VistaJet keeps it simple

Alasdair Whyte
By Alasdair Whyte July 9, 2010 14:42

VistaJet keeps it simple

VistaJet’s Thomas Flohr thinks fractional ownership does not work and he says he is not ready to sell the company.

Thomas Flohr thinks people over-complicate private aviation.

The founder, chairman and owner, of VistaJet, the second largest operator of business jets outside the US, is confident that after six years of trying he has found the right model.

Having experimented with different markets, VistaJet now has two products.

“You can either charter an aircraft from us or buy hours,” says Flohr. “We keep things transparent and everything simple.” This simplicity stretches across the whole company.

It may operate six different aircraft types but all are built by Bombardier. Every aircraft is painted silver with a red stripe, with luxurious white leather interiors as standard. “When you walk into a Four Seasons hotel you know what you are going to get. It is the same with VistaJet,” says Flohr. “We offer a luxury product but we do not have a bloated infrastructure.”

VistaJet generates a significant proportion of its revenues from the ad hoc charter market through brokers but the company’s main focus is on selling block hours. Customers can buy between 100 hours and 400 hours of flights a year and are guaranteed an aircraft. While they do not own the aircraft, they do have the right to fly a certain number of hours per year.

“I truly believe that fractional ownership is a broken business model. People do not want a quarter of an aircraft and there is no finance available for these shares if they do.” says Flohr. “We have a three page contract that is simple. Who wants to sign a purchase agreement for a 32th share? With VistaJet you sign today, and fly tomorrow.”

He says that they have found that customers in the Middle East and Russia, in particular, are not interested in owning just part of an aircraft.  VistaJet does offer customers the option of buying a whole aircraft in the VisatJet fleet, combined with a tailored PROGRAM solution. Individuals who buy the aircraft from the company retain ownership, but hand operational control of the aircraft back to VistaJet and ‘buy-back’ the hours they want to fly in any one year. Owners cannot however customise the distinctive silver and red livery of the jets, nor their interiors in anyway – and in fact they may rarely even fly on it. They are however, always guaranteed an aircraft, and will benefit from the income of additional hours sold on their aircraft by VistaJet.

“Ownership is tailored to someone who understands the asset. It is not for everyone, and only around one in every 10 proposals is for ownership – but it does appeal to certain individuals” says Flohr. Less than 10 per cent of VistaJet’s fleet is owned by individuals, but Flohr says it is an attractive product for owners because they do not need to worry about pilot training or maintenance. In addition, because the aircraft is part of a fleet, there is always one available.

He says now is a good time to buy aircraft and at the Farnborough Air Show VistaJet ordered four Global-Express XRS and two Challenger 605s. VistaJet buys aircraft new, operates them under manufacturer warranties and then sells them before they get to three years old. “We sell a young vintage aircraft when there is still some warranty remaining,” says Flohr.

The deal that transformed VistaJet was its 2007 order for 11 Challenger 605s, 13 Learjet 60XRs and 11 Learjet 85s. It also acquired Bombardier’s SkyJet International offices, staff and customers. While the timing coincided with the start of the downturn, closing just three months before the collapse of Bear Stearns, Flohr – while not giving an exact figure – says VistaJet was profitable in 2009 and the fleet grew by 30 per cent.

VistaJet’s first aircraft was personally funded by Flohr, but VistaJet has since used other Austrian, Swiss and German banks. “Last July, [2009] we, like every other company, saw banks withdraw from the market” says Flohr. “But asset prices have recovered and the trend for aircraft at the top of the market, like Challengers, is positive. This is good news as banks need to make sure that they are not financing a black hole so when they see prices stabilise, they take comfort from it.”

Growing the business

In May 2010, VistaJet surprised many people when it announced that it would base two aircraft in Nigeria, following strong customer demand. Kola Aluko, a Nigerian businessman and VistaJet customer, partnered with Flohr to base aircraft in the region. “The enthusiasm at which our product is received is fantastic,” says Flohr.

He also points out that Nigeria is four hours from the South of Spain so links well to the rest of the fleet. The country is a major oil producer so there is strong demand for flights to and from VistaJet’s core Russian, Middle Eastern and European markets. “We’re not currently thinking of South Africa as a priority, but west Africa is close enough to work,” he says. Flohr says the aircraft from the most recent order will be used in West Africa, the Middle East and Europe.

Rethinking Asia

VistaJet’s two aircraft based in Kuala Lumpur are far further away from the VistaJet fleet and Flohr admits that this makes managing them more difficult. While demand in the region is good he says Asia is not a priority for now. “The two aircraft serve the region well for people who fly in on commercial aircraft but Asia is not easy to connect to our other regions,” says Flohr.

He still has plans to grow business there – perhaps with a franchise partner -and  Flohr says they will re-look at the market in around 18 months but his current focus is on growing the existing business. “We are seeing a lot of interest in the Middle East, West Africa and CIS. VistaJet has always been very successful in frontier countries like Russia and the CIS,” says Flohr. “We have a lot of customers who are the new wealthy.  These entrepreneurs do not necessarily want to tie up $20 million or $30 million in an aircraft but want to fly.”

The other market where the company is looking to grow is in Saudi Arabia, and Flohr says he hopes to be making another announcement on the Middle East soon.

Selling the business

Flohr clearly relishes his independence and the flexibility that being private gives him. No public company could change strategy or move into new markets as quickly. A number of private equity firms have approached him about investing in VistaJet but for now he is not interested in selling. Flohr says he would consider a minority long-term strategic investor but his main focus in on growing VistaJet. “It is about execution now. For the next 18-24 months we need to focus on building the business.”

 A simple plan.

 

Alasdair Whyte
By Alasdair Whyte July 9, 2010 14:42

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