On Fractionals, Security, Issues

Incoming NATA chair Jim Miller also talks about economic recovery and FBO fallout

Following this year’s FBO Leadership Conference hosted by the National Air Transportation Association, incoming NATA chair James P. ‘Jim’ Miller agreed to sit with AIRPORT BUSINESS to discuss the state of business aviation and the services sector, and the challenges ahead. Long a fixed base operator himself with Miller Aviation in Binghamton, NY, he sold out and joined Corporate Wings in 1998, later becoming aligned with fractional provider Flight Options. Today Miller is president of Nextant Aerospace. Following are edited excerpts of the discussion ...

AIRPORT BUSINESS: You served in a number of roles at Flight Options. Can you relate the experiece over the past decade or so?

Miller: It’s safe to say that there are very few things at Flight Options that I haven’t touched. From my perspective, we were the first in the market with pre-owned aircraft and certainly the most successful in that endeavor. We grew the fleet from one airplane in 1998 to a high of 246 aircraft in 2004-05. Subsequent to that, we’ve retracted considerably, as has the whole industry. We now operate a little over 100 aircraft.

Early on, we saw the downturn in general aviation and the fractional business coming in 2006/2007. At the time we had a lot of aging aircraft that we desired to get out of the fleet. We were owned by Raytheon, and they encouraged us to divest ourselves of 30-year old Citation 3s and older Gulfstreams and so forth in favor of brand new airplanes.

It turned out to be fortuitous. We ended up selling the airplanes at prices that one would dream of today. We sold the CJ fleet in 2006 for an average price of $2.5 million. Today, they’re worth about a million dollars apiece. So we were able to capture a lot of the equity we had in the airplanes.

Raytheon elected to sell the company at the end of 2007 to HIG Capital; ultimately, HIG sold the company to a group of investors led by Ken Ricci a year later. Our balance sheet is strong; we’re making a little money.

But we see a very, very slow recovery. We think the biggest product out there for the next year or so will be charter and cards, with fractional sales picking up speed in the out years.

AB: Some say the fractional model is broken. Your thoughts?

Miller: The model is broken; I don’t think it’s broken forever. In the ‘70s, airplanes were reasonably inexpensive; today they’re quite expensive adjusted to inflation. As time went on into the ‘80s, fewer companies could justify buying a whole aircraft. The thing that made fractional particularly attractive is you didn’t have to get involved with operating the airplane; you paid for a portion of the airplane commensurate with what you expected to use; and you paid a fair price for the operating cost.

As time went on, we went through a cycle of rapid growth. NetJets came out with Marquis card, which today virtually everybody offers. You could have access to the same quality of fleet but didn’t have to invest any capital.

That went really well, but the genie is out of the box. People find it difficult paying for a portion of an aircraft when they can own the same thing for a little more per hour. The hourly charges are very competitive because there’s an excess in available aircraft today. I dare say that any fractional operator out there has airplanes parked, or grossly underutilized. Supply and demand forces prices downward.

There will come a time in the future when the capacity of the fleet diminishes and demand increases. Then the charter rates and fractional card rates will rise again.

AB: Tell us about Nextant.

Miller: Recently, Ken Ricci asked me if I would run Nextant Aerospace, which is separate from Flight Options but has many of the same investors. What we’re up to is breathing some life back into the Beechjet products. We’re going to deliver an airplane that has performance that compares to the CJ4 or the Embraer Phenom 300, at about half the price or less. These are pre-enjoyed aircraft. Our emphasis is strictly on the used airplane.

This content continues onto the next page...

We Recommend

  • Article

    Setting Standards

    Setting Standards Executive Jet guidelines seek to ensure and upgrade quality service for clients, entire industry BY John Boyce, Contributing Editor May 1999 Is it the wave of...

  • Article
    Talking Business in Orlando

    Talking Business in Orlando

  • Article
    One in a Million (Air)

    One in a Million (Air)

  • Article

    Branching Out

    Branching Out Aircraft sales company moves into the FBO business and looks to turn around an Indianapolis reliever By John F. Infanger, Editorial Director October 2000 MT...