Shaping up – how NetJets is reviving the fractional model in the Middle East

Graeme Deary, NetJets Middle East’s (NJME) executive director for business development, was in bullish form at the Dubai Airshow.

His company – owned by Saudi Arabia’s National Air Services (NAS) and licensed to NetJets – had just taken delivery of the first Dassault Falcon 2000LX to be operated commercially in the Gulf. It was also celebrating a decade of operations in the region and was about to take on the Middle East’s first Gulfstream G550 to be offered for charter.

Deary explained: “The business aviation market over here has not been affected to the same extent as in Europe and the States. Although we have seen a cut back in flying in the Middle East, it is a stable market. While some have retrenched, it is also a great opportunity to develop further and obtain new customers with new longer contracts.”

It is precisely this attitude that encouraged his former employer to bring him in to revitalise the flagging fractional model in the region. Deary is a passionate believer in the concept and was drafted in to boost NJME’s flagging marketing and sales division. He was part of the dream team that set up NetJets Europe in 1996 but he left to set up a competing firm, which went into administration a year ago.

The NetJets concept is simple. Owners buy or lease a fractional interest in an executive aircraft based on the number of hours they are likely to fly in a year. NetJets then provides them with an aircraft to suit their flight profile, looking at comfort, range and frequency of flights and undertakes all the operational needs of the jet.

Although buyers purchase a fractional share in a specific aircraft, they are able to change between aircraft types depending on their needs. Costs are guaranteed for five years. However, until this year the model had not earned widespread popularity in the Middle East.

That has all changed now. According to Deary, NJME has seen a “significant boost” in sales since it altered its sales programmes slightly to adapt to local preferences. The company now offers the traditional NetJets fractional ownership JetCard in 25-hour increments, as well as the ability to lease fractional shares for one to five years.

He said: “We have had a phenomenal response to the leasing programme. You’d think that the cheaper one-year programmes would have been more popular, but people are signing up for the five-year leases.”

He attributes this to the fact that now is a good time to buy for those who can afford it with prices of new aircraft down by as much as to 30 per cent. He said: “You have to ask: ‘What are the unique demands of this market? What is different from the European or American programmes today?' Cairo is buoyant. Africa has lots of projects and other regions of the world are investing. Prices are so depressed that people are taking advantage of great deals.”

He says that NJME is helping to stimulate the market by offering only new aircraft. The company constantly recycles its jets and flies a new fleet that is two or three years old.  He said: “Lease rates are also currently very attractive, which are reflecting the rest of the market.”

Although NJME is offering shorter leasing periods, Deary says that thanks to the bargain rates most new buyers are opting for the longer five-year terms. He says the entry-level 25-hour block charter card on a 750 is far less popular than leasing, which now accounts for the lion’s share of the company’s business.

Falcon takes off

The new Falcon will be offered under a shared ownership scheme and NJME is also relaunching a card program for its Hawker Beechcraft aircraft. NAS already has Gulfstream G450s and Hawker 750s in its fleet and Deary sees the arrival of the new long-range Falcon 2000LX as a major step forward for the company. With a range of up to 4,000 nautical miles, the 2000LX can fly non-stop from Dubai to Paris and London.

“The Falcon 2000LX is the optimum aircraft to fly this route with a spacious cabin and good performance enabling it to get into some of the smaller airports in Europe. This, coupled with its large baggage compartment, allows our guests to travel with all their home comforts,” said Deary. The aircraft is also known to have demonstrably strong high cycle use and hot and high capabilities.

Should that particular aircraft not be available, NJME has access to a worldwide fleet of Falcons and says there will always be an aircraft on hand when a customer requires. Deary said: “It is difficult for other charter operators to offer guaranteed availability.”

The company also offers management and charter services and will take delivery of the region’s first Gulfstream G550 to be available on a Part 135 certificate for charter in the first quarter of 2010. This is the result of a deal with Aviation Link Saudi Arabia, which signed an exclusive contract in November 2009 for NJME to manage its G550.

Abdulaziz Al-Rowaished, Aviation Link’s chief executive, said: “Following considerable research and undertaking extensive market studies we chose the best aircraft in its category and naturally associated with NetJets Middle East as the best service provider in the region for its operation.”

Deary anticipates that the company will have “five to ten” aircraft on its books in two years time and that 75 per cent of its revenues will come from the new leasing model. He said: “Although the UAE was badly hit, other regions are buoyant.”

His confidence is partly based on the fact that NetJets’ clients tend to stay. He said: “Less than a handful of customers have left our programme because of the economy. We have a loyal customer base.”

Additionally, NJME has the finances to back its goals. In June 2009 NAS obtained a $60.5m seven-year loan from Arab Banking Corporation, supported by a guarantee from the Export-Import Bank of the United States. The loan was intended to pay for six Hawker 750s, while providing relaxed payment terms for fractional scheme participants.

At the time NAS said it would also be looking for funding for three more Gulfstream G-450s, one of which will be delivered in 2010. These would augment an already strong stable. NJME’s current regional fleet consists of 20 aircraft, 17 under fractional ownership, which are a mix of Hawker 750s/800XPs, Falcon 2000s/2000EXs and Gulfstream GIV-SPs/G450s. There are also three business jets under management, which are chartered to both NJME and outside customers.

The company also offers on-demand charter. Although Deary anticipates that the new aircraft on his books will cater for the lift required, he says that NJME will outsource to carefully selected local providers should the need arise.

He added: “In five years time hopefully we will see a steep curve out of this recession. I passionately believe that we have a tremendous product that will have a phenomenal appeal in the Middle East.”