluding, “I am now worried that [Avantair] Though the fractional company For many owners the cost of restor- bankruptcy. A growing number of the will not be able to continue operations, owned no interest in the majority of the ing the aircraft and paying for legal rep- program’s 56 Avantis became unairwor- leaving owners in a tough situation.” aircraft, the judge ordered them secured resentation to protect their rights is more thy as they were “cannibalized,” in the In June Avantair announced a “tem- in their current locations, initially deny- than the value of their aircraft shares, FAA’s wording, for parts, leaving insuffi- porary” cessation of operations (its sec- ing owners access to their property. Fur- particularly with the prospect of a glut cient supply to serve the owners and other ond in less than a year) and refused to thermore, an FAA field investigation of old Avantis hitting the used aircraft customers. Owners reported Avantair provide the supplemental lift that own- found that many fleet aircraft had been market. Additionally, many owners also cancelled flights just hours before the ers say it was contractually obligated to stripped for parts and that almost all face mechanic liens filed in state courts for unpaid maintenance services per- Per-seat charter option brings aircraft, registration number, interior and blocks of two or four. All flights are con- formed on their aircraft, putting them in exterior photos, operator and other rele- ducted by legitimate Part 135 operators. a position of paying twice for the work. ‘ridesharing’ to a new market vant info. Recently, the site listed about 150 Prospective customers can peruse list- Monthly management fees were intended Continued from preceding page flights in Europe and North and Central ings of available flights, get alerts when to cover maintenance, owners say, yet For per-seat charter outside main America. Members seeking seats on spe- a listing posts for a desired route or post many state courts grant mechanics the travel corridors, facilitators fill that need. cific routes can register for alerts when such a flight they are willing to commit to if right to auction vehicles in their posses- London’s Victor, a membership-based flights are posted. The impediment to per- another member will share costs. Inau- sion for unpaid repair bills. Teterboro charter booking portal launched in 2011, seat charter among members now, Jackson gurated in March, JumpSeat says it has Rams, a Part 145 repair station and features per-seat charter on its web- says, is the lack of critical mass of available approximately 3,000 members (mostly Avantair maintenance service provider in site. Victor’s charter customers can offer seats, though he believes Victor will have seat buyers) and recently had listings Teterboro, N.J., has four Avantair Avantis empty seats for sale on flights they book, enough inventory in the system “in the next for some 150 upcoming charter flights in its possession. Co-owner Dennis Espi- and founder Clive Jackson says about 25 year” to create a vibrant market. across North America with seats avail- nosa said he’s reached agreement with percent of them are doing so. (Custom- Massachusetts-based JumpSeat pairs able. JumpSeat takes a commission on groups representing two of the aircraft. ers receive 70 percent of per-seat revenue.) passengers looking for a seat with aircraft the bookings it facilitates. Some owners remain missing or incom- Victor’s charter customers traveling one owners willing to share seats, and the Gil Wolin, a long-time observer of municado, further complicating efforts way may also opt to pay a round-trip rate company engages in “aerial matchmak- the charter/management and fractional- to recover aircraft since little can be done and sell seats on the return leg, which can ing” to ensure the parties are compatible. share scene and former employee of without the unanimous consent of co- further reduce their overall cost, accord- (Owners have veto power over who may many key companies in business avia- owners or a court order. Attorney Amanda ing to Jackson. buy seats, based on member profiles pro- tion, understands the impetus for sav- Applegate of Los Angeles-based law firm For any flights with per-seat availabil- vided by JumpSeat.) The company typi- ing money by securing an empty seat on Aerlex, which represents more than 100 ities, the portal displays the price, specific cally doesn’t offer single seats, but rather a charter flight. “I don’t see it as viable,” owners with shares in approximately 20 he said. “It defeats the whole purpose former Avantair aircraft, told AIN it’s [of private aviation]. You ride [on busi- likely some owners have simply walked ness jets] so you can go when you want. away from their shares, concluding it’s not If you’re ridesharing, that implies a com- worth the time or money to get involved. promise. And second, you can’t have a As for the contracts the owners had, business meeting. You may or not know “I don’t see that there’s anything you can who you’re sitting with, and business really put in writing…that is going to pro- security becomes questionable.” tect you,” said Connecticut aviation attor- However, sharing does make sense, ney Paul Lange. “There’s no insurance he believes, when a company needs to you can buy, short of owning the entire send a group to the same destination. airplane so you have more control.” “It becomes a single-entity charter.” But Owners in Avantair’s program are applying the Uber-Lyft-Sidecar concept not the only losers here. The fractional of ridesharing in airplanes, which fun- industry, and even business aviation damentally depends on people with cars itself, has taken a major hit, with many going places where other people need owners saying their faith in private avia- to travel, doesn’t make sense. “Airplanes tion has been shaken. That loss of cred- © 2013 AIN Publications. All Rights Reserved. For Reprints go to www.ainonline.com don’t work like cars,” he explained. ibility may prove more costly than the “There aren’t enough people going to a price of a turboprop aircraft. o common destination for there to be an Report continues on page 24 FOTOLIA economy of scale.” o

22 Aviation International News • November 2013 • www.ainonline.com FRACTIONAL& CHARTER America (Acana) is studying the NPRM the DOT about four years ago,” he said. part 2 and has created a five-member committee “It’s a much cleaner way for brokers to market composed of two charter operators, two move forward with our type of business; Continued from page 22 charter brokers (in each case one primarily it’s more straightforward, and creates less a Part 135, the other a Part 121 provider), ambiguity of our role.” and an associate member to draft a formal The new indirect air carrier designation NPRM governing charter brokers response. Though Acana was formed to would, for example, eliminate problems represent charter brokers, several operators that have occurred when government agen- meets approval of stakeholders have also joined the organization, and hav- cies contracted with charter brokers for ser- ing both on the NPRM study committee vice (as the last of the DOT’s four proposals by James Wynbrandt “will not only add value to our responses addresses). The federal government pre- but also add to the credibility of our cludes private entities from acting as agents he U.S. Department of Trans- name of the charter operator to clients; responses,” said Acana chairman David for the government; charter brokers, includ- portation (DOT) released its create an “air charter broker” class of McCown, Air Partner vice president. ing Air Partner, have been granted exemp- T long-awaited notice of pro- indirect air carrier; codify the longstand- McCown notes Acana has advocated tions naming them as indirect air carriers to posed rulemaking (NPRM) ing exemption allowing air ambulance allowing brokers to act as indirect air fulfill their government contracts. on enhanced consumer protection for services to act as indirect air carriers; and carriers, rather than limiting them to But McCown said the NPRM likely charter air transportation on September clarify guidelines for air charter services acting solely as agents for the client of does not go far enough for charter bro- 27. It contains four proposals that would performed for the federal government. the operator. kers seeking to raise the bar for mem- require charter brokers to disclose the The Air Charter Association of North “This is something Acana suggested to bership in their community, which is currently totally unregulated. What’s Next for the Fractional Field? “I think many members of Acana would like to see this new class of indi- Hindsight is 20/20–and in the fractional-share business, foresight may at Maryland aviation attorney James Butler, who is CEO of Shaircraft Solu- rect air carrier meet some minimum stan- best be about 20/1,000. In today’s market, with a product evolving as rapid- tions, speaks similarly. “You have to look at it on a case-by-case basis,” he dards of financial health, industry-specific ly as fractional, even the most seasoned insiders seem to lack a clear sense said. “NetJets certainly is here for the long haul. I don’t know what the cap- knowledge and personal propriety,” of what’s next. italization is for Flight Options/Flexjet but I think Bombardier certainly be- McCown said, suggesting that Acana’s Consider that only a couple of years ago, the field boasted six major air- lieves, based on having done the deal, that that’s going to be a fractional own membership guidelines, which require plane share providers, all of which seemed to be poised for expansion. Clear- company it can do business with for a long time. PlaneSense seems like [it proof of financial soundness and preclude water, Fla.-based Avantair, for example, reported that it was hiring an average has] a nice niche; [it seems] to be fairly stable.” convicted felons from joining, could be a of six pilots per month and, as CEO Steve Santo told AIN in late 2011, “We’ve Butler doesn’t see Avantair’s collapse scaring customers away from frac- starting point for such standards. Avia- continued to grow and add airplanes.” tional shares. “It’s certainly a cautionary tale,” he said, “but I don’t think peo- tion consultant Gil Wolin concurred that the NPRM “doesn’t go far enough” in Two years later, Avantair is out of the game, in the wake of an involun- ple looking at NetJets, for example, worry that they would end up in the same regulating charter brokers. Other brokers tary bankruptcy filing this past summer. Early last year, meanwhile, Cessna’s situation as Avantair. It’s just a totally different business, capitalization and fi- expressed pleasure that any regulations CitationAir stopped selling fractional shares and ceased renewals for exist- nancial commitment by [NetJets owner] Berkshire Hathaway.” had finally been proposed. “It’s about time ing ones. This September, Bombardier sold its Flexjet operation to Direction- Will the remaining fractional companies expand or be joined by new ones? the DOT is catching up,” said Richard al Aviation Capital, which also owns Flight Options. Herr has his doubts. “It requires a huge amount of capital to achieve the econ- Zaher, CEO of charter broker Paramount As the dust settles from all these changes, we’re left with just two ma- omies of scale necessary to build a profitable fractional program,” he said. Business Jets in Leasburg, Va. jor national players–Directional and Berkshire Hathaway’s NetJets–plus “Wheels Up [the flight club that Marquis Jet founder Kenny Dichter recently The NPRM leaves the door open to PlaneSense, which operates single-engine turboprops, primarily in the east- launched] is conceptually a replacement for Avantair, but I am not confident it creating standards for brokers, but “the ern U.S., and a variety of smaller operations. Now that Cessna and Bom- will succeed. At some point, the cost to crew, schedule and maintain backup DOT wants to understand how it would bardier have exited the field, no aircraft manufacturer is left owning a lift dwarfs whatever cost savings there may appear to be by using a supposed- be managed, how it would be paid for,” major airplane-share provider. (Sikorsky does still operate Associated Air- ly less expensive aircraft. Further, there is unlikely to be a huge customer base McCown said. craft Group, which offers shares in helicopters.) that needs a King Air 350 rather than a PC-12 or Phenom 300. The NPRM also proposes that brokers “There is some market for an aircraft with a huge useful load able to notify clients of the identity of the oper- What’s on the Horizon? achieve reasonable range but not enough demand to build a national compa- ator of the charter flight at the time the What now? Will the industry experience further shrinkage or consolida- ny,” he added. The more realistic option, Herr said, is for existing players to arrangement is finalized. “I would say the tion? Will it stabilize or perhaps resume growing? As noted above, making expand in the turboprop field. broker community isn’t 100-percent com- predictions in this field can be particularly tough. Still, we convinced two ex- Butler agrees that a major new entrant into the field seems unlikely. “Cer- fortable with disclosing to the customer– perts to give it a shot. tainly smaller operators or regional programs will sprout up as they always especially a new customer–the name of New Jersey attorney Daniel Herr, who represents fractional shareowners, re- have,” he said. “Anybody with three jets under management puts together a the carrier until they’ve gotten the signed mains confident about the field’s future, though he said he expects only “modest” brochure and fancy name and, voila, you have a program. I think we’ll contin- contract,” said McCown, noting that growth over the next few years. “Fractional owners value this premium product ue to see that but not a major new entrant into the business.” brokers are concerned charter custom- and appreciate that their costs are much lower than for whole ownership of an Butler envisions some opportunity for expansion by the industry’s cur- ers could contact the operator directly to underutilized jet–even though the cost is much higher than charter,” he added. rent players “if the economy grows and brings more people into the demo- arrange the flight in hopes of avoiding the broker’s commission. Herr said he tends to look at “company-specific stability rather than in- graphic.” If that doesn’t happen, he said, the fractional business will likely The NPRM also calls for regulating dustry stability.” Flexjet and PlaneSense have long been stable and well run, remain “fairly steady.” However, he added, “I think customers are going to be the act of brokering, recognizing that he noted, “and NetJets has been stable since it embraced business discipline more enamored of leasing. I see leasing as being much more attractive over many non-brokers, such as limousine subsequent to the 2008 financial collapse. CitationAir was exiting the frac- time than the asset-ownership model, both because it doesn’t take a large companies and hotels, may also help cli- tional world for years before the formal announcement. The Avantair blow- capital investment and because you’re willing to buy the risk of residual val- ents procure air charter services. up has been more spectacular, but I never considered Avantair a legitimate ue up front and have more assurance as to what your end-of-the-day cost is No official data on charter broker player in the industry.” going to be.” –J.B. activity exists, but Air Partner estimates brokers book about 20 percent, or $600 million of the $3 billion spent on Part 135 air charter annually, and 10 percent/$150 million of the $1.5 billion spent on Part 121 air charter. “It’s a good NPRM,” McCown said. “[The DOT] is clearly trying to work with us, and we are going to give it a comprehen-

sive review and give the agency some good © 2013 AIN Publications. All Rights Reserved. For Reprints go to www.ainonline.com information back.” Stakeholders have 60 days from the NPRM’s September 27 publication to submit their comments. o

24 Aviation International News • November 2013 • www.ainonline.com