Timeshare For Sale In A Corporate Jet

Owning a jet isn't all it's cracked up to be. Just ask Clark A. Johnson, CEO of Pier 1 Imports Inc. The Fort Worth retailer has operations scattered across 42 states. When executives needed to visit sites in Iowa, Minnesota, North Dakota, and South Dakota, they could hit them all in a day in the company's British Aerospace PLC HS 400. But there was always something. On days when the plane went unused, Pier 1 had to pay the company pilots anyway. Johnson had to fly commercial when the chief pilot got sick, or when the jet went in for maintenance. There was the danger shareholders would complain he was living high on the hog. And it was expensive.

Pier 1 found an alternative. Some years ago, Johnson's former business chum Jack Nicklaus told him about NetJets, a jet-ownership program that lets executives use planes anywhere in the continental U.S. within four hours--for the expense of owning just a piece of a plane. So, in 1986, Johnson sold the HS 400 and bought a three-eighths share of a Cessna Citation II, which seats seven. "It is a management tool that enables us to spend more time in the field with a far-flung operation," he says. After signing with NetJets in 1987, he says, Pier 1 cut its aviation costs by nearly 40% over five years, without sacrificing convenience.

NO DEADHEADS. Today, Pier 1 is one among more than 100 companies or individuals that have became NetJets owners. The program is run by Executive Jet Aviation Inc., based in Montvale, N.J., one of the country's largest jet charter and management companies. NetJets offers some major advantages over full-plane ownership. Costs can be significantly lower. Participants pay only for actual flight time--not for the many hours of so-called deadhead time that jet owners or charterers must pay for when jets are traveling empty. NetJets planes also come ready to fly, eliminating the need for maintenance, leasing hangars, or keeping pilots on salary.

And there's another huge advantage: Unlike condo shares, where participants can enjoy the house only when the others are gone, NetJets is arranged so that a company with as little as a one-quarter share can use up to two jets at any time. The trick, says CEO Richard T. Santulli, a mathematician and onetime head of Goldman, Sachs & Co.'s leasing group, was beginning with a core pool of eight unowned jets and combining it with a sophisticated software program that tracks jet movements and keeps them flying as efficiently as possible. NetJets is growing quickly: EJA anticipates revenues of roughly $50 million in 1993, jumping 50%, to $75 million by 1994, with NetJets providing 70% of those revenues.

The program has widest appeal among small to midsize companies that aren't large enough to keep a jet in frequent use. But it's also attracting a broad audience beyond that. Many NetJets owners are private investors or retired top executives loath to give up the perks of corporate life. Former Primerica CEO Gerald Tsai Jr., Atlanta Falcons owner Rankin M. Smith, and retired G.D. Searle CEO D.C. Searle all own NetJets shares. NetJets is also gaining fans among large corporations such as Texaco and Sara Lee that use NetJets to supplement corporate fleets.

Now, Santulli is preparing to broaden his audience. To date, NetJets has used mostly Citation IIs, which have a range of only 1,600 nautical miles--New York to Houston. Executive Jet is close to a deal with BAe for 20 BAe 1000s, a midsize jet that carries eight and flies 3,000 miles--coast to coast. The deal hasn't closed, but BAe is so eager to expose its new plane to corporate users that it will offer to guarantee the residual value of the planes after five years, protecting buyers from a downturn in the market.

The concept does more than help corporate purchasers look thrifty. It gives jet manufacturers another way to push their wares. Roughly 40% of the companies and individuals buying NetJets shares are first-time plane owners, Santulli says. "One thing that's been sorely lacking is the industry's ability to attract new people into the marketplace," says Bob Zuskin, a jet analyst at consultant Avitas Inc. "The beauty of NetJets is that it allows people in essence to own jets for a fraction of the cost." Of course it may be less chic to boast, "I own one-eighth of a jet." But then, the zeitgeist of the '90s isn't swank, it's thrift.

                            NetJets     vs. full ownership
      ACQUISITION COST     $630,000      $2,500,000
      DIRECT OPERATING     1,060.00      817.25
      Cost per hour (200 hours per year)
      FIXED COST            134,580      204,528
      COST OF CAPITAL        37,800       150,000
      at 6% rate
      DEPRECIATION           63,000 **    250,000
      TOTAL ANNUAL COSTS     447,380      767,978
      *Assuming one-quarter jet share     **Eight years to a 20% residual
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