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Fractional operators exitFractional operators exit

AirShares Elite closed in NovemberAirShares Elite closed in November

AirShares Elite, the oldest and largest provider of managed fractional piston aircraft ownership, told customers in mid-November that operations would cease at the end of the month and the aircraft they had been flying would be sold.

“I was taken by surprise, like everyone else,” said Keith Ruskin, an AirShares Elite customer who leased a share of a Cirrus operated out of Westchester County Airport in White Plains, New York. “They didn’t really give an explanation of what happened.”

AirShares Elite President Kevin Price did not respond to an email or voicemail seeking comment on the company’s abrupt exit. Two other AirShares Elite customers, whose names and contact information had been provided by the company for a 2013 story about fractional piston aircraft companies, either did not respond, or declined to speak for the record.

AirShares Elite, as of 2013, operated 31 aircraft in 15 locations across the country, company officials said at the time. Aviation Access Project, another of the six companies with similar business models examined in a 2013 story in AOPA Pilot has also ceased to operate, though Aviation Access Project CEO Rick Matthews (who once worked for AirShares Elite) said that Aviation Access Project is in “hibernation” while he seeks new investment, and has been for about a year.

“We shut it down for good reasons,” Matthews said in a telephone interview. “We couldn’t satisfy the demand… it’s a bittersweet decision, knowing that you hit on something.”

Aviation Access Project announced in January the creation of a new flight center in Greenville, South Carolina. Local businessman Mitchell West was to be the franchise operator there, with flight operations slated to begin May 24. That never happened, and West declined to comment for the record. Matthews said Aviation Access Project had, at its peak, four aircraft at four airports, with eight or 10 customers in all.

“They were being leased, or they were on consignment,” Matthews said of the aircraft. He said a deal with a venture capital group fell through in 2013.

“The model is, we get two or three airplanes up and running filled with partners,” Matthews said, adding that a $250,000 investment covers the start-up cost for an individual airport franchise. “Then the cash flow is there.”

But none of the four light sport aircraft Matthews offered to customers at four locations were fully sold, he said. Now, he plans to repay investments made by West and “a couple more” individuals in Alabama, “out of the proceeds of the next investor. That’s my growth plan.”

Matthews said he is still working to secure $2 million to $3 million in investment capital to properly establish Aviation Access Project.

“I want to get all that clean,” Matthews said. “It was a little messy but we had to go through that … I’m taking time out to clean up some things.”

The websites of both AirShares Elite and Aviation Access Project were inoperative by Dec. 15. Matthews said the Aviation Access Project website was taken offline in late November or early December, for technical reasons: code written by a website developer overseas was incompatible with a website hosting provider’s servers in Alabama, he said. Matthews said the decision to “hibernate” was made about a year ago, though there was a process of “winding down” the operation following what he termed a one-year “test.” (The deal with West was signed in January, by which time, Matthews said, the venture capital deal had fallen through.)

History has shown that selling and managing fractions of aircraft is a difficult business model. In 2010, OurPlane filed for Chapter 7 bankruptcy, leaving 48 aircraft shareholders who were owed between $10,000 and $32,000 each among a long list of creditors, with an unsecured debt of $2.5 million. The collapse of OurPlane was a setback for an industry that has struggled to refine and deploy the basic business model of selling or leasing shares in an aircraft, with varying degrees of ownership service and support. It remains to be seen if the departure of AirShares Elite and Aviation Access Project (pending fresh investment) will have similar effect.

“It’s a double-edged sword,” said Jamail Larkins, CEO of Ascension Air, which currently operates Cirrus singles sold in fractions in Georgia and Florida. While the exit of two firms may shake the confidence of some, Larkins said he has he has received inquiries from AirShares Elite customers.

Larkins said the sudden departure of AirShares Elite came as a surprise.

“They were the grandfather of this industry,” Larkins said. Lessons learned in Ascension Air’s first three years of operation have led to refinements in the model, Larkins said, including a more conservative approach to expansion. He said that Ascension has about 50 customers, most sharing aircraft based at the company headquarters at Dekalb-Peachtree Airport in Atlanta, where Ascension purchased a hangar and established a permanent operating base in September. Larkins said the original plan called for faster growth into more markets, but that has been scaled back.

“We started to grow too fast in some ways,” Larkins said. “We definitely have had our fair share of mistakes and learning lessons.”

Larkins said the company continues to grow, and is building business infrastructure including human resources, accounting, and legal support. Larkins said each market requires a significant customer base to make the operation work, so that revenue supports the staff required to operate and maintain the aircraft, leaving customers free to show up and fly when they wish.

Another fractional operator, FlyteOne CEO Alex Atteberry, said his firm is also taking a go-slow approach, focusing more on matchmaking of partners rather than fractional aircraft management for now. Atteberry has also worked with fractional yacht ownership, and said that in both cases a critical mass must be achieved, assuring that assets (boats and airplanes, as the case may be) will be available to customers on demand. While customers in the fractional ownership model may buy shares of a specific boat or aircraft, they are generally allowed to use any of the vehicles in the fleet. Particularly during periods of peak demand such as the holiday travel season, availability can become an issue.

“If you don’t have enough boats or planes …you get people a little bit agitated and the whole thing falls apart,” Atteberry said. “That’s why we’re trying to be very selective.”

Atteberry said FlyteOne is currently not managing any fractionally owned aircraft, but that may change in 2015, with various markets being evaluated.

Despite the many challenges inherent in the business model, “I’m really shocked about AirShares,” Atteberry said.

Jim Moore

Jim Moore

Editor-Web
Editor-Web Jim Moore joined AOPA in 2011 and is an instrument-rated private pilot who enjoys competition aerobatics.
Topics: Aviation Industry, Financial, Ownership

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