Business Times Singapore

Published November 7, 2005

Executive jet operators test Asian market

Executive Jets Asia is bringing together investors in region

By VEN SREENIVASAN

(SINGAPORE) After network airlines, charter flights and low-cost carriers, the region is poised to see a new air phenomenon - the fractionally owned executive jet.

A rarity: Compared with the US inter-city shuttles of executive jets are rare in Asia.

In the United States, corporate leasing of private jets has risen 70 per cent since the early 1990s. More than 20,000 companies own or operate the aircraft through players like NetJets, the world's largest jet-fleet owner.

Executive jet travel is common Stateside. Last year, for example, more than 250 American CEOs were reported to have racked up personal flight time costing at least US$50,000, while more than 100 ran up tabs of US$100,000 or more.

But inter-city shuttles in executive jets are still relatively rare in Asia.

At the end of last year, there were almost 13,000 executive jets worldwide - double the number in 1986. But Asia accounted for hardly any of them.

According to industry insiders such as Prithpal Singh, except for a handful in Macau, China and Hong Kong that cater to a select group of high net worth travellers, the region has few private jets for hire.

'Most jets in Asia are owned and operated privately by casinos, resorts or a few individuals,' he said. 'In fact, there are virtually no executive jets for hire in South-east Asia.'

Which is why Mr Singh is one of the initiators and investors in recently established Executive Jets Asia (EJA) - the region's first fractionally owned jet operator.

EJA's plan is simple. Bring together a group of businessmen and corporations from Singapore, Malaysia, Thailand and Indonesia to buy shares in the region's first trans-national executive jet company.

Each investor becomes a part-owner by investing US$500,000, which buys a one-sixth stake in a used plane worth about US$3 million. Additionally, they pay a management fee of US$60,000 from the second year on. In return, they get 70 hours of travel a year - equivalent to 17 Singapore-Bangkok return flights, 35 Singapore-Kuala Lumpur return flights or 24 Singapore-Jakarta return flights.

Beyond 70 hours, the investors pay by the hour. And when the jets are not used by the part-owners, they will be chartered for US$4,000 an hour - about US$600 a seat. The owners will get 30 per cent of the charter revenue.

The fractional ownership scheme will end in the fifth year, after which the aircraft can be sold and the proceeds distributed to the investors. And new investors will be sought continuously.

EJA's planned fleet of seven-seat Cessna Citation jets will be based in Singapore, Kuala Lumpur, Bangkok and Jakarta, and will be available for flights to destinations within a four-hour range. Unlike new airline start-ups, executive jet operators such as EJA do not need an air operator's certificate. Instead, they file flight plans before taking off on point-to-point regional hops.

Why has it taken Asia so long to catch on to a something that been commonplace in the US and Europe for more than two decades?

Industry insiders say part of the reason is a tendency for Asian corporates and chief executives to make cost comparisons with network airline fares. In contrast, US and European companies look at the value of executive time.

The 1998 financial crisis also played a part in slowing the introduction of private jets in Asia. And in recent years, the region's aviation investors have been preoccupied with low-cost carriers.

But as the routine of driving to an airport and being subjected to a battery of check-in and security measures grows increasingly tedious, many Asian CEOs could find the convenience of corporate jet travel not just addictive but a necessity. And besides hassle-free travel, private jets offer greater security.

While demand may create its own supply, the business of running executive jets is not for the faint-hearted. Besides the initial start-up costs, operators have to contend with volatile fuel prices. And in the absence of legislation, they face potentially vicious competition from big players that could enter the fray.

For example, Lufthansa, which has been offering corporate jet connections for its first and business-class travellers in Europe, is now introducing the service in the Asia-Pacific. Operated by NetJets, Lufthansa Private Jet service will offer seamless connections via seven-seat private jets in the 19 Asian cities serviced by the group's mainline aircraft.

'Awareness of the advantages of private jet travel is increasing steadily across Asia, and both corporate and private travellers are seeing the vast benefits that executive aircraft can offer,' Uwe Mueller, Lufthansa vice-president Asia and Pacific, said recently.

'For Asia's captains of industry, time is a precious commodity. They realise the need to minimise time spent travelling and to maximise the value of time spent in the air.'

NetJets is taking the executive jet business a step further in the US. It is reported to have received government approval to operate 30 scheduled flights a week between Chicago's Midway International Airport and New York's La Guardia Airport, and 10 a week between La Guardia and an unspecified Los Angeles airport.

In Europe, besides Lufthansa's private jet service, Swiss-based Club Airways International, already offers scheduled executive jet flights between Geneva and Paris. And Privatair, another Swiss firm, offers executive jet flights between Europe and the US on behalf of Lufthansa. More variations of executive jet travel will emerge over time.

In the US, companies that can't afford to fractionally own private jets but 'jet cards' that entitle them to flight time in increments of as little as 25 hours.

William Franke, managing partner of US aviation investment company Indigo Partners and chairman of Tiger Airways (in which Indigo has a 24 per cent stake), noted that after air charters, network carriers and LCCs, aviation investors in Asia will have to identify the 'next, next thing' in the business. He also pointed out that with the right business model, investors may find a winning formula in an all business class model.

The big question is whether this could take the form of fractionally owned executive jets.