Flexjet Asia-Pacific turns one; continued growth expected

AINonline
October 15, 2007, 11:02 AM

Marking the first anniversary of the launch of its Hong Kong-based business aircraft charter network last month, Bombardier Flexjet Asia-Pacific believes it is the first in a market expected to skyrocket. “We think we have a winning program here,” said Flexjet Asia-Pacific general manager Gregory Kalinin.

Flexjet Asia-Pacific avoids using the term “charter broker,” preferring to describe itself as “a transport-solutions company providing customized block and ad hoc [on-demand] business aircraft charter through an approved network of charter operators in the Asia-Pacific region.” The network now includes five business aircraft charter companies: Rainbow Jet Charter in Jinan, China; Subic International Air in Subic Bay, the Philippines; Macao-based Jet Asia; Pacific Flight Services in Singapore; and (the most recent addition to the network) ExecuJet Australia in Sydney.

Demand for business aircraft travel in the People’s Republic of China (PRC) is growing, said Kalinin, for a number of reasons, but it is driven primarily by a dramatic increase in foreign investment in the PRC in the past decade.

According to U.S. investment banking and securities firm UBS Warburg, direct foreign investment in the PRC by foreign companies reached $3.7 billion in 1990. By 2000 that amount had risen to $39.8 billion, and estimates were that direct foreign investment would reach about $56.2 billion in 2002. “This leaves the business aviation charter industry with some catching up to do,” said Kalinin.

He said Flexjet Asia-Pacific had originally expected 80 percent of its business to come from outside the Asia-Pacific region. Instead, that number is closer to 60 percent. Part of this reflects a preference by North American and European business travelers to use scheduled airline service or their own business jets into major Asia-Pacific hubs, such as Hong Kong and Singapore, and thereafter take advantage of domestic business aircraft charter. It is a preference prompted by substantial domestic tariffs and restrictions levied on foreign flag aircraft as a means of protecting domestic air carriers.

Tariffs and restrictions levied by China are particularly burdensome. Aircraft of foreign registry entering China are subject to a $1,400 application fee and a $3,000 China compensation fee (per entry). Foreign-registered aircraft are also subject to airport handling charges ranging from $2,500 to $4,500, compared with handling fees of $250 to $800 for aircraft of Chinese registry.

Regulations favoring domestic carriers in China result in considerable time penalties for foreign aircraft. The lead time for flight clearance for foreign-registered aircraft is seven working days, while just one day is required to clear Chinese-registered aircraft. Chinese aircraft also have the advantage of more direct routing. Using the published flight route from Hong Kong to Xian, for example, at a speed of 450 knots, flight time is 3 hours 15 minutes. The same trip by a Chinese aircraft using domestic routing would require just 2 hours 25 minutes.

Easing that burden in China is Flexjet Asia-Pacific’s Jinan-based partner Rainbow Jet, which flies PRC-registered business jets.

As part of the agreement with Flexjet Asia-Pacific, all the partners provide charter on Bombardier-built business aircraft, ranging from Learjet 45s to Challenger 604s. Subic International, one of the most active of the group, expects to take delivery of a new Learjet 60 this spring and has a new Challenger 300 on order.
According to Kalinin, the partners selected by Flexjet Asia-Pacific must undergo an independent safety audit, and aircraft must be maintained to Bombardier standards. They must also provide charter lift only on Bombardier-built aircraft for Flexjet clients, and no aircraft may be more than 10 years old.

Kalinin described the financial relationship between Flexjet Asia-Pacific and its partners as “one of shared financial risk and shared revenue.”

The partnership is enhanced by Bombar- dier’s considerable aircraft maintenance network that includes Singapore, Japan and Australia, and field-service representatives at nearly a dozen Asia-Pacific locations.

Toll-free calls from North America for a Flexjet Asia-Pacific charter go directly to a North American-based call center, which forwards the request for charter to the company’s Hong Kong headquarters. European clients may call Flexjet Europe. At the center in Hong Kong, schedulers weigh the needs of the client and determine which partner best meets those needs. The company will also provide supplemental lift using Bombardier aircraft from other charter operators if no partner aircraft are available, but “we haven’t had to do that yet,” Kalinin said.

Flexjet Asia-Pacific’s primary focus, he noted, is ad hoc charter. But, Kalinin added, there are companies interested in travel in a particular region for whom block charter is more advantageous. Flexjet Asia-Pacific’s single-point access to aircraft throughout the region, he said, keeps costs down by reducing deadhead charges.

While Flexjet Asia-Pacific is meeting with apparent success with regard to charter, Kalinin believes demand remains well below what would be necessary to support a fractional operation such as that of the Bombardier Flexjet program based in Dallas. “The average use [in the Asia-Pacific region] by charter customers is typically less than 100 annual hours,” said Kalinin, “well below the number required to make a fractional-ownership share worth considering.”

However, packages are designed that allow share owners and participants in other Flexjet Europe programs who travel extensively in the Asia-Pacific region to fly a certain number of hours in the Flexjet Asia-Pacific network. Similar packages might be worked out with Bombardier Flexjet participants, though Kalinin said to date there has been no demand.

Kalinin did not offer exact numbers with regard to hours flown in the first year, but said Flexjet Asia-Pacific brokered hours have “exceeded our internal expectations.” And, he noted, “We’re looking for additional partners.”

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