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Bombardier Aviation

NetJets Europe


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Jet Republic failure 'highlights exceptional challenges'
Europe's fractional and charter operators have stressed the need for innovative service offerings as well as strong financial backing after Jet Republic's Portuguese subsidiary suspended its activities.

Europe's fractional and charter operators have stressed the need for innovative service offerings as well as strong financial backing after Jet Republic's Portuguese subsidiary suspended its activities.

Bombardier Aerospace has terminated Jet Republic's 25 firm and 85 conditional orders for 110 Learjet 60XRs originally announced on 20 June 2008 just before deliveries were due to begin in October. But Bombardier stressed it remains committed to the 60XR programme. "Production of the aircraft at our Learjet facility in Wichita, Kansas, continues as planned," the manufacturer said.

Jet Republic launched its European fractional share company last year with an order financed by Austria's Euram Bank. But a Jet Republic spokesman confirms: "Jet Republic's Portuguese subsidiary has suspended its activities. The group is therefore preserving its remaining financial resources and will be reviewing its options." Jet Republic's holding company remains operational, the spokesman said, and would work closely with its shareholders to ensure that the interests of existing clients, employees and suppliers are protected to the best of its ability.

But the announcement means that Jet Republic's fractional aviation company has ceased trading after becoming technically insolvent. Jonathan Breeze, ceo, in an email to staff, says the decision was taken after funds needed to continue operations did not arrive. He says Jet Republic will not place any more orders with suppliers or accept any more revenue or solicit business from customers.

The demise of Jet Republic's fractional operation comes soon after NetJets founder, chairman and ceo Richard Santulli resigned his position. Santulli, who has been referred to as the "father of the fractional aircraft industry," says he will remain at the Berkshire Hathaway company as a consultant for at least a year.

David Sokol, chairman at Berkshire Hathaway-owned Mid-American Energy Holdings, took over as chairman and interim ceo of NetJets and the company is restructuring. Santulli said that after 25 years of working with the most talented group of people imaginable he wanted to spend more time with his family and pursue other interests.

Santulli left Goldman Sachs in 1986 and acquired Columbus, Ohio-based Executive Jet Aviation as the platform upon which to launch NetJets. Berkshire Hathaway chair-man and billionaire Warren Buffett, a NetJets shareowner, bought the firm in 1998 for $725 million.

Until the latest recession NetJets recorded record profits. But in the first quarter of this year it sustained a pre-tax loss of $96 million compared with pre-tax earnings of $45 million in the same period a year ago.

NetJets' second-quarter revenues fell 43% year-on-year to $550 million. For the first half of the year it dropped $1.024 billion - or 42% - from the same six-month period last year. According to parent company Berkshire Hathaway, NetJets' decline reflected an 81% drop in aircraft sales and a 22% reduction in flight operations revenues primarily due to lower flight revenue hours. NetJets reported pre-tax losses of $253 million for the second quarter and $349 million for the first six months, compared with gains of $192 million and $255 million in the same time periods last year.

Berkshire Hathaway says NetJets owns more aircraft than it requires for its present level of operations "and further downsizing will be required unless demand rebounds."

Jet Republic launched in September 2008 when trading conditions were still relatively buoyant and promised to redefine private jet travel and fly to over 1,000 airports in Europe and tens of thousands more around the world. Its operational headquarters in Lisbon, Portugal, and corporate headquarters in Geneva, Switzerland, were focused on building business in UK, western Europe and Russia. Its message was: "Jet Republic is an inclusive private jet club and equivalent to a five-star boutique hotel in the sky."

The company offered a jet card membership enabling the purchase of blocks of 25 hours' flight time on any category of jet from e115,000. It also offered Learjet ownership options including share partnership involving blocks of a minimum of 50 hours' flight time per year on a new Learjet 60 XR at e6,500 per hour. Jet Republic also marketed a scheme whereby share owners could purchase 1/16th or more of a brand new Learjet 60 XR and enjoy reduced hourly fees of e4,900.

Members could also purchase a new Learjet 60XR in full "benefiting from Jet Republic's special negotiated rate of $13,500,000 (compared to a list price of $14,600,000) and fly up to 200 hours per year without paying any hourly fees."

But the marketing, including offering "unparalleled in-flight service" and multilingual attendants, has failed to attract sufficient business. Blink, which has ordered 30 Mustangs with five currently in service and two more coming into operation later in 2009, markets a "boardroom in the sky" experience.

Peter Leiman, joint md, says: "The announcement that Jet Republic has ceased trading highlights the exceptional challenges that aviation start-ups face in this climate. If you add in the inherent difficulties in raising finance in the current marketplace then it becomes clear that Jet Republic overstretched itself with a product that was not significantly differentiated from existing offerings."

In contrast, he says: "Blink has pursued a prudent business plan that allows us to deliver a totally new product to the market in a way that minimises development risk to our customers, employees and investors."

Leiman says the product has to be right for today's market where business and leisure travellers want to move around western Europe quickly and efficiently but at a price that makes sense.

Joint md Cameron Ogden says Blink has flown a significant number of existing private jet users who are familiar with a product similar to that which Jet Republic hoped to offer. "These customers realise that when the average number of passengers in a European private jet is 2.3 and the average flight length is one hour 30 minutes, they do not need a six to eight seat jet and the expensive add-ons that the market provides today. In contrast they have found Blink's four seat air taxi service better suits their needs."

Jet Republic's demise will hit the business growth expectations of a number of suppliers and partners. It had appointed CTC Aviation to carry out pilot and flight attendant selection after receiving more than 2,000 unsolicited crew CVs but will not now hire the anticipated 500 pilots over the next five years.

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