Rice – your point is right on. EJM and Jet Aviation manage other people’s airplanes, so they do not incur the capital costs associated with owning them. This is the biggest difference between their business model and XOJet. As you stated, charter revenue has never provided enough profit to cover the cost of aircraft ownership, which is why the XO business model is not solid. The numbers looked better before the economy turned, but still not good enough to justify the business model.
X-Rated, I think I might consider the analysis of my numbers slightly differently. The $83K per month capital cost is fixed regardless of whether they fly the planes or ground them, so unless they sell the airplanes or default on the loans, the $83K is a sunk cost. The decision to keep flying or ground the airplanes (temporarily, at least) is based on whether the variable costs required to keep the planes flying are less than the profits obtained by flying. So, let’s look at what costs would not be incurred if they temporarily stopped flying the planes:
1) Pilots – you don’t need pilots if your planes don’t fly. From what I can gather from various postings, your planes average about 4 pilots per plane. I’m not sure exactly how many pilots are paid PIC salaries versus SIC, so I’ll make an assumption that the average salary is about $90K. Add 30% to cover payroll taxes, health benefits, vacation and sick time, plus $20K for recurrent Citation X training, and this equates to $137,000 per pilot, or $548,000 for four pilots.
2) Crew overnights – if the planes are not flying, pilots are not incurring expenses on hotels, meals, etc.
3) Mechanics – hard to quantify, but clearly planes that do not fly need far fewer mechanics.
4) Dispatchers, charter sales reps – Another expense that would not be required if the planes were temporarily grounded.
As you can see, the biggest expense associated with keeping the planes flying is the pilots.
Now, regarding revenues. You state that the average flight is five hours, so at $2,000 per hour in DOC, that leaves $9,000 to cover expenses. Not quite. First of all, I’m estimating conservatively that each flight averages at least one hour in reposition. That would be conservative, since that means only 30 minutes of repositioning on each side of a live leg. Let's even make the assumption that this hour of reposition cost is enough to cover the occasional mechanical where you have to move another plane to recover. So, deduct $2,000 for reposition costs. Deduct another $1,000 to cover ground transportation at both ends, flight phone charges, and standard catering, all included at the $19K price. Then deduct an average of $1,000 per night in crew expenses, and the net amount is $5,000 per trans-con leg. Now, you say you are doing close to 100 hours per month, so that is about 18 legs per month after deducting reposition time. 18 legs at $5,000 per leg is $90,000/month in gross profit.
So if we start with $90,000/month in gross profit, and subtract $46,000 per month for pilot salaries, and $21,000 for crew overnights (30 nights at $700/night), and you are left with $23,000 to cover all remaining expenses associated with mechanics, dispatchers, and charter sales. If the capital costs are $83K/month, we are $60,000 negative before we even begin to cover any of these additional costs. And, we still have not factored in company overhead, management expense, sales and marketing, property taxes, insurance, and other overhead expenses. Also not factored in is the depreciation per hour that these planes are incurring as a result of flying these hours, which will ultimately catch up with the company when they attempt to resell them.
Any way we look at this, it is perfectly clear to anyone who is familiar with aviation expenses that this business model is a disaster. Sorry to be so negative, but better to be realistic than to bury our heads in the sand and hope that things all work out. Doing so will just put us in the same situation that the pilots who work for JetDirect are facing – working for free since their paychecks have been bouncing for the past two pay periods.
XOJet will only survive for as long as the investors want to keep pouring in millions of dollars in cash to keep things running. Again, as learned from JetDirect, all investors reach a point where they simply say enough is enough, and they decide to cut their losses before it depletes their entire net worth.
For those of you who are working there and are satisfied with your jobs, by all means keep hanging on and cross your fingers and hope that something works out. Just always have a backup plan, so you are not surprised if it comes to an abrupt end.
