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Aerospace Entrepreneurship &The Complexities of Starting a New Regional Airline :Aerospace Entrepreneurship &The Complexities of Starting a New Regional Airline Presented by: Ben Jurewicz April 21, 2005 “The lessons Learned in Starting A Regional Airline in San Antonio, Texas” MIT Engineering Systems Division Leadership Seminar April 21,2005 Agenda :2 Agenda Starting an Airline Company Organizing a Seed Investor Group Creating A Business Plan Building A Management Team The Great Plains Airline Saga Raising the Money Aerospace Entrepreneurship Slide 3:3 Architect Engineer Builder Customer User Entrepreneurial Engineering Starting A New Company :4 Starting A New Company Perception Idea Business Plan Start Up Growth Reality Idea Business Plan Start Up Growth $$$$$ Regional Airlines :5 Regional Airlines Fly Shorter Distances with Smaller Planes Typically Less Than 1000 Miles Less Than 100 Seat Airplanes Normally, Centered About A Destination City Highest Growth Segment in Airline Business 7% Ave. Annual Passenger Growth 113 Million Pass. In 2003 Regional Airlines Are Profitable Legacy Airlines Losing Money Low Cost Nationals Are Profitable Regional Airlines are More Profitable San Antonio Market :6 San Antonio Market A Major U. S. Destination City 20 Million Visitors/Yr & Growing at 6%/Yr 75% from TX and Neighboring States Automobile Travel Dominates Only 10% of Visitors by Air Limited Regional Non Stop Air Service Significant Potential With Mexican Cities Inconvenient Travel Through Dallas/Houston Limited Service to Mexican Cities San Antonio Not In Top 50 Regional Airports Note: Based on 5 Independent Current Marketing Studies Seven “Seed” Investors :7 Seven “Seed” Investors Ex-VP American Airlines America West Pilot Mature Aerospace Executive Mexican Businessman Medical Doctor IT Executive CEO & Financial Background Creating a Business Plan :8 Creating a Business Plan Define the Market Select the Airplane Define the Operations Find the Key People Run the Numbers Slide 9:9 Initial Route Structure Targeted Market :10 Targeted Market U.S. Cities Mexican Cities Note: On Average There are 1,862 Pass./Day or 93 Pass./Day/City Current Air Travelers: 679,737 Pass./Year The Right Size Aircraft(For Targeted Market Demand of 93 Pass./Day/City) :11 The Right Size Aircraft(For Targeted Market Demand of 93 Pass./Day/City) Passengers in One Airplane 50-Seats 100-Seats 40% 50% 60% 70% 80% 100% 20% 25% 30% 35% 40% 50% 75% 100% ---- ---- Utilization 25-Seats 15% 10% 20% 30% 40% 60% 80% 100% ---- ---- ---- ---- ---- ---- No. of Planes Needed Load Factor (% Seats Filled) Seats In Plane Conclusion: With 93 Pass./Day/City and Probably Less Than Half on Any One Trip (Say 30 Pass./Trip), a 25 Seat Plane is A little Too Small, A 100 Seat Plane Is a little Too Big, But A 50 Seat Plane Is Just About Right. Baseline Aircraft :12 Baseline Aircraft A 50 Pass. Seat Jet ~ 98 Ft. Long ~ 66 Ft. Wingspan Max cruise Speed – or 450 kts Two Rolls-Royce AE 3007A1 Engines @ 7580 lbs Thrust Range > 1000Mi. Service Ceiling at 37,000 Ft. Embraer 145 Regional Jet Alternative Aircraft :13 Alternative Aircraft A 32 Pass. Seat Jet ~ 70 Ft. Long ~ 69 Ft. Wingspan Max Cruise Speed @ 400 kts Two Pratt & Whitney PW 306 B Engines @ 6050 lbs Thrust Range > 1000Mi. Service Ceiling at 31,000 Ft. Avcraft Dornier 328Jet Business Strategy :14 Business Strategy Provide Point-To-Point, Low Fare, Non-Stop, No-Frills Jet Service. Market “Destination San Antonio” to City, CVB And Local Businesses. Operate With A Single Airframe Type To Minimize Costs and Increase Productivity. Outsource Wherever Possible to Minimize Asset Acquisition Costs. Use Technology To Control Costs and Satisfy Customer Needs. Competition :15 Competition No Regional Non-Stop Airline Servicing San Antonio. Major Airlines Provide Service With Intermediate Stops. Competitors Heavily Engaged in Cost Reduction And Price Competition. Southwest Air Fares Represent Upper Limit on Prices. Possible Support from Major Airlines. Operational Approach :16 Operational Approach Demand Driven Business Model Revenue Based With Costs To Support Competitive, Performance-Based Salaries Outsource Selected Functions Simple Operational Approach Single Aircraft Type Streamlined Fare Structure Reservations Via Web Win the Hearts of San Antonio Travelers Customer-Focused Marketing Low Fares All the time Conveniently Scheduled Service Amenities for a Trip Pleasant Pricing Structure(Compared to Southwest Airlines One-Way Fares To/From San Antonio,TX, Indicated by the Symbols) :17 Pricing Structure(Compared to Southwest Airlines One-Way Fares To/From San Antonio,TX, Indicated by the Symbols) SAX Proposed Fare Structure Airline Operating Costs :18 Airline Operating Costs Great Lakes Atlantic Coast Skywest Mesa SA Airlines AirTran Southwest Frontier Jet Blue Financial Projections :19 Financial Projections $ Millions Revenue Costs Pre-Tax Earnings Risk Areas :20 Risk Areas During Start Up: Timely Plane Availability Airport Landing Constraints Prolonged FAA Certification During Commercial Operation: Competitive Response Attracting Passengers Escalating Fuel Costs Airplane Out Of Service Building A Management Team :21 Building A Management Team The Right People Make the Difference Use an Extensive Search Network It Is an Ongoing Discovery Process Resumes Don’t Tell the Whole Story Always Keep Your Options Open Trade Equity for Salary, Carefully Key Management Personnel :22 Key Management Personnel CEO - Acting Person and A Current Candidate, but Still Looking for the Very Best. CFO - Acting Airline Experienced CPA plus Candidate with Extensive regional Airline Experience. Marketing - Extensive List of Interested/Available Candidates. Operations – Several Candidates, One in Lead. Human Resources –Selected and Available. Five Wisemen – Three of Five Available & Interested FAA Certification Process :23 FAA Certification Process Phase 1: Applicant Preparation Phase 2: FSDO Preparation Phase 3: Formal Application Phase 4: System Safety Assessment Phase 5: Proving Tests Phase 6: Administrative Functions Controlled by CSET – Certification, Standardization, Evaluation Team Great Plains Airlines (GPA SAGA) :24 Great Plains Airlines (GPA SAGA) GPA (CEO) SAA COSA EMG Dornier ORJC Key 5 State (OK) City (Tulsa) GPA Investors FAA (FSDO) Court (Bankruptcy) Lawyers Raising the Money :25 Raising the Money Develop Solid Case for Amount Needed. Identify All Sources for Funding. Select Sources To Help. Develop Approach Strategy. Prepare Approach Material. Send Out Feelers to Get Feedback. Keep Going and Don’t Get Frustrated. Our Needs :26 Our Needs Round A: $ 10M Round B: $ 20M $3M for Certification $7M for Start Up Expansion Seed: $ 250K Plan & Raise Money Schedule :27 Schedule Business Plan/ Development Phase I-Certification And Start-Up Phase II-Revenue to Breakeven Phase III-Growth 2004 2005 2006 2007 2008 ACTIVITY Development Plan :28 Development Plan Raise Development Funding of $3Million. Set Up Office (Corp. Structure Exists). Add 18 to 20 Key People to Certify Airline. Finalize Airplane Choice; Negotiate Schedule/Costs. Visit Airports/Local Authorities; Negotiate Costs. Create Operations/Maintenance Plans for DoT/FAA Redefine Business Plan With Newly Acquired Data Define Start-Up Financing Requirements. Seek & Secure StarT-Up Financing. Work with S.A. City/CVB/Others on Marketing. Prepare for Final Certification Proving Runs. Complete Proving Runs and Certification Documents MAJOR TASKS: Note: Detailed Cost Estimate Available Defining $3M Needed To Certify Development Costs(Projected Costs in $1000) :29 Development Costs(Projected Costs in $1000) Total Estimated Cost Business Start-Up :30 Business Start-Up Lease Deposit for Airplanes Procure Initial Inventories Set Up, & Checkout Airplane Functions Set Up & Checkout Airport Operations Implement Maintenance Plan Provide Initial Airport Contract Fee Deposits Recruit & Train Start Up Full Staff Final Checkout of Operational Systems Extensive Advertising & Promotion Misc. Operational Start Up Fees (fuel, tools, etc.) Misc. Admin. Start Up fees (computers, supplies, etc.) Full Staff Start Up Salaries, Moving, &Training Costs Negative Operational Cash flow for First 4-5 Months Note: Cost to Cover Above Estimated at $7M MAJOR TASKS: Investor’s World :31 Investor’s World Must Be Interested in Specific Business Area Typically, Won’t Read A Business Plan Different Types at Different Levels Friends & Family Angels & Angel Groups Very Wealthy Individuals Professional Venture Capitalists Corporate Venture Groups Public Entity Investors Public At Large Unique Perspectives on Risk & Reward New Airline Summary :32 New Airline Summary Unique Market Opportunity. Growth-Oriented Business Plan Timing Is Right To Exploit Experienced Management Team Ready Financing Arrangements In Process Aerospace Entrepreneurship :33 Aerospace Entrepreneurship Emerging Aerospace Entrepreneurship Complex Process Requirements Specialized Technical Knowledge Significant Up-Front Investment Experienced Support Base Is Limited Aerospace Center for Entrepreneurship (ACE) :34 Aerospace Center for Entrepreneurship (ACE) Entrepreneurs Government Agencies Investors New Aerospace Businesses ACE Function Is to Do Aerospace Entrepreneurial Engineering Note: (1) Prefer to Be Associated with Academic Center (2) Includes Virtual Meetings Based on Numedeon Technology (3) Conceived As a Self-Sustaining, Non-Profit Organization Slide 35:35 ACE Provided Functions X Customer Type Service Second Summary :36 Second Summary ACE Concept Description & Plan Prepared Virtual Meetings - Numedeon Technology Under Evaluation at NASA Langley Discussions with Embry Riddle University NASA RFP for Space Exploration Academy
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