Expert: Capt Paul - 11/10/2006

Question
Dear Capt. Paul Jeeves
I would like to start a New Airlines with B747-400 Aircrafts both PAssengers and Cargo and lease these Aircrafts to other Airlines and HAJJ and Umrah Traffic,
How to start my project and what sould i do,
I need a have a country where i can easily register my Aircrafts and easily obtain permits on it somewhere in the Middle east,

Pls advice,  

Answer
Hello,
  Starting and profitably running an airline is arguably the most difficult business proposition in the world. By their nature, airlines are highly capital-intensive, fiercely competitive, fossil-fuel dependent, labour intensive, government controlled, politically influenced, and weather vulnerable. Few businesses have as many fluctuating variables to manage.

Once the optimal airplane has been selected (based on market, network plan, traffic estimates, interior layout, economics, and performance requirements), the airline entrepreneur must source the airplane. Decisions about new-versus-used, lease-versus-buy, and airplane availability may drive the airplane selection or even change the business model.

You have decided to operate Boeing 747-400 aircraft.  So, the next logical question is, where will you purchase them?  Some options include:

Buying New-Production Airplanes: Depending on current production line availability, financing, business plan, and desired launch date, a new airline may wish to purchase new production airplane.

Leasing New or Used Airplanes: There are several major airplane leasing companies worldwide.

Lease Rates: Boeing (nor Airbus) does not regularly track airplane market lease rates, and a range of lease rates can be provided to qualified new airlines.

Buying Third Party Used Airplanes: The Boeing Company (and Airbus) provides a service to qualified new airlines that can be matched with third party sellers/lessors of used airplane.

In reality, the list of questions that will need to be answered is quite extensive.  For example:

Planning the airline:
  • What is the opportunity and strategy for the airline
  • What will the airline offer (passenger service, cargo, combo, charter, wet/dry lease)
  • Route structure
  o Domestic/International
  o Point to point or central hub(s) operation
  • Distribution system
  o In house reservations system
  o Utilize a global distribution system (GDS)
  o Travel agency distribution strategy
  o Direct channel strategy
  o Target distribution expense %
  • Target customer
  o Leisure/Business mix
  o Ethnic/VFR
  o Inclusive tour
  • Fleet Details
  o Fleet matched to market size
  o Range and payload requirements
  o Cargo requirements
  o Utilization targets
  • Product Offering
  o Single, dual or tri class passenger product
  o In-flight service provided and strategy
  o Flight frequency
  o Ground product offering (eg lounges, e-check-in)
  • Market Assumptions
  o Pricing assumptions (pricing strategy, yield expectations)
  o Cost assumptions and projections
  o Market share targets
  o Competitive response strategy
  o Any political/economic risks in one or more target markets
  • Management Team
  o Required skills
  o Target list of leaders and projected costs of acquiring talent
  o Legal advisors
  o Outside consulting services

  • Financial Assumptions
  o 1,3 and 5 Year Forecast
  o Initial cash requirements
  o Investors

Strategic Targets
  • What is the estimated initial startup target date
  • Timeline/requirements for obtaining Airline Operating Certificate (AOC)
  • What is the capital plan? Plan for initial startup funds and ongoing growth funds
  • What legal, regulatory or government issues might impede the launch?
  • Are any target destinations slot controlled or is an extensive route authority process required
  • What is the growth strategy, how is it funded, is it flexible what financial and human resources will be required to implement?

Marketing Plan
  • What does this airline uniquely deliver to the market?
  • What is the current competitive landscape?
  • Possible competitive response to our market entry and impact? What would be strategic/tactical options and response?
  • Current fare environment by market and target fare level
  • Yield assumptions and minimums by route
  • Forecasted market stimulation by route under various scenarios
  • Product competitiveness and long term strategy
  • Frequent flyer program strategy or study risk of no FFP offering
  • Alliance or non-alliance strategy
  • Interline strategy
  • Advertising/Promotional plan and strategic plan
  • Sales team and sales plan

Fleet Plan
  • Does the fleet selection match with airline strategic plan?
  o Type of aircraft (single or dual aisle)
  o Number of aircraft
  o Operating cost comparisons/requirements
  o Performance requirements
  o Passenger and cargo requirements
  o Mission restrictions (eg short field, high altitude destinations)

  • New versus used aircraft
  o Age restrictions
  o Cost comparisons
  o Noise restrictions
  • Dry lease or wet lease or ACMI
  • Expansion/retirement strategy
  • Where will aircraft be registered?

Maintenance
  • Maintenance program and budget
  • Maintain in-house or outsource to third party
  • Spare part support
  • Heavy checks (airframe and engines)
  • Line maintenance

Financials
  • 5 year actual or pro-formas by month
  • Pro formas at route level and consolidated results
  • Capitalization plan (including follow-on rounds for growth)
  • Proof of capital
  • Interest rates
  • Fuel rates and assumptions 1, 3 and 5 year forecast
  • Available cash for aircraft prepayments
  • Cash for ongoing aircraft costs
  • Operating cash
  • Financial ratio analysis
  • Sensitivity analysis for risk
  • Profit potential and durability
  • Projections until breakeven performance
  • Projections until reach positive cash flow
  • Startup implementation costs
  • Assumptions for major cost items on income statement (fuel, labour, a/c ownership, rents, maintenance and distribution)
  • Credit card holdback assumptions
  • Cost control mechanisms

Labour
  • Labour groups and total headcount target
  • Labour rates/scales by employee group

  • Organized labour plan
  • Pilot and Flight Attendant domiciles
  • Any labour outsourced (maintenance, flight crews, ground staff etc)
  • Recruitment plan (operations and management)
  • Any local restrictions on hiring non-resident labour
  • Incentive plan
  • Internal corporate culture plan- build a customer focused environment

Operating/Revenue Statistics
  • Projected load factor/breakeven load factor
  • Available Seat Miles/Kilometres
  • Revenue Passenger Miles/Kilometres
  • Revenue expectations and yield assumptions
  • Other revenue streams (onboard sales, freight, IFE, onboard advertising)
  • Revenue Management system internally managed or outsourced
  • Block hours
  • Unit revenue per ASM/ASK
  • Unit costs per ASM/ASK
  • Aircraft Utilization/Gate Utilization
  • Number of departures
  • Average stage length
  • Average passenger trip length
  • Yield statistics
  • Fuel statistics

Facilities
  • Number of unique stations (destinations)
  • Facility space requirements/restrictions (ticket counters, gates)
  • Ability to secure gates and commercially attractive slot times
  • Maintenance facilities, hangers
  • Base of operations and company headquarters
  • Ground handling in-house or outsourced



Summary...

A lot of these answers will depend on whether you are you planning to “Dry Lease” these aircraft to the other airlines, or “Wet Lease” them?

  I’ll give you some very simple and basic answers to the various choices. In reality, any of these options will be complicated and will require considerable effort and cost.

If you decide to “Dry Lease” the aircraft to the other airlines, you (Basically) don’t need to worry about registration, because the airline that you lease the aircraft to will need to register it in the country where they are located.  This is typically something that would be considered for a long-term lease period.

Next.  If you are planning to “Wet Lease,” you will need to Register the aircraft AND obtain an Air Operators Certificate (AOC).  Basically, you will operate your own airline.

There are a number of countries where you can do both the Aircraft Registration, and obtain the AOC.  Some that I’m aware of include: Bahamas, Isle of Man, Seychelles, Bermuda, and Aruba.

The most difficult part will be obtaining the AOC, as you will need to prepare the various documents (Extensive), and secure the appropriate staff.  Furthermore, you will be required to establish various airline departments – Training, Maintenance, etc – however, these areas can typically be contracted to other established companies

Given your proximity to the Middle East, the best choice for you is probably the “Seychelles.”  You would need to contract the “Seychelles Department of Civil Aviation.  I apologize, but I do not have contact information for them readily at hand.