View Full Version : United Airlines to fly exec jets

26th Apr 2001, 09:53
April 26, 2001

United Plans Corporate-Jet Service To Attract High-End Passengers


United Airlines wants to welcome you aboard an altogether different class of service.

UAL Corp. is launching a unit that is poised within five years to operate 200 corporate jets seating six to 14 passengers, according to people familiar with the matter. By offering a corporate-jet option, United aims to win the premium-class customers it has lost to the booming private jet market. It also hopes to lure passengers it never succeeded in winning, namely corporate titans and high-net-worth individuals such as athletes and actors.

The initiative would bring the aviation know-how and financial heft of the nation's second-largest commercial airline to a market that is booming in part because of the unreliability of commercial air travel. United's planned unit will offer what is typically called fractional-jet ownership service, meaning that clients will buy a portion of the planes, almost like a time share, and then pay operating fees when they fly. In return, the clients are guaranteed a set number of flying hours a year, and if their own personal plane isn't available, a similar one will be flown in. United will hire and train the pilots and arrange for maintenance, insurance and catering.

The largest player in the fractional-jet market is Berkshire Hathaway Inc.'s Executive Jet unit, which has boosted its fleet to 265 planes operated for fractional owners, and which expects to increase that number by 55 to 70 planes annually for the next five years. Others flocking to the thriving market include corporate jet builders Bombardier Inc. and Raytheon Co.

"We welcome the competition," says Richard Santulli, chairman and chief executive of Executive Jet, of the UAL plan. But Mr. Santulli, who invented this concept of time-share ownership of private jets, predicts that his deeper experience in the market will amount to a significant advantage, especially considering the dissimilarities with the commercial airline business. "[United] won't have that luxury of putting up a 'cancelled' sign" for a flight with corporate jets, he says.

The lure of corporate jets goes beyond comfort and convenience -- in some cases, they can be cost-efficient. For instance, a company might buy a 1/16th share in a seven-passenger Cessna Citation V Ultra for a one-time fee of $375,000, pay a monthly management fee of $5,225 and pay an hourly rate of $1,318 for the 50 hours of flying it is entitled to in a year. Sounds pricey, perhaps, but after the one-time fee, the company's hourly cost to use the plane is around $2,500. Flying four people on a trip to three cities in a day would not only save time, but might also be cheaper than flying first class on a commercial jet.

The UAL unit already is incorporated. Indeed, the unit has been preparing to become airborne for two years. It has taken office space three miles from United's suburban Chicago headquarters and is close to signing major corporate-jet orders, according to those familiar with the venture, code-named "Shakespeare."

The subsidiary is working with numerous consultants, financial advisers and recruiters and is beginning to hire, although not the 1,000 pilots it will need for the fleet. The company intends to begin actively selling shares in the planes this summer, although it probably won't take deliveries of the luxury jets for some time after that because most manufacturers have large order backlogs. United is expected to have some business jets in the air by the first quarter of next year.

A United spokesman wouldn't comment directly on the plan. "UAL is constantly evaluating new opportunities which supplement our existing business and meet customers' needs," he said.

The corporate-jet subsidiary is part of a larger expansion that new UAL chief executive, Jim Goodwin, initiated. United two years ago decided on several strategies to expand its business, according to people familiar with the process. One leg of that effort was the creation of a UAL subsidiary devoted to e-commerce investments and initiatives. Another was aimed to fortify the airline's core business; to that end, UAL last year announced an audacious plan to purchase US Airways Group Inc. for $4.3 billion. That plan still lacks the necessary approvals from the Justice Department and its future is unclear.

The third strategy was to get into corporate aviation, which is fragmented between companies' own private jets, charter operators, brokers and now the fractional-jet companies. United is "better positioned to do it, with 75 years of experience," says one person with knowledge of the plan. Among other things, the company brings corporate travel relationships; its buying power; a safety, maintenance and training culture; and powerful computing abilities.

Still, United, whose reliability and punctuality were shattered last summer by labor unrest and other factors, faces an image problem, says Jim Coyne, president of the National Air Transportation Association, a trade group representing general aviation businesses. Mr. Coyne believes UAL's entry into corporate jets would be a positive move for the industry. "The airline knows that first-class travel has become an oxymoron," he says.

United wouldn't be the first major carrier to experiment with corporate jets. Now-defunct Pan American World Airways in the early 1960s had a vision that business aviation was becoming an important segment of travel and ordered 200 corporate jets from Dassault Aviation SA of France. Pan Am ran corporate jet charters, but its primary business was selling the airplanes to Fortune 500 companies, and providing service and support.

Today, Dassault is holding advanced negotiations to sell new-generation business jets to UAL, according to John Rosanvallon, president of Dassault Falcon Jet. He says he hopes to have a memorandum of understanding with UAL within 30 days, covering firm orders for 30 to 40 Falcon jets and a similar number of options. The three models under consideration seat eight to 12 passengers, can fly across the country or to Europe and cost $22 million to $32 million each.

Gulfstream Aerospace Co., a unit of General Dynamics Corp., also is said to be in negotiations with UAL over aircraft, according to people familiar with UAL's plans. Bill Boisture, Gulfstream's president, said he couldn't comment. But he said having a major airline get into the fractional-jet business "would open up a distribution channel for the products that hasn't been there before."

UAL's business-jet customers will not earn miles on United. But they are in for "six-star, Harry Winston" service, according to those with knowledge of the plans. While the new venture will raid United for its processes and operational standards, the customer-contact employees will be hired not from airlines but from the hospitality and corporate-aviation industry.