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Aerospace Entrepreneurship & The Complexities of Starting a New Regional Airline. “The lessons Learned in Starting A Regional Airline in San Antonio, Texas”. Presented by: Ben Jurewicz April 21, 2005. MIT Engineering Systems Division Leadership Seminar

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aerospace entrepreneurship the complexities of starting a new regional airline

Aerospace Entrepreneurship &The Complexities of Starting a New Regional Airline

“The lessons Learned in Starting A Regional Airline

in San Antonio, Texas”

Presented by:

Ben Jurewicz

April 21, 2005

MIT Engineering Systems Division Leadership Seminar

April 21,2005

agenda
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
slide3
Entrepreneurial Engineering

Customer

Architect

Engineer

Builder

User

starting a new company
Starting A New Company

Perception

Idea

Business Plan

Start Up

Growth

$$$$$

Reality

Business

Plan

Start Up

Growth

Idea

regional airlines
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
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
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
Creating a Business Plan
  • Define the Market
  • Select the Airplane
  • Define the Operations
  • Find the Key People
  • Run the Numbers
targeted market
Targeted Market

Current Air Travelers: 679,737 Pass./Year

U.S. Cities

Mexican Cities

Note: On Average There are 1,862 Pass./Day or 93 Pass./Day/City

the right size aircraft for targeted market demand of 93 pass day city
The Right Size Aircraft(For Targeted Market Demand of 93 Pass./Day/City)

Utilization

Passengers in One Airplane

No. of Planes Needed

Seats In Plane

----

----

----

----

----

----

25-Seats

40%

60%

80%

100%

50-Seats

----

----

20%

30%

40%

50%

60%

70%

80%

100%

100-Seats

10%

15%

20%

25%

30%

35%

40%

50%

75%

100%

Load Factor (% Seats Filled)

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
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.

Baseline Aircraft

Embraer 145 Regional Jet

alternative aircraft
Alternative Aircraft

Avcraft Dornier 328Jet

  • 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.
business strategy
Business Strategy
  • ProvidePoint-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
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
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
slide17
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
Airline Operating Costs

Great

Lakes

Atlantic Coast

Skywest

Mesa

SA Airlines

Frontier

Jet Blue

AirTran

Southwest

financial projections
Financial Projections

Revenue

$ Millions

Costs

Pre-Tax

Earnings

risk areas
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
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
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
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
Great Plains Airlines (GPA SAGA)

State (OK)

City

(Tulsa)

GPA

Investors

Court

(Bankruptcy)

FAA

(FSDO)

Lawyers

ORJC

GPA

(CEO)

Dornier

Key 5

SAA

COSA

EMG

raising the money
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
Our Needs

Seed: $ 250K

Plan & Raise Money

$3M for Certification

$7M for Start Up

Round A:$ 10M

Round B: $ 20M

Expansion

schedule
Schedule

2004

2005

2006

2007

2008

ACTIVITY

Business Plan/

Development

Phase I-Certification

And Start-Up

Phase II-Revenue to

Breakeven

Phase III-Growth

development plan
Development Plan

MAJOR TASKS:

  • 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

Note: Detailed Cost Estimate Available Defining $3M Needed To Certify

business start up
Business Start-Up

MAJOR TASKS:

  • 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

investor s world
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
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
Aerospace Entrepreneurship
  • Emerging Aerospace Entrepreneurship
  • Complex Process Requirements
  • Specialized Technical Knowledge
  • Significant Up-Front Investment
  • Experienced Support Base Is Limited
aerospace center for entrepreneurship a ce
Aerospace Center for Entrepreneurship (ACE)

Government

Agencies

  • ACE
    • Function Is to Do
    • Aerospace
    • Entrepreneurial
    • Engineering

New Aerospace

Businesses

Entrepreneurs

Investors

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

slide35
ACE Provided Functions

Customer Type

Service

X

second summary
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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