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Very Light Jets (VLJs): Hype or real necessity? |
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It happens to me more and more. Whenever I am attending a seminar or conference, one of our business partners approaches me and tells me that he heard about the new “Wunderwaffe” of executive air travel: the Very Light Jet or VLJ in short. Imagine, they will say, the aircraft flies as fast as conventional jets at a fraction of the cost! Now, why don’t you (and by you they mean Gulf Executive Aviation) offer a VLJ for our travel missions? Instead of spending a few thousand Dollars for conventional jets we could cover the same distances, at the same speed, and at the same comfort level for a few hundred bucks, right? Well, yes… but also no. Here is why: |
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A VLJ is per definition a small jet with a maximum take-off mass of under 10,000 lbs (4,540 kgs) and approved for single pilot operations. Fabulous, you will say but what does this mean? Well, it generally means that you will fly fast and at high altitudes with no more than 7 passengers on short routes, say from Bahrain to Jeddah. Further good news is that the aircraft will be able to take-off from airstrips as short as 3,000 ft (900 m). The thing however is, most civil airports in the Middle East are designed for wide-body jets and feature therefore runways of at least 9,000 ft. So, what is the real major benefit of operating a VLJ as opposed to a conventional business jet? Well, remember the second part of the definition of a VLJ: approved for single pilot operations. Believe me, this is exactly what makes your CFO smile all day long! |
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Current Civil Aviation Authority regulations all over the world stipulate that all commercial passenger flights in a jet (such as you are flying when hiring-in GEA or Gulf Air, for example) must be operated with at least two cockpit crew members. Therefore flying by VLJ means that you actually cut flight crew costs more than in half (since the cabin diameter of a VLJ is comparatively small, you probably won’t see a Flight Attendant onboard a VLJ). In addition, all VLJs are in the process of being designed as we speak. Therefore you can expect the most modern engines and composite materials, plus cockpit lay-outs that make the Airbus 380 look old fashioned. All this reducing further maintenance, and more importantly, fuel costs. You want more good news? |
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Here it is: VLJ manufacturer Eclipse and its CEO, Vern Raburn, a former Microsoft executive, had a vision of a low cost jet, first announced to be delivered for under $1,000,000.00. Imagine: a proper jet with a price tag of an (expensive) car! You want some bad news? Ok, Cessna estimates its VLJ, the Mustang, to cost almost twice the price. More bad news? Except for small scale deliveries of the Eclipse and the Mustang, the VLJ has not entered the operational market yet. So where does this leave the mighty VLJ? |
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My personal opinion is that the VLJ will not take-off as proudly as predicted a few years ago by the then potential manufacturers. We already have seen quite a few aircraft manufacturers declare bankruptcy over its VLJ program. Moreover, insurance companies will watch closely when the first VLJs fly. Will the single pilot part be a big concern to them? If yes, the industry will face further problems since no lessor will lease out any uninsured risk. How will the pre-owned aircraft market react to the VLJ? Do the used composite materials last as long as old-fashioned aluminum? |
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All in all, who will be the potential buyers of the VLJ? Will it be the new to be formed air taxi operators, connecting large airports with small airfields not being served by airlines as per the manufacturers’ vision? I doubt it sincerely. Except for maybe the United States, no country has the infrastructure to support a new operation on such a large scale. Just think of all the small airfields that need to be built right in the middle of the large cities throughout the Middle East. This requires not only a major change in strategic urban planning but also needs to be done at extremely low rates in order to justify the inexpensive ticket costs of the air taxi operators to be. |
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However, remember when a few years back airlines replaced its propeller driven fleet by regional jets? I am convinced that we will observe something similar in this case as well: you will see at least a number of charter operators replacing its propeller aircraft with the new VLJs. Especially when fuel prices stay at the same level as they currently are. Now obviously this is a completely different topic. Do ask me about fuel prices when you see me the next time at a conference! |
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Alex de Vos
General Manager
Manama, 10 April 2007 |
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Jet Fuel Surcharge: Necessity or CFO Fairy Tale? |
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Have you lately examined your air ticket more closely? If yes, you probably will have noticed a fuel surcharge that almost every airline applies nowadays. Ok, we all know that crude oil prices have gone through the roof in the recent months but why is the fuel market price the single most important operating cost an aircraft operator faces? We have seen that jet fuel prices cripple the operations of flag carriers but at the same time give small niche airlines the opportunity to excel and increase profits by a huge percentage. So, is the fuel surcharge only an excuse by airline CFOs to charge their customers (and that is you) more? |
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Of course! But at the same time it is also a necessity. Confused? Then let us look first what jet fuel actually is. Kerosene, you will say, and of course you are right but it still only answers half the question. Apart from jet fuels adhering to military specifications and aircraft fuel for piston engines, the so called avgas, there are three standard jet fuel types refined all over the world. The most common fuel is called Jet A-1. The huge US market however knows Jet A. If the aircraft is operated under extreme cold conditions, then the operator will consider using a type called Jet B. Does this help? Not really, I imagine, so let’s keep the lead flowing: |
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Common to all jet fuels is that they contain different additives, such as antioxidants and corrosion inhibitors amongst others. Jet A-1 and Jet A are kerosene based fuels whereas Jet B is a so called wide-cut fuel, which, essentially, is a hydrocarbon mixture spanning the gasoline and kerosene boiling ranges. It was assumed that a wide-cut fuel would be available in larger volumes than either gasoline or kerosene alone. However, compared to a kerosene-type fuel, wide-cut jet fuel was found to have operational disadvantages due to its higher volatility. The important difference between Jet A-1 and Jet A is that Jet A-1 has a lower maximum freezing point than Jet A (Jet A: – 40°C, Jet A-1: – 47°C). However, the lower freezing point comes at a price: a typical refinery can produce more Jet A than Jet A-1, increasing the formers availability and reducing its price. So, how does this help in establishing if airline CFOs just tell us a lot of blah blah? |
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Well, availability is the keyword here. If we take into consideration that over the last 25 years or so we have seen a yearly increase in jet fuel demand worldwide of about 2 million gallons a day, you can imagine the burden on refineries to keep up with the production. Or, to keep talking airplanes, this number is roughly the equivalent of 35 additional Boeing 747s that take the sky on a daily basis. Bear that number in mind next time you are at an international airport and you are number 27 for take-off! |
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With the huge quantities we talk here, it is no wonder that jet fuel market prices follow closely the market prices of crude oil. Brent crude prices have approximately tripled over the last four years, meaning that aircraft operators also have to pay three times the fuel price they were used to pay in 2003. This means that with current prevailing market prices, all aircraft operators worldwide are estimated to spend USD 7 billion more on fuel this year than they did in 2006! Ok, this is the side of the story that the average airline CFO tells you. But more importantly to you is what percentage of operational costs of an aircraft is taken up by fuel consumption? |
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Precisely. To give you an idea, a modern Boeing 747 jet has a fuel capacity of about 200,000 litres. On a typical flight, the four engines use approximately 12,500 litres per hour. To express this figure in hard currency, the aircraft has used about one-third of your ticket price just on fuel. Taken your airline ticket price into consideration, it does not sound like a lot, right? But remember, in 2003 the fuel share was only about one-ninth! Now you probably will understand all the grey hair airline financial staff proudly sport. |
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What is now the solution to this fuel price problem? Wait for the aircraft engine manufacturers to develop a propulsion system that runs on H2? Hedging fuel purchases, maybe? Or, just simply keep increasing ticket prices? Well, put is this way, if you know the answer, do contact me. I have a job for you right away! |
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Alex de Vos
General Manager
Manama, 20 August 2007 |
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