When Richard Santulli acquired business aircraft charter and management company Executive Jet in 1984, he planned to transform the way companies and individuals acquire the benefits of business aircraft travel, without the expense and complexity of outright ownership.
Two years later, this vision spawned NetJets, his pioneering fractional ownership programme. Under the scheme, owners buy an interest in an aircraft, usually one-eighth or one-quarter, and pay a fixed monthly fee followed by an hourly fee for the time they use it. Ownership is set for five-year terms, after which customers buy back their shares in the aircraft to Executive Jet at a predetermined price. Each share entitles the owner to a set number of flying hours.
NetJets was greeted by the business aviation industry with scepticism and sometimes loathing. They feared this new method of shared aircraft would have a negative impact on aircraft sales and operations.
Thirteen years later, NetJets has become phenomenally successful and the fractional ownership concept has revolutionised the business aviation industry. The former mathematician has not only defied his growing army of critics, but has also successfully altered the mood of the industry. In 1998 Santulli sold Executive Jet to billionaire investor Warren Buffet for $750 million, yet continues at the helm. "Ten years from now it will be a lot bigger. It's going to be huge," says Buffett. He adds: "Richard could see what was on his mural when nobody else did. He's just started painting it and my job is to bring him some paint and a few brushes."
Manufacturers, which lambasted Santulli and his business aviation ideology, have begun to embrace the concept, regarding it as a springboard to bulging order books. A plethora of schemes, based on the NetJets model, operate across the globe. Manufacturers Bombardier and Raytheon are well placed in the top four with their respective Flexjet and Travel Air programmes.
Fractional ownership is touted as one of the fastest growing concepts in aviation history, accounting for nearly 30% of total business aircraft sales. "This industry has done more for business aviation than any other activity since the introduction of the business jet in 1963," says Kevin Russell, Executive Jet's senior vice-president.
According to data released by US-based research firm Aviation Data, the fractional fleet and customer base has rocketed by more than 4,500%, from seven aircraft and four customers in 1986, to 329 aircraft and 1,567 customers by the end of September 1999. The fleet, it adds, has also accumulated more than 776,000 total flight hours and travelled more than 485 million km (260 million nm).
NetJets is the largest operator, with a fleet of 261 aircraft across its three programmes in the USA, Europe and most recently the Middle East. In the past three years, Executive Jet has ordered 600 aircraft for NetJets, valued at more than $10 billion.
Record orders
Without exception, all manufacturers that service the fractionals are reporting record orders and hefty backlogs, which they predict, will continue well into the next century - cushioning fears of an economic downturn. Moreover, the fractional programmes are driving new aircraft designs, including Cessna's super mid-size Citation Sovereign - an order for 100 aircraft was placed by Executive Jet in 1998 for its NetJets programme - and Gulfstream/Lockheed Martin Skunk Works' proposed supersonic business jet.
Two recently published business aircraft analyses support Russell's view. New Jersey-based CIT Group notes that fractional ownership is the fastest growing niche within business aviation, saying, "The companies providing fractional ownership will continue to be the largest purchasers of business aircraft."
In its 10-year business aircraft forecast, AlliedSignal notes that fractional ownership is and will continue to be a key driver in the record growth of business aircraft sales into the next century. It says: "Fractional ownership is expanding ownership well beyond the historical operator population."
Huge potential
Both reports say, however, that only a small percentage of the market has been tapped and, like other industry analysts, believe the size of the fractional ownership market this millennium is potentially huge. "We are scraping the surface," says Kenn Ricci, chief executive of the fourth largest fractional provider, Flight Options.
As new aircraft designs enter the market early this century, manufacturers will introduce variations of fractional ownership to stimulate orders.
Galaxy Aerospace, for example, plans to launch a programme this year, either by selling its Galaxy and Astra SPX business jets to an existing programme/ operator, or through an independent or joint venture partnership.
VisionAire plans to kick-start a "partnering programme" in 2003 for customers of its single-engined Vantage business jet customers.
"Fractional ownership has to be a consideration for all manufacturers as a means of selling more aircraft," adds Ricci, whose company Flight Options recently ordered 25 Fairchild Envoy 7s, the business jet derivative of the Fairchild 728JET regional airliner. First deliveries are planned following certification in around 2003. Boeing has already clinched a deal from Executive Jet for nine BBJ widebody business jets with options for 16 more, and Airbus claims to be eyeing the fractional market to bolster its A319CJ backlog.
Ricci believes the role of business aircraft travel will change, saying: "Business aviation is driven by the baby boomers [of the1950s]. Follow that group and you will find that travel is becoming more international."
Ricci says the travel requirements will also become more "leisure" based. He adds: "As advances in technology [video conferencing, satellite telephones etc] make their way to the boardroom, the requirement for face to face meetings will decrease and business aircraft will increasingly become leisure tools". The baby boomers, he claims, are driving consumer spending and "leisure travel will become an integral part of the fractional ownership business."
Fractional providers are examining new markets across the globe, where customers can exploit their business and leisure interests. In the next couple of years, Executive Jet plans to expand its NetJets operation to South America and Asia. By the end of the decade, fractional programmes should be on every continent.
It seems that Santulli's mid-1980s' vision of a "network of private business jets blanketing the world" is set to become reality.
Source: Flight International