Smaller Jets Shake Up Private Plane Biz

Nov. 7, 2006
A new smaller aircraft could make private air travel more available for the less-wealthy.

Business jets have traditionally been the domain of the super rich and high-powered corporate executives who don't have time or patience for getting frisked at airport security checkpoints. But a new smaller aircraft could make private air travel more available for less-wealthy folks.

Very light jets have travelers, corporations and commercial operators buzzing about the "perfect storm" of technology that could revolutionize the way people get places by plane.

The jets cost between $1.5 million and $3 million, weigh under 10,000 pounds, seat about seven people and can fly over 1,000 miles at speeds approaching 460 mph. The cheapest cut the price of existing business jets by more than half, although they generally are slower and fly shorter distances.

They could be an addition to a corporate jet fleet, an individual's plaything, or the savior of the nascent air-taxi industry. Yet no one knows if they will be any of these. Critics say there's a bubble about to burst.

Only two companies have received Federal Aviation Administration certification for the jets so far and are set to begin making deliveries. They are privately owned Eclipse Aviation, whose second-largest investor is Bill Gates, and Cessna Aircraft Co., a unit of Textron Inc.

But the industry has quickly become crowded. Brazil's Embraer SA, an alliance by Honda Motor Co. and Piper Aircraft Inc. and others are seeking certification and deliveries in the next few years.

"They're the greatest growth market the aviation industry has seen in a long time," said Richard Aboulafia, a Teal Group aviation analyst. A self-described "enthusiastic skeptic" of light jet mania, he believes the market capacity will be 250 to 300 orders a year worldwide, with a heavy concentration in North America.

"The real danger is when a group of people start banking on the market growing at 1,000 aircraft a year," Aboulafia said. "Then you get financial carnage."

Cessna has received 250 orders for its Citation Mustang, which costs $2.6 million. Eclipse plans to deliver 515 Eclipse 500s, priced at $1.5 million, next year.

Eclipse has received 2,500 orders. The company said customers generally pay 10 percent down on the purchase price - about $150,000.

Leonard Goldberg, president and owner of Fort Lauderdale-based charter company Gold Aviation Services, put a refundable deposit down on two Eclipse light jets in 2001 and is scheduled to get them next year. Goldberg said aviation critics are overly skeptical.

"Aviation is such a conservative market," Goldberg said. "Everyone else said it can't be done, it won't be done. Now it's clear that it's a viable market that will do well and everyone is paying attention."

Eclipse has invested $500 million in development, and DayJet, an air-taxi company to start up in Florida early next year, placed 239 firm orders for Eclipse jets beginning in 2002. The companies declined to reveal how much DayJet has paid for the planes.

"It could really open up air travel to a whole different group of folks," said Vern Raburn, Eclipse's chief executive, who used to work at Microsoft Corp. with Gates. Eclipse was founded in 1998 and its sole business is the small jets.

While the buzz at October's National Business Aviation Association conference in Orlando focused on the jets, Goldberg said the consensus on the floor about Eclipse was pessimistic.

"I think everyone still thinks Eclipse is going to fail," he said. "It's easy to pick on the brand-new manufacturer."

Raburn's high expectations hinge largely on the air-taxi industry, a large portion of the company's projected sales - 60 percent of which are targeting the commercial market. Air-taxi proponents say that with the low-cost technology of the new jets, there is a great opportunity to bring businesspeople who normally drive into short-haul jet travel.

DayJet plans to fly over 300 Eclipse jets in two years. The company wants to expand into Georgia, and throughout the Southeast after that.

DayJet is basing its franchise on snatching business travelers from the highways by providing on-demand travel between smaller airports. The cost will be equivalent to a standard airline ticket, plus the cost of an overnight stay - which DayJet will render unnecessary, Chief Executive Ed Iacobucci said.

"This is for the middle-niche, middle-tier of travelers that don't have any options," Iacobucci said. "New people will be coming to the plate that otherwise wouldn't have been flying."

Still, Cessna doesn't believe the air-taxi industry is feasible, and so it didn't develop its jet planning to sell a high percentage of them for commercial aviation.

That's the main marketing difference between the two companies with the earliest start in the market. Cessna doesn't need success with the jets to survive, because it is a subsidiary of Textron, which makes everything from jets and helicopters to golf carts and surveillance systems.

"Most of the hype on the VLJ is based on the air-taxi market emerging quickly and we do not subscribe to that," Cessna spokesman Bob Stangarone said. "This industry is evolutionary not revolutionary, so we're not going to see an immediate incorporation of thousands of these airplanes into the infrastructure."

Cessna believes it will corner much of the market on sales for corporate travel and individual owner/operators.

If the air-taxi industry stumbles, jet makers will have to depend on existing corporate fliers, or hope their low prices bring in new aviation customers.

That could mean trouble for high-end business jet producers like Gulfstream Aerospace, which sells aircraft ranging from $13 million to $46 million. But the unit of General Dynamics Corp. isn't concerned.

"We have no intention of getting in (the market)," Gulfstream spokesman Robert Baugniet said. "The more people who appreciate the utility and value of business jets the more happy we are because they will probably grow and we can help them."

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