“Your most unhappy customers are your greatest source of learning. ”
VLJs beyond the hype
Very light jets, commonly known as VLJs, were supposed to change the way we fly. When artist renderings of modern VLJs appeared a decade ago, aviation prognosticators proclaimed a demand for "tens of thousands" of the small, economical aircraft by 2018, bringing jet service to virtually every backwater that offered up at least 3,000 feet of pavement, a gas pump and a mid-level manager who needed to conquer the world. Putting this in perspective, there are about 16,000 business jets of all types in service in the U.S. at present.
When aviation analyst Richard Aboulafia called one VLJ manufacturer "a dot-com with wings" a few years ago, he wasn't being complimentary. He was talking meltdown.
Indeed, the mad dash to the VLJ "pot of gold" has strewn some spectacular wreckage short of the rainbow and sacrificed hundreds of millions, perhaps billions, of investor dollars on the pyre; a collection of companies with cool-sounding names have been quarterbacked by flamboyant CEOs with pockets full of grand predictions, but not enough capital or know-how to go the distance. Within a few years, most of them were lined up like 737s mosh-pitted on an O'Hare taxiway, on their way to shuttered doors and/or bankruptcy court, their artful mockups dumped in landfills.
Over the last decade, the roster of the VLJ dead has included ATG, Avocet, Century Jet, Safire, Visionaire and Vantage (son of Visionaire). Just recently, another company, Adam, was bought at bankruptcy auction, but it still faces an uncertain future. Meanwhile, Sino Swearingen, the granddaddy of modern VLJ projects (began in 1989) just received U.S. approval for an 80-percent buyout by a Dubai investment firm.
Since the 1950s, countless other new and established aircraft companies have proposed and even built VLJ-category aircraft-serious competitors like Gulfstream, with its Peregrine in 1985, and the not-so-serious (space precludes listing them all). Some companies have even considered selling VLJs as kits that people could assemble in their garages. None of those designs has made it to market.
Finally, 54 years after the first incarnation of the very light jet flew (the two-seat French SIPA 200 Minijet), the first VLJ received full FAA certification-the Cessna Citation Mustang, in November 2006. Eclipse followed suit shortly thereafter with its Model 500. (The 500 had received "provisional" certification, meaning it could be flown only under certain conditions, in July 2006.)
But by then, the term "VLJ" had acquired such a negative panache that manufacturers were running away from it. When I termed a $2.7 million Citation Mustang a VLJ, the company's vice president of sales, Roger Whyte, gently corrected me, saying, "We call it an entry-level jet." Meanwhile, Alan Klapmeier, Cirrus Design's chairman, calls the "around $1 million" single-engine, seven-seater his company is developing a "personal" jet.
Careful word selection has always been a hallmark of good marketing. Vern Raburn, Eclipse's CEO, labels his company's airplane "disruptive technology." In 2005, Raburn told me, "In the high-tech business, the nonexistence of a market and a product for it is viewed as an opportunity. It's like, 'Cool, no competition.' In aviation, the nonexistence of a market or product is used to say it can't or shouldn't exist. Remember the old Paul Simon song, 'One Man's Ceiling Is Another Man's Floor'? Well, that is how I could characterize aviation."
So hype aside, are VLJs-or whatever you care to call them-living up to predictions?
"Certainly, hype can fog the issue," said Cirrus' Klapmeier. "There was never going to be an airplane in every garage by the 1940s nor a VLJ in every garage by 2000. But yeah, I think they [VLJs] will live up to the promise in the long run. The technology is real."
Still, projects continue to run late and many observers remain skeptical. Witness the Eclipse, which fell three years behind its initial schedule. Raburn isn't shy, and his flamboyant predictions, coupled with Eclipse's late performance, made him and the company easy targets for critics.
The most visible is a blog called "eclipseaviationcritic." So vociferous and unrelenting is the criticism there that Eclipse earlier this year initiated legal action to discover the identity of the bloggers, a step that could presumably lead to litigation. Raburn blasted the bloggers for "materially damaging" the company. Much of the site consists of press releases and letters to customers and employees from Eclipse that the bloggers delight in lampooning.
The good news for Eclipse is that it rolled 98 airplanes out the door last year and 55 during the first quarter of this year. Production is improving both in terms of rate and quality, and most of the company's supplier disputes are behind it. Staffing is up to 1,800 and Eclipse trains 60 new pilots a month. At the beginning of 2008, it received a substantial cash infusion from a new investor and announced plans for the possible construction of an assembly facility in Russia. The Russian facility would build the airplane from kits manufactured at the main Eclipse plant in Albuquerque, according to Mike McConnell, Eclipse vice president of sales and marketing.
But for some time, industry wags have charged that much of Eclipse's stated 2,800 orders are "vapor." It does now appear that its largest customer, DayJet, which accounts for hundreds of that total, may not be able to accept any aircraft beyond the 28 already received.
DayJet sells individual seats on its Eclipse 500s and flies between 45 cities in the Southeast. Prices depend on the size of a passenger's travel window-the smaller the window, the higher the price. DayJet has signed up 1,600 travelers and 900 companies, but that wasn't enough to sustain 28 jets or fund further expansion. In May, the company announced that it was laying off about 100 of its 260 employees and planned to sell or lease out 16 of its Eclipse 500s, blaming the move on an inability to raise additional capital.
But even on the eve of this decision, the company's CFO, John Staten, remained bullish on the outlook for VLJs and their role in the air taxi business. "Capital markets are spooky," Staten acknowledged. "But we [air taxi operators] are only half of their [Eclipse's] order book. On a worldwide basis, I think the projected numbers for VLJs are very good."
DayJet's stumble hasn't deterred others eager to send VLJs into the air taxi market. The same week that DayJet announced its downsizing, a group of former JetBlue airline executives launched JetSuite, an aircraft leasing and charter company, and ordered 50 Embraer Phenom 100 VLJs and took options for 50 more. Embraer-which recently announced plans for a $51 million Phenom factory in Florida-intends to have the Phenom 100 certified by year's end. JetSuite plans to begin operations from bases in Los Angeles and Las Vegas in 2009. Worldwide, more than two dozen VLJ management, air taxi or fractional companies have sprung up and more are sure to follow. Meanwhile, the Teal Group's annual Business Jet Overview, released last May, forecast delivery over the next decade of 3,365 very light jets, including 1,385 Cessna Citation Mustangs and 925 Phenom 100s.
Both Cirrus' Klapmeier and Cessna's Whyte consider Europe particularly fertile ground for VLJs. "It just makes sense," Klapmeier said. "Their ground infrastructure is congested just like ours." Sixty percent of Mustangs ordered so far are destined for countries other than the U.S., including China.
But one stumbling block, at least for single-engine VLJs as air taxis in Europe, may be a proposal by EASA (Europe's version of the FAA) that would require these aircraft to be certified to rules that govern heavier airplanes, according to Klapmeier. He said the rules require that an airplane-even a single-engine type-demonstrate the capability to climb after an engine fails. He laughed. "I think we could demonstrate that-for a few seconds [by pitching the nose of the aircraft up after the engine quits]."
Regulatory issues notwithstanding, a cursory check shows rapidly filling VLJ order books at six established OEMs: Cessna, Cirrus, Diamond, Eclipse, Embraer and Piper. Among them, they have more than 4,000 orders for the type. Cessna delivered 45 Mustangs last year and plans to produce 150 per year in 2009. Mustangs are back-ordered through 2011. "Our customers are over-the-moon delighted with the airplane," Whyte said.
Embraer plans to deliver 15 Phenom 100 VLJs this year and 170 in 2009. Honda and Spectrum have orders for hundreds more and deliveries of those aircraft could begin late next year.
But as oil tops $125 per barrel, will even lighter airplanes with more efficient engines and powerful avionics be enough to sustain what looks like the start of a VLJ boom? One company that thinks so is Spectrum Aeronautical, which is developing an advanced model.
"We are confident that we will be able to make that transition [from certification to production]," said Spectrum's Austin Blue, who remains acutely aware of the skepticism that swirls around new aircraft companies, especially in the wake of Eclipse's struggles and Adam's bankruptcy. "Nothing we can say or project now is a substitute for airworthy airplanes with good product support. Being a success is not about getting type or production certificates, it is about fulfilling customer needs with an economical and reliable airplane."
Klapmeier agrees. "Certification isn't enough," he said. "You have to be able to produce a certified airplane and sell it at a profit that is good enough to pay back the cost of what it took to get there."
But much about the VLJ market remains unknown. The FAA's prediction of 4,500 VLJs in service by 2016 may now seem a little conservative. "Nobody knows the size of the market for this product," said Cessna's Whyte. "But it's exciting to be part of it."
Viewing this report requires Adobe Reader be installed on your device. If it's not currently installed, click here to download.