“"My model for business is the Beatles. They were four guys who kept each other’s kind of negative tendencies in check. They balanced each other, and the total was greater than the sum of the parts. That’s how I see business: great things in business are never done by one person, they’re done by a team." ”
Avantair’s bargain proposition
It’s no secret that the fractional aircraft industry has limped along during the Great Recession and following anemic recovery period, but one provider—Clearwater, Florida-based Avantair—has seemed to defy gravity. The four other, larger national fractional operators—NetJets, Flight Options, Flexjet and CitationAir—all saw their flying fall by high single-digit percentages during this time, while Avantair’s fleet of 57 Piaggio Avanti twin-turboprop pushers has mostly been logging double-digit gains, according to flight activity data from aviation research firm ARGUS.
This is because the Avanti offers shareowners a good value: a cabin equivalent to that of a midsize jet, near-jet-like speeds and lower operating costs. Moreover, the 10-year-old Avantair has patterned itself on the Southwest Airlines business model by flying just one type, resulting in numerous efficiencies: maintenance technicians and flight crews need to be trained on only one aircraft; spare-parts inventory is simplified; and the fleet, and crews, are interchangeable.
The result is a fractional aircraft with occupied hourly rates that are a third less than those for light jets at competing providers. Kevin O’Leary, president at the business aircraft consultancy firm Jet Advisors, said that when all management and occupied costs are included, Avantair costs about $4,500 per hour, while light jets at other programs run about $6,000 an hour. The larger aircraft cabin of the Avanti is just icing on the cake.
However, O’Leary and Michael Riegel, owner at the consultancy AviationIQ, pointed out that Avantair starts to lose this price advantage at about 700 miles, where the jets’ higher speed translates into significantly shorter flights (and correspondingly less occupied time), virtually erasing the Avanti’s cost advantage. For this reason, both consultants do not recommend Avantair for customers who typically fly trips of more than approximately 1,000 nautical miles; they view the company as more of a regional lift provider.
O’Leary said Avantair’s “sweet spot” is at around 300 nautical miles, a trip that would take about an hour in the Avanti. “Though the light jets at competing programs can do this trip in about 50 minutes, the owners would be charged for the minimum one hour of occupied time,” O’Leary noted. “So Avantair would actually cost a third less in this case.” But a 1,000-mile trip in the Avanti would take three hours and one minute, nearly one third longer than in a Learjet, he calculated.
Avantair also has a different method for charging monthly management and occupied hourly fees than its competitors. It assesses a fixed amount each month that includes the regular monthly fees and a twelfth of the owner’s annual occupied flight time. For a one-sixteenth share (50 hours of flight time annually), this amounts to $22,000 per month. The other fractionals charge a monthly management fee and then separately bill owners for occupied time after flights are conducted.
While this pricing structure provides budgetary certainty to customers, it causes some heartburn for the two consultants because they dislike customers prepaying for occupied hours they might not use. “They are collecting this money before you fly. The only way I could see this as a good thing is for the customer who uses all of their flight hours early in the year,” said O’Leary. “The fact is, however, that shareowners typically fly only 80 percent of their flight hours over the life of their five-year contract.”
Riegel and O’Leary said the service at Avantair has been good—that is, until a mechanical issue grounded the entire fleet for three weeks last October, meaning customers couldn’t fly in their airplanes during this period. The grounding resulted from an issue with the Avanti’s elevator, a flight-control surface that changes the attitude of the airplane’s nose. This exposed the Achilles’ heel of the Southwest Airlines model, Riegel said. “Avantair was handed a lesson about having a single type. There was no backup available during the grounding,” he noted. “The company is going to have to add a second aircraft type to prevent something like this in the future.” (In 2006, Avantair did place a firm order for 20 Embraer Phenom 100 light jets, along with options on 80 more, but it sold these positions in 2008 to central U.S. regional fractional provider Executive AirShare. At the time, it said that the Phenoms no longer fit into its strategy. At present, Avantair has no plans to add another fleet type.)
The problems with the Avanti started last July, when one of Avantair’s airplanes shed an elevator while taking off in Camarillo, California. This aircraft later landed safely, despite the fact that one of its control surfaces was missing.
A subsequent investigation by the U.S. National Transportation Safety Board found that directions from Avanti manufacturer Piaggio Aero for FAA-required maintenance on the elevator specified reusing locking nuts to secure the control surfaces. However, these fasteners lose their locking ability when removed, and the vibration from aircraft operations eventually caused one of the nuts to loosen and come off, resulting in the loss of the control surface.
To fix the problem, Avantair could have rotated its turboprop airplanes through maintenance bases to replace all of the reused locking nuts with new fasteners. While this would have minimized disruptions for customers, company founder and CEO Steven Santo decided to voluntarily ground the entire fleet “out of an abundance of caution.” Explaining further, he said, “What it really came down to was this question: would I put my family onboard these aircraft knowing that some of the locking nuts could unfasten? And I kept coming back with the same answer: ‘No.’”
Besides replacing the fleet’s elevator fasteners, Santo used the opportunity to inspect all of the aircraft from top to bottom, and to review their maintenance logbooks and associated paperwork. When Avantair notified the FAA of the problems with the locking nuts and its actions to correct the situation, the agency sent in a dozen inspectors. Though the FAA found no violations, its involvement stretched out the process to a three-week event. Santo estimates that all of Avantair’s inspections could have been done in less than a week sans the FAA participation.
During this review, Avantair also brought in Nick Sabatini, the FAA’s associate administrator for safety until he retired three years ago, to lead an examination of the company’s aircraft and maintenance operations. That led to changes, most notably that “light” maintenance is now outsourced to a half dozen Piaggio-authorized service centers in the U.S. in an effort to increase maintenance capacity and thus reduce aircraft downtimes. Avantair still conducts “heavy” maintenance, including engine overhauls, at its Florida headquarters.
In addition, the review prompted the company to incorporate airline-style safety management systems for maintenance and operations, even though the FAA does not require them at the fractional providers. In November, the company brought in another former high-level FAA official, David Cann, as its senior vice president of safety, quality and compliance to oversee this effort. Cann, a 22-year veteran of the federal agency, had been responsible for drafting its maintenance program regulations, in addition to guidance and policy now used by the airlines. In other words, he wrote the book for the safety systems that Avantair is implementing.
The company’s fleet returned to full operations early this year, and it is doing everything it can to repair its reputation. Santo admitted that Avantair did lose a few dozen customers over the grounding, but said that most of its 900 shareowners, aircraft-leasing and card-program clients have stayed put. In fact, several customers have called or written to thank Santo for putting their safety over company profits, even if that meant some inconvenience for them this past fall.
As for customers who remain wary of the fleet’s reliability due to the grounding, Avantair is working hard to retain them. In some cases, the company is allowing them to renew for shorter terms (less than five years) to give itself the opportunity to prove its value again. “Our job is to provide dependable, top-notch service, without compromising safety,” Santo said. “We’ve done this in the past, so I have no doubt we can do this going forward.”
Santo believes that Avantair will not only recover from the grounding, but also be a better and more prosperous company over the long run. “Fractional sales bounced back strongly in February,” he said, “and we see a lot of pent-up demand for private aircraft lift. We have a heavy number of leads for new customers, and existing customers are starting to fly more, which are encouraging signs.”