Monday’s news that British private jet management and charter firm Ocean Sky has acquired the lion’s share of Düsseldorf-based Triple Alpha is a pointer to the possible new shape of Europe’s private aviation market.

The acquisition doubles the size of Ocean Sky’s managed aircraft division, bringing the number of aircraft under its wing to 32. The company now has a strong presence in Germany, one of the most important European private jet markets.

The deal is the first acquisition by UK-based Ocean Sky since the company announced it was spending £32 million on expansion plans this year. The UK firm will immediately inject €1.8 million into the new entity, which will be in the top tier of private jet companies in Europe by number of aircraft and turnover.

Ocean Sky has steadily grown since starting life as an aircraft broker in 2003 and expanding into full aircraft service in 2005. It has fixed-base operations in Stockholm, Manchester, Prestwick and Luton, as well as offices in Salzburg, Zurich and Moscow. The company also recently announced plans to expand its maintenance network by acquiring fixed-base operations in central Europe. Chief executive Kurosh Tehranchian said: “I’ve never made a secret of the fact that we’re on the acquisition trail. We have interests in five areas: broker, charter, management, FBO and maintenance. We intend to grow in a uniform way.”

He added that the Triple Alpha acquisition gives Ocean Sky two aircraft operating certificates (AOCs) – in the UK and Germany, plus a central European footprint with a fleet ranging from light jets to ultra long-range aircraft up to an Airbus A319 Corporate Jet. Tehranchian said: “Some people may want to add their aircraft to the German AOC for cost savings.”

Ocean Sky intends to make further acquisitions in the months ahead. Tehranchian said: "It is our belief that the landscape for aircraft operators in Europe is going to change fundamentally, with consolidations and acquisitions creating a super league of major players coming out of this recession. We will be one of them.”

Triple Alpha’s co-founder Hans Pfeiffer also predicted that the coming months would see “considerable consolidation” in the private jet market. He said: “What we have done is recognize the changes ahead. It’s a win-win for us to be with Ocean Sky.”

The new paradigm
Elsewhere in Europe fast-growing on-demand/block charter operator VistaJet, which has its head office and AOC in Austria, is on track to achieve 15% growth in the region for the full year. Last July VistaJet bought Bombardier’s former charter arm Skyjet International. Thomas Flohr, founder and chief executive says that Russian business in particular has been up 25% year on year. He said: “We have seen growth across all our product lines. People are going towards the best value in the market. They want to fly on the best product for their money.” Vista Jet launched a 25% discount on same day return flights at EBACE this year, which has helped stimulate its growth. Flohr said: “We have seen many people sign up over the last 90 days thanks to this attractive value proposition, which has cut the level of inefficiency in broker offerings. Charter and on demand are less expensive on certain routes than the price paid by people subscribing to 100 - 200 hour programs.”

VistaJet focuses on four aircraft models. Flohr said: “Because we don’t have 16-17 aircraft types, we pass the value we create on to our customers. We have an efficient working strategy at the front end and the back end of our business.”

Flohr and Tehranchian think differently about fleet diversity. Ocean Sky believes that a mixed fleet is useful to clients, who may choose to use a Bombardier Challenger 605 for one trip, but may need a Learjet 60 the following day. Tehranchian said: “We don’t mix crew between jets even of same family. We need a post holder maintenance manager of airworthiness who has familiarity with all the types, but this overhead is not so large that we shouldn’t make a Falcon 900 available to our customers.” However, he points out that ultimately the customer chooses aircraft.

Both business models seem to be working well. In July, VistaJet flew approximately 750 flights. Flohr said: “It was a logistical masterpiece, we had to operate like a full blown airline in terms of managing pilots and fleet, except we had no scheduled service.”

According to Flohr, the European charter market has contracted by around 15% this year, although his company has grown by 25% and aims to grow its fleet from 25 to 50 aircraft. VistaJet has also seen large growth in Russia and bases two aircraft permanently in Moscow. Like Tehranchian, Flohr is convinced the European business aviation landscape is changing. He said: “This market is growing up in the economic crisis. It is very fragmented.”

A morphing market
Ocean Sky has said that it was largely unaffected in the early stages of the economic downturn, which hit the banking and financial sectors first and impacted charter sales. Tehranchian predicts the charter market will remain sluggish for 2009, but will pick up in 2010. However, the company is taking advantage of the downturn to develop its operations.

Other larger players are taking staking their claims during the turbulence. Earlier this year Bombardier Flexjet relaunched its fractional ownership program in Europe. Fred Reid president of Flexjet and Skyjet USA said at launch that Europe has a “good appetite” for fractional ownership and praised Lisbon-based NetJets for "laying the groundwork" and sticking with its program - introduced in 1996 - at huge expense and flying against enormous skepticism.

The new Flexjet entity may have eroded the fractional market for Bombardier’s largest European customer Jet Republic. The Lisbon-based start-up had placed orders and options for 110 Bombardier Learjet 60XRs and planned to begin fractional operations in September 2009. With backing from Austrian private bank Euram, Jet Republic placed the record order at EBACE 2008. Comprising 25 firm orders and 85 options, the deal was valued at $1.5 billion.

Jet Republic collapsed this month despite its wealthy backers. The company’s strategy was to sell shares to celebrities and it claimed it would be buoyed through the recession by attracting businesses that were trading down from aircraft ownership. It promised flight attendants, hot food, and fresh coffee and in-flight connectivity as standard on its midsize business jets. Headed by former NetJets Europe executive Jonathan Breeze, the firm blamed a lack of financing for potential customers for its demise.

In a company statement, Jet Republic cited "extremely difficult conditions" in the aviation market, noting a 22% drop in business jet deliveries in the first quarter and expectations of negative net orders for business aircraft orders for 2009. The statement continued: "Until very recently, we remained very confident of meeting our objectives, but the aviation asset finance market has completely dried up, making it much more difficult for potential clients to take out and obtain financing for fractional ownership of jets."

Rival NetJets has grown slowly, building a fleet of around 170 aircraft, from light to large-cabin types - and more than 1,000 customers for its fractional and card programs. However, even the Berkshire Hathaway-owned company has been hit hard by the economic downturn and has been forced to suspend deliveries and cut staff, although it is expanding its sales forces.

One reason for NetJets’ belt tightening is that used aircraft prices have tumbled dramatically over the past year and fractional shareholdings have taken a sharp punch, forcing many customers to sell at a loss. NetJets, has cancelled 12 orders for Hawker Beechcraft 4000 aircraft and deferred all deliveries for the remainder of the year as well as for next year.

Survival of the fittest
Despite cuts in some areas, the strong are getting stronger. Ocean Sky’s Tehranchian says that his firm is in “advanced acquisition discussions” with two other companies. He said: “This has phenomenal appeal for us. The European landscape is changing. There are 750 operators in Europe, only 20 of them have more than ten aircraft.” He believes that larger operators will thrive and grow, along with niche operators serving small local markets.

His view is that Europe will soon evolve into tiers of “super operators,” a group of ten to twenty companies that have a large number of aircraft at their disposal. This will drive down costs and make operations more efficient thanks to economies of scale. He said: “’You can make extra savings on empty legs. If you have 50 aircraft, the likelihood is that you will have aircraft where the customer wants to fly. This means that empty legs drop from 50% to hopefully around 10% or less.”

Something is certainly working. Ocean Sky has achieved a 33% growth since January 1, both through acquisitions and organic expansion. There is also a strong incentive to continue. According to accountancy firm PricewaterhouseCoopers, the business aviation sector in Europe contributed a total of €19.7 billion to the economy in 2007, accounting for approximately 0.2% of the combined GDP of the European Union (EU), Norway and Switzerland.

Such figures are highly motivating for the likes of Ocean Sky. "We have always been ambitious in our growth plans and the economic downturn has not changed that," said Tehranchian. "We could sit back and worry or just get on and prepare the business for when the economy starts to grow again. The business aviation market is solid and we are in it for the long term.”

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