Travel Trend Lifts Van Nuys Firm
A pair of Southern California entrepreneurs had a good idea 22 years ago when they founded Air Group Inc., a Van Nuys firm that manages corporate jets and charters some of the planes when their owners aren’t using them.
Air Group’s founders and majority owners--Jon Winthrop, 47, chairman and chief executive, and Bob Christy, 72, now a company director who retired last year from daily operations--are seeing their brainchild expand in a booming industry.
But the story of that boom and their firm is not a simple one. It speaks volumes about changing patterns in air travel and about the pressures and pains faced by small firms in a marketplace that favors companies larger and stronger in capital.
Air charter traffic is surging as company managers and wealthy individuals--those who typically fly first class--are seeking alternatives to commercial air travel, in which delays are frequent because of added security precautions in the aftermath of Sept. 11.
Business travelers have been complaining for some time about high fares and deteriorating service from commercial airlines. With the increase in delays and cancellations since Sept. 11, more corporations and managers are looking at jet ownership or charter services.
Air Group is benefiting from the trend. The firm’s revenue this year is expected to grow 26% to $82million, with about $6million in net profit, Winthrop says. The company, which has 164 employees, including 118 pilots, will increase its staff as it adds 10 jets, bringing its total to 50 jets under management.
Yet Winthrop and Christy may have little time to enjoy their triumph, because Air Group is only a small bird in a very big sky.
A giant is emerging in the field of corporate jet management, air chartering and fractional ownership--in which time shares are sold on corporate jet aircraft.
Warren Buffett’s Berkshire Hathaway Inc. owns Executive Jet, a Woodbridge, N.J.-based firm that developed NetJets, an innovative operation that buys corporate jets and sells shares in them, promising time-share owners custom jet service on one hour’s notice with any of its 350 planes.
NetJets is adding more than 100 jets a year, aiming to control a fleet of 1,000, which would be virtually a global airline of 9-to-18-seat planes.
Time sharing at rates of about $4,500 to $10,000 an hour, depending on size and range of jet, appeals to those in specialized occupations--such as golfer Nancy Lopez or baseball’s Jason Giambi and basketball’s Reggie Miller--who are customers of Marquis Jet Partners, a reseller of NetJets time shares.
Meanwhile, Executive Jet, in another of its operations, is in the same business as Air Group--providing pilots, crew and maintenance of a company plane for an annual service fee. The management company normally puts the jets out on charter, earning some of the costs back for the owners.
Executive Jet already is bigger than Air Group, with 80 jets under management and “going up to 125 or 130 jets this year,” says company spokesman Kevin Russell.
There are about 10 sizable jet management, charter and fractional-ownership firms operating in the U.S. market, Winthrop says, and he thinks Executive Jet may acquire one of two Europe-based chartering companies--TAG Aviation or Jet Aviation--to swell its capacity faster. (Spokesman Russell denies merger rumors.)
But clearly, Berkshire Hathaway, which has cash-generating insurance operations and $36 billion in annual revenue, has the capital strength to dominate a new industry. At present it is laying out at least $3 billion a year to finance the purchase of more than 100 corporate jets. By contrast, UAL Corp.’s United Airlines announced last year that it would invest $80 million to launch a corporate jet division, but now has backed away, saying it would not commit more capital to the venture.
Where does all that leave Air Group? Taking the small firm’s route.
“We’re a boutique firm; we can offer superior service,” says Winthrop, a business graduate of USC who worked as a salesman for IBM Corp. before getting into aviation. The firm prides itself on running like the Marine Corps, because Christy-- a former Marine lieutenant colonel, developed its operations.
Managing company planes for such clients as Calabasas-based Countrywide Credit Industries and Beverly Hills’ International Lease Finance Corp., a division of American International Group, gives Air Group about 40% of its revenue in fees.
And it also gives it custody of the jets to charter. Air Group grew rapidly in the 1990s by chartering jets to such clients as Goldman, Sachs & Co., Bear, Stearns & Co. and UBS Warburg so their investment bankers could fly to three cities a day promoting new stock issues to local investment firms.
That business evaporated with the stock market bust of 2001. But chartering is coming back as companies find that their managers and salespeople no longer can get around to two and three cities a day on airlines. Corporate jets fly out of smaller airports, such as Van Nuys and Teterboro, N.J., in the New York area, and so can operate with more flexibility. In addition, they can fly to smaller cities that now have only limited service from commercial airlines.
As small firms must, Air Group keeps its rates low: $2,500 an hour to charter a Cessna Citation, with a 3,000-mile range, to $7,500 an hour for a Gulfstream V, with a 7,000-mile range. That’s 12% to 33% less than Executive Jet’s charges. And chartering works out cheaper than fractional ownership, Winthrop explains, because time-share owners must bear part of the capital cost of the airplane.
Of course, keeping rates lower means that Air Group cannot earn the return on capital that a Buffett enterprise demands.
Still, Winthrop says, Air Group can prosper as a quality service firm with a niche in an expanding industry. He says Air Group will try to go public if revenue rises to $110 million and the market is receptive. Or it could be acquired by a larger firm.
One way or another, Air Group is at a turning point. It has remained a partnership since Winthrop and Christy drew up plans on a restaurant napkin in 1980. But they no longer are sole owners.
“We give stock options to employees who are 10 years with the firm,” Winthrop explains, “so they can benefit if we go public or are acquired by another company.”
For a 22-year-old entrepreneurial business to have as many possibilities as Air Group has today shows the power of a good idea--and a lot of hard work.
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James Flanigan can be reached at jim.flanigan
@latimes.com.
