Analysis: Horrible Year for VLJs

No one can deny that since we last gathered at the National Business Aviation Association convention a year ago, this has been a tough year for the very light jet industry. It has been filled with the bankruptcy of Adam Aircraft and serious financial problems amongst the fledgling manufacturers. Most recently, we saw the end of the much-anticipated, much ballyhooed, bold, per-seat, on-demand experiment by DayJet. Related Story
But a review of Aviation Today’s VLJ Report’s first year reveals several milestones as well, not the least of which is the growing number of both air taxis and vlj-related air taxi companies both here and in Europe. Driving this trend is the hassle factor for commercial airlines and the length of time it takes to fly commercial. Two travel organizations confirmed what the industry already knew: business passengers were migrating away from scheduled air service.
The Travel Industry Association reported that passengers have avoided 41 million trips over the year of the survey, costing the airlines $26.5 billion; hotels $6 billion; $3 billion to restaurants; and state and local governments $4 billion in lost tax revenue. The landmark survey was the first time traveler frustration was actually quantified. Couple that $26 billion with the $12 billion + delays cost the economy this year and it is little wonder that business aviation continues to boom. The Stanford Group completed an analysis indicating business aviation grew from 16 percent of all premium business traveler trips to 41 percent. Related Story

VLJ speed records were broken and broken again, first by the Cessna Mustang, the first VLJ to earn a certificate of record from the National Aeronautic Association (NAA), and then by the Eclipse 500. After duplicating the Mustang’s route, the Eclipse set a new U.S. national speed record in the NAA record category of Class C, Aeroplanes, Very Light Jets. The company was able to boast that the mission was accomplished with far less fuel than its Cessna counterpart.
Although it was not certified by NAA, Epic Elite claimed bragging rights when test flights over Oregon logged cruise speeds over 385 knots, “making it the undisputed fastest vlj in the world,” said the company, which claimed the Elite was faster than both the Embraer Phenom 100 and the Eclipse 500. Now, all it has to do is get its only aircraft back from Georgia where it is captive to the Georgian/Russian conflict and that may not be any time soon, said Epic Chair and CEO Rick Schrameck during an NBAA press conference yesterday. The aircraft is fine and undamaged but Epic is very cautious in making plans to get it out of there. It will have to be helicopter lifted to the commercial airport before it can leave.

Despite the milestones, yesterday’s news conferences were filled with words like volatile as to the economic impact of the latest financial crises on the business aviation industry but Cessna indicated it was too early to tell. Even as they were reporting that volatility, manufacturers pointed to their long backlogs saying they will take them through the coming slump next year and beyond.

Hard Times
There is no doubt that at least part of the problem was the increasingly tight financial markets which began over a year ago, and, by the end of 2007, it was clear that most business plans had been knocked off kilter. But Schrameck, whose company is profitable, didn’t blame all the woes on the constipation in the financial markets. “Some of it is the economy and the financial markets, but it is also the management and technical issues that have arisen in the last year. The ability to go out and get funding is harder than it was even a year ago.” Certainly, tightening capital markets is what happened to DayJet and Former AMR Chair Robert Crandall’s PogoJet, the launch of which has been put off. But it was also during the year that PogoJet jumped from using the Adam 700 for its operating platform to the Eclipse 500 shortly before Adam entered bankruptcy. Despite, DayJet’s failure, Eclipse pointed out that its popularity remains with many willing to take up the delivery positions held by DayJet. But, the financial crises also mean that many of the new business models remain untested.

One of the disturbing dramas from an industry perspective was the stinging criticism of both Eclipse and the Federal Aviation Administration regarding the certification of the Eclipse 500, illustrating the rush to certify a very light jet to meet a financial deadline at the company and a FY2006 goal at the agency. Related Stories
The recent hearings called into question Eclipse management as well as the experience of its staff in certification issues giving rise to worries that if they did not know how to certify an aircraft, what else do they not know about manufacturing such a sophisticated piece of equipment. Certainly VLJ Report commentators – those who leave comments at the bottom of stories – have reported inexperience among Eclipse and other manufacturers. All this only seemed to realize predictions made by observers last year that untried manufacturers will be trouble compared to veterans such as Embraer and Cessna. DayJet, itself a rookie to the aviation marketplace, did rely on Eclipse and sited problems with both the aircraft and the manufacturer when it ceased operations.
All this bad news certainly gives the numerous Doubting Thomas’s the opportunity to say, “I told you so,” but more than that, it shattered the rosy picture painted a year ago when the industry was called the microchip of aviation. Related Story Certainly, the industry retains that potential but this year has seen the full blown teething pains of any fledgling industry and that is exactly how we should be thinking of these ups and downs.

Indeed, were it not for foreign investment, the last year would have been much worse and would have likely included nails in the coffins of both Eclipse and Adam. With the approval of its acquisition by a Russian conglomerate, Adam Aircraft, now AAI, became the third manufacturer to be rescued by foreign capital. Both Eclipse and Epic were able to secure additional financing by tapping international investors in Europe and India, respectively, both of which paved the way for foreign production. Related Story Even so, Epic’s investor Vijay Mallya, has yet to come through with his promised investment. Schrameck said that rumors that Mallya is having financial problems is like saying the same thing of Warren Buffet. However, he did acknowledge that things were tight and that he was probably now in a holding pattern. As for Epic, Schrameck proudly said that, unlike other VLJ counterparts, Epic is profitable thanks to its conservative style and the revenue brought in by other parts of the company.

Interestingly, when queried last year about the role of the VLJ in such operations, Cessna said the Mustang will largely be operated by owners, echoing similar sentiments of the developing HondaJet. To be sure, that is a big part of the market since many of the air taxi upstarts are aircraft management companies offering VLJ owners an opportunity to make money on the side or at least defray the cost of owning one of these new birds.
That brings to mind the milestones achieved by Honda Aircraft Company in breaking ground on its new headquarters and production site for the GE Honda HF120 engine in North Carolina.

A Few Highlights
The industry gained its first exclusive VLJ management company in jetAVIVA, which opened new corporate headquarters at Van Nuys Airport in California, conveniently adjacent to the future Eclipse Aviation Service Center. Its Eclipse 500 management service began flight operations with three Eclipse 500 jets.

Other milestones include Mustang orders reaching 500 and recently, 100 deliveries. While it has yet to deliver the Phenom 100, Embraer reported 700 firm orders during the first year. Embraer also announced it would build the Phenom at a new production facility Melbourne, Fla.

This month Cessna achieves its planned full-rate production level on the Citation Mustang averaging three Mustangs rolling off the production line each week at its Independence, Kan., manufacturing facility. At full rate, employees on the Mustang line are scheduled to deliver 150 entry-level business jets per year starting in 2009. The current fleet of Citation Mustangs totals roughly 115 aircraft that have accumulated more than 19,000 flight hours, and the high-time aircraft has logged more than 500 hours.

Bend, Ore-based Stratos Aircraft announced it will develop what it called the ultimate personal jet the Stratos 714. The new $2 million bird is expected to hit the market in the first quarter of 2010.

Very Light Personal Jet (VLPJ)
Although classified a personal jet, Piper's PiperJet made its maiden flight this past year, flying for an hour and reaching max altitude and a speed of 160 KTAS as per the flight test plan. The fledgling aircraft incorporates many new design features, and its first flight was focused on taking an early look at basic handling characteristics. Deliveries are scheduled to begin in 2011.

The Cirrus Jet, now known as The Jet to the company and the Vision SJ50 to the rest of us, took to the air for the first time on July 3, when it made a 45-minute flight from Cirrus Design Company’s worldwide headquarters at the Duluth International Airport in Minnesota.

GA Safety
A major milestone for the general aviation industry came when the National Transportation Safety Board announced that GA nearly halved its fatality rate last year in its continuing march toward improving the safety. In addition, deaths in general aviation accidents were at their lowest total in more than 40 years, even if it did include Steve Fossett.
Indeed, while the charter industry remains far below the commercial industry, the NTSB’s preliminary aviation accident data for 2007 showed no fatal passenger carrying accidents involving jet airplanes flown by on-demand air charter operators nor by shared aircraft ownership program companies, according to the Air Charter Safety Foundation. This is especially significant given the continuing focus on operational control and the growth of this segment of the aviation industry.

Stumbling Blocks
In addition to the milestones were a few stumbling blocks. One of the more ridiculous was the National Air Traffic Controllers Association announcing they were having trouble integrating VLJs into the system. True, they were in Florida and true, that is where the lion’s share of VLJs were located with DayJet’s 28 birds, but it smacked of unioneering in the running battle the organization has with the FAA. But far from being a problem, DayJet was working on the solutions as was the Personal Air Transportation Association in which it was a member. Collectively, they will test many of the new systems that are going into NextGen. Related Story
The industry also expressed on-going concern with the marketing and sale of empty legs following statements by the FAA that some flights might be illegal because they offer up a schedule. Selling those empty legs is the lynchpin of some of the new business models. According to a recent FAA legal interpretation, these flights may in fact meet the definition of a "schedule" and therefore must be conducted under Part 121 if a turbojet-powered aircraft is used. If so, that would eliminate the growing trend to match passengers to aircraft returning from a mission. It could also do to the emerging air taxi industry what it did to regionals – increase the cost of doing business to the point it is uneconomical.

A Look Ahead
There is much to look forward to in the coming year, not the least of which is entry into service of Embraer’s Phenom in a few week’s time. Citing market demands, Spectrum moved certification of its VLJ aircraft – the Independence – back to 2010, bringing forward certification of its midsize jet – Freedom – next year. Despite the delay, the company cited the improvements that will be incorporated during that time.
We will also see the newly refinanced AAI Acquisitions move forward with its A700 VLJ. Its first flight was August 2007.

We will likely see the unveiling of proposed regulations governing commercial air taxi operations, originally announced in VLJ Report’s inaugural issue last year. In June, FAA suggested they could be out by the end of this year but it is more likely to slip into next. We will also likely see new certification regulations for VLJs but it is unknown when they will be unveiled.
In addition, now that GAO has confirmed the suspicion of operators and the National Air Transportation Association that the lack of uniformity in interpreting regulations is getting in the way of safe operations, we might see movement toward standardizing such interpretations but that would likely be a long, excruciating effort. Related Story

For now, the we will probably see more of the same in the next year but one thing is for sure, The Eclipse certification debacle will fallout all over those manufacturers who are certifying their aircraft in the next few years.