The VLJ Effect

Aviation International News » December 2007
November 27, 2007, 11:18 AM

We’re now in year two of the great “onslaught” of the very light jet, and soon these small two- and one-engine turbine-powered airplanes will be “darkening the skies” and “clogging up traffic” at airports all over the world, if some predictions are to be believed.

That hasn’t happened yet, and although two new VLJs began deliveries last year and it looks as if more than 100 will ship this year, the advent of the VLJ is occurring at a relatively normal pace.

Eclipse Aviation, which can arguably be said to have jump-started the VLJ market segment, is ramping up its rate of production to meet a backlog of nearly 2,700 airplanes. In the third quarter, Eclipse delivered 27 EA-500 VLJs, up from 17 in the second quarter and four in the first. Cessna, which delivered the first VLJ–a Citation Mustang–on Nov. 22, 2006, has a more moderate backlog of 400 and delivered a total of 25 Mustangs in the first three quarters of this year. For the year, Cessna is projecting 44 deliveries and production of 100 next year, followed by 150 in 2009. Eclipse’s projected production rate is less clear, although earlier this year the company said it expected to manufacture 250 airplanes this year, a number it likely won’t reach.

The Eclipse 500 and Citation Mustang together will hardly take up too much airspace or even ramp space during the next two years, but there are many other VLJs waiting in the wings, and as they come on line the VLJ segment should grow faster.

Next year, the Embraer Phenom 100 is due to receive Brazilian and FAA certification, and Adam Aircraft expects to certify its long-awaited A700 next year, too. Also on tap for certification next year is the first single-engine personal jet to hit the market, Diamond Aircraft’s D-Jet. In 2009, Spectrum Aeronautical’s first jet, the S-40, is scheduled for certification. While the S-40 weighs about as much as a sub-10,000 pound VLJ, its cabin space and performance are closer to those of a midsize jet. Epic’s single-engine Victory and twin-engine Elite are also scheduled to enter the market in 2009; it will be interesting to see if this happens on time, given that Epic has not yet certified any aircraft.

If developers’ plans go as scheduled, the VLJ fleet should start to take off between next year and 2010, with nine more airplane types joining the market, followed by Cirrus’s yet-to-be-named single-engine jet and possibly ATG’s Javelin. Perhaps the new VLJ class will include models as yet unannounced by developers.

Market Forecasts
Forecasts conflict about the size of the VLJ market. Honeywell’s annual forecast, released in September, predicts delivery of 6,000 to 7,000 VLJs during the next 10 years, while the Teal Group estimates 2,350 VLJs during the same time period. UK-based PMI Media predicts deliveries of 7,650 VLJs through 2016. Forecast International’s outlook is closer to the high side, predicting deliveries of 5,783 VLJs through 2016. The Velocity Group sees a more modest number–4,000 to 6,000 VLJs through 2016. (See sidebar on page 41).

All such forecasts depend on a variety of factors. Forecast International warns that user fees, capacity bottlenecks in production due to higher-than-normal jet manufacturing activity and saturation of the North American market could negatively affect its forecast. According to PMI Media, “For the first time there is some anecdotal evidence that the current volatility in global economic markets might soon impact the VLJ and wider business jet sectors.”

The wild card in any VLJ forecast is the charter market. A number of entrepreneurs believe that VLJs will lower the entry price for charters to the point that many more people will be able to afford chartering instead of flying on the airlines or driving long distances. Current VLJ orders and options for the charter market add up to nearly 2,000 aircraft, and that’s before some players have even announced how many they are planning to buy.

“If your objective is to dramatically lower the cost and to broaden the market, you have to have a VLJ,” said Cameron Burr, president and COO of Pogo Jet, which plans to deploy a fleet of Eclipse 500s in charter service in the northeastern U.S. “We think that if you can buy an airplane that is a less expensive asset and has lower operating costs, you can broaden the market to a whole bunch of people who don’t use private aviation. Any time you can cut the price dramatically, you’re going to stimulate a lot of demand. The VLJ and all that it represents [will allow us] to offer the kind of products that we and DayJet are looking at.”

Pogo Jet’s planned service is whole-airplane charter, unlike DayJet, which is selling individual seats on Eclipse 500s operating in the southeast U.S. DayJet began serving the public in early October and is the first large-scale VLJ air-taxi company to begin revenue flying.

Lexington, Mass.-based Linear Air was nearly ready to begin chartering its first Eclipse 500 last month but, unlike the other air-taxi companies, it began by operating Cessna Caravans to prove its business model and build a solid customer base before switching to jet operations.

The enterprise currently known as MagnumJet has ordered the Adam A700 and Phenom 100 and plans to serve the West Coast with VLJ charters once the airplanes are certified, built and delivered. In any case, said CEO Alex Wilcox, the company will be relaunching under a new name. Not much is known about MagnumJet, and that is part of the company’s plan. “We have been very quiet, deliberately,” Wilcox told AIN.

Like Pogo Jet’s Burr, Wilcox believes that an untapped charter market is just a price point away from wanting to charter a VLJ. Wilcox, whose background is in low-cost airlines, said that a given commodity’s price drop of 50 to 60 percent generates “an enormous stimulation factor.” He compares the rise of air-taxi services to increased demand for airline flights in the wake of deregulation, commenting, “I see no reason to think there won’t be a similar effect in the private jet market when a similar price reduction is put into effect.”

A charter VLJ, Wilcox is careful to point out, “is not a mass-market product.” The charter VLJ will instead serve what he says is a growing “mass affluent market.” And although the ranks of the affluent are indeed growing, not all can afford or want to pay what Wilcox characterizes as the “ridiculous” amounts charged by fractional-share operators or $5,000 to $6,000 per hour for charter jets. “We think we can do it for half that or less,” he said.

Typical charter missions carry 2.5 people 700 miles, Wilcox said. “That’s the sweet spot for a VLJ,” he added, which can handle most of the missions today’s charter companies fly in larger jets. In the MagnumJet business model, some of the charters flown by larger jets will shift to VLJs, he said, and the rest of the growth will come from new charter customers.

Wilcox doesn’t want MagnumJet’s customers to perceive any similarity between professionally flown charter VLJs with two pilots and single-pilot owner-operated VLJs. “It’s like the difference between a guy on a motorcycle and a chauffeur-driven licensed and insured limousine. In the category of VLJs, they’re all getting lumped into the same bucket. We don’t want to get painted by the same brush.” Most VLJ charter companies are consistent in flying or planning to fly two-pilot operations and most of them believe they can offer their product for about 50 percent of typical charter costs in smaller jets.

But one company, YourJet of Louisville, Ky., is going to try to reduce the price of charter to one-third that of typical small charter jets by operating single-engine, single-pilot Diamond D-Jets. YourJet founder and CEO Todd House, like other air-taxi pioneers, believes that there is a large potential market of people who would like to travel by business jet but who thus far haven’t been able to afford to.

A single-engine jet flown by one pilot, he said, keeps the price low enough to appeal to the broadest market. House at first had considered buying the Eclipse 500, but the cost of fuel has gone up so much that a twinjet is markedly more expensive to operate.

Like Linear Air, which launched with Cessna Caravans to prove its business model before buying Eclipse 500s, YourJet plans to start with another airplane, the twin-diesel Diamond Twin Star. If all goes well with certification of the Twin Star for flight in known icing and the company’s application for a Part 135 certificate, YourJet could be flying charters as early as June. YourJet has secured positions for five D-Jets and expects the first delivery in November 2009.

When a new product enters an existing and entrenched marketplace, one of three things happens: it takes business away from established products, expands the marketplace or disappears. Activity in the small end of the business-jet market suggests that for now, at least, one effect of the VLJ is that it is promoting the creation of new businesses. Some include the new air-taxi companies such as DayJet, Pogo Jet, MagnumJet, Linear Air and others, and some are on the service side.

Management company JetAviva, of Van Nuys, Calif., was founded two years ago by former Eclipse employees to serve VLJ owners. It started managing its first customer Eclipse 500 earlier this year and now has three Eclipses under management. JetAviva also assists Eclipse buyers with the acceptance process and has helped with delivery of about 75 percent of the owner-flown Eclipses thus far, according to president Cyrus Sigari. Early next year, JetAviva will announce plans to enter the charter business.

JetAviva customers are planning to take delivery of 12 more VLJs next year, and those customers range from people who have already owned high-performance single-engine airplanes to jets and some whose first airplane is an Eclipse.

While the three Eclipse 500s that it manages have had some teething pains, Sigari said, there have been no big surprises. One has flown more than 40 hours without any maintenance issues.

Working with VLJ owners, Sigari sees more first-time owners starting in aviation with a VLJ. “I do believe that as time goes on we’ll see a lot more new entrants,” he said, mainly due to the lower cost of VLJs compared to existing light jets. Sigari also sees a large market for single-engine jets.

New Entrants
MagnumJet’s Wilcox also subscribes to the new-entrant premise. Companies such as MagnumJet, he said, will take some market share from existing charter operators and because of more attractive prices will also expand the charter market to three or four times today’s size.

Linear Air president and CEO William Herp sees millions of travelers as potential customers for his company’s VLJ charters. “At half the price of a light jet,” he said, “the Eclipse VLJ allows Linear Air to offer personal jet travel for regional day trips at near the cost of three airline seats. The number of trips that meet this criterion is a small percentage of all trips, meaning low impact on air traffic and airline business models, but for the first time in history, personal jet travel will be affordable to millions who simply couldn’t justify the expense previously.”

It’s not just the charter market that sees new opportunities with the advent of VLJs but also traditional management companies such as TAG Aviation USA, which is being purchased by Sentient Flight Group. TAG Aviation USA’s new light jet program offers aircraft management services to VLJ buyers and supports TAG’s VLJ Flying Club, which has ordered 10 Eclipse 500s, one of which has been delivered. The VLJ Flying Club will sell quarter shares in the Eclipse 500 and manage the airplanes for the shareowners, including providing professionally trained two-pilot crews. The rest of the VLJ Flying Club’s order should be delivered next year.

According to Matthew Scheble, light jet program manager for TAG, the company’s interest in VLJs stems from confusion among potential VLJ buyers. Buyers are interested in VLJs, especially because of the lower prices and operating costs, but they still need help with buying and flying VLJs, he said. The VLJ Flying Club’s quarter shares help reduce the price, making owning a share of a VLJ an attractive alternative to the airlines. VLJs will expand the jet market, he concluded, because “I think it’s hard to ignore the value proposition.”

A Designer’s Perspective
Luc Van Bavel is proprietor of a Canadian design firm that helps VLJ manufacturers scope out the market for their products, select engines, create new designs and assist with managing the performance model “through all steps from sizing to certification flight test.” Current projects that Van Bavel’s firm has worked on include the D-Jet and Epic Victory. Van Bavel also maintains a Web site that tracks the history of the VLJ as far back as the Sipa S-200, which first flew in 1952 (see www.machdiamonds.com).

The concept of a VLJ is not new, Van Bavel emphasized. “It’s been tried many times before. The Foxjet is the best example. It dates from the late 1970s, and it’s very close to the Eclipse 500 today. That aircraft was not viable because of the lack of a powerplant. Everything became possible with development of the Williams FJ33 and Pratt & Whitney Canada PW600 series.”

The turbofan engine is the most important factor driving the VLJ market, according to Van Bavel. “A jet is inherently more attractive both to pilots and non-pilots,” he said. “If you own a company and it makes sense for you to operate an aircraft, even as a non-pilot you would be more attracted to purchasing a small jet. With the newer generation of VLJs many more companies can afford an airplane. A smaller company can justify the purchase of a VLJ, which was not the case with entry-level jets before. VLJs widen the market for aircraft ownership.”

As an aerodynamicist, Van Bavel knows that turboprops are inherently more efficient than jets, he explained, “but small companies would not buy a propeller aircraft for a variety of reasons that are mostly irrational. They’re used to flying airlines with jets. The TBM [-700 or -850] is more efficient, and that’s what they should buy.” But jets, he said, are easier to fly, too, so “they have definite advantages.”

While Van Bavel believes the business jet market will expand as VLJs–especially the single-engine models–enter service, he doesn’t think the overall market is big enough for all of today’s players. “Definitely several of the current VLJ startups are not going to exist in a few years,” he said. “On the other hand, this is a market that can expand, and it has the potential to attract new pilots and new businesses to own and operate private aircraft. In the long run, there is a place for everybody, 10 to 15 years down the road. But the key is to have solid financial backing so [manufacturers] can reach the break-even point.”

Cessna, first out of the gate with a certified VLJ and first to deliver a customer VLJ, sees a growing market for this type of jet. “What we can see with the VLJ market,” said Roger Whyte, senior vice president for sales and marketing, “is that it is broadening the base and bringing more people into jet ownership.” VLJs make jets more affordable for more people, he added, because they are easy to fly and economical to operate. (See Mustang Owners on next page).

Some companies are buying Mustangs as their first airplane, Whyte reported, and training companies are also placing orders for Mustangs. Fleet operators, especially outside the U.S., are also ordering Mustangs, he added, including countries where Cessna has previously sold few airplanes.

The VLJ market, Whyte said, “is about where we forecast it to be. The opportunity for growth looks good, and we think it will grow into a strong and stable market.”
The growth of the VLJ market is a combination of technological factors such as small turbofan engines, maturing composite construction and modern avionics, said Adam Aircraft president Duncan Koerbel, combined with the hassles of airline travel and increasing numbers of wealthy people who can afford private jet travel.

Koerbel doesn’t subscribe to the “darkening skies” hypothesis because he thinks that the VLJ air-taxi market will take several years to build. The owner-flown VLJ market should initially see buyers replacing older airplanes such as 25-year-old Cessna 421 piston twins, he added. “The VLJ is much safer and easier to fly.”

Like the regional jet market, Koerbel said, VLJs will start out slowly, but a decade from now ramps at most airports will include VLJs. “Go to any [large] airport now and it’s swarmed [with RJs],” he said. “The RJ market didn’t get like that overnight, and VLJs won’t get there overnight. But I think the future [will be] huge.”

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