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Morningstar Partners

Fractional jet ownership is one of those ideas that just makes sense for corporations. Rather than purchasing a business jet outright, and then paying for staff and maintenance whether the aircraft is flying or not, the fractional jet concept calls for a number of corporations to buy “shares” in a given aircraft. They then lease it back to a “managed aircraft” company such as Edmonton’s Morningstar Partners. For a monthly fee, Morningstar handles all the details of jet management and service, ensuring that its fractional owners have access to any of its fleet on a few hours’ notice. The result is virtual corporate aviation at a lower upfront and ongoing cost.

Morningstar president Bill McGoey.

So how is the managed aircraft market doing during the current “Great Recession”? Not well, says Morningstar president Bill McGoey. “I was talking to the owner of another managed aircraft company the other day, and they had five managed aircraft for sale.” And at Morningstar Partners itself, “things are slower than we were hoping,” says Phil Dziedzic, the company’s VP corporate development. “But actually, we did close two sales last month. We only have a little bit of one aircraft left to sell.”

AN UNEXPECTED BUMP IN THE ROAD
Morningstar Aviation began life over 35 years ago under the name Brooker Wheaton Aviation. It was a Cessna dealership that also provided fuel, parts and an FBO (Fixed Base Operator) service centre. Business was good, so good that Brooker ventured into leasing and charters using Learjets, Cessna Citations and Hawker jets.

Brooker Aviation became Morningstar in the early 1990s, when Kim Ward of the famed Ward aviation family (Wardair) bought half the company from owner Don Wheaton. This partnership expanded the company further, including winning a contract to operate Boeing cargo jets for Federal Express Canada. Today, when you see a Canadian B727 overhead flying FedEx’s white and purple colours, that’s a Morningstar jet you’re watching.

It was against this background of success that the company decided to tackle the fractional jet market. “We were already doing a lot of work for corporate aircraft owners,” says McGoey. “We were providing them with maintenance, staffing and hangar services on a Private Operator Certificate (POC). It just made sense for us to take it a step further and expand into the fractional aviation business.”

“The times were good,” McGoey adds. “We had come through a nice little time where jet demand was high. It made good business sense to offer fractional jets, especially because they provide a lower cost route into corporate aviation than the traditional ‘buy one/run one’ approach.”

One point in Morningstar’s favour: Typically, the Canadian market is 1/10th the size of the US market. So if the US market will support more than 1,000 corporate jets in fractional ownership programs – as it currently does – it makes sense that Canadian business would be able to support more than 100. “Right now, there are less than 30 corporate jets in Canada operating in fractional ownership,” says Dziedzic. “The numbers are clearly right for our company, at least in a good economy.”

DEALING WITH THE RECESSION
Unlike many companies – in aviation or business in general – Morningstar Partners has not been dealt a death blow by the recession. One reason is the nature of the fractional jet business model: Whenever a client buys a share of a given aircraft, “our risk is reduced,” McGoey says. “Once the entire aircraft has been ‘sold,’ our risk is nil.”

Still, sales are slow right now. It’s not due to a lack of desire; rather a lack of cash and credit. Complicating matters is the fact that companies with money are keeping tight control of their purse-strings as a hedge against the current economic slump going on for years, rather than months.

“We have a lot of potential customers who will sign as soon as they are sure that things are looking up again,” says Dziedzic. “Some prospects are actually ready to buy fractional jets today, but don’t feel it’s the right thing to do during a recession, when people are losing their jobs.”

However, the slowdown cannot last forever. Unlike unnecessary technology like the Segway two-wheeled “Personal Transporter” – a rolling replacement for walking that someone wittily described as ‘a very clever solution to a problem that doesn’t exist, but very clever nonetheless’ – there is a real need for corporate jets. High-salaried executives of major multinational companies need to be able to travel, on their own schedule and terms and, in some cases, to hard-to-reach locations. For them, plus those with the cash to pay, corporate jets perform a real service that commercial airlines do not.

It is these people that Morningstar Partners hopes to attract to fractional jets once the initial shock of the recession wears off and companies see business pick up. “The recession could help us in certain ways,” McGoey says. “For example, a company who needs to add a corporate aircraft to its fleet but doesn’t want to incur the cost of buying one could achieve its ends through fractional ownership. Not only does this keep capital costs down, but it’s more fiscally responsible and better from an optics standpoint.”

That’s not all: “There are many companies who own corporate aircraft who would like to get them off their balance sheets, Dziedzic says. “These companies could come to us after selling these assets. We might even be able to work a deal with them wherein they retain an ownership share in their aircraft, while we sell the rest and then manage it for them.”

“If I took the time to talk to every corporate aircraft owner in Canada, I could show them how we can provide them with equivalent service for less money by pooling aircraft and human resources,” McGoey sighs. “I didn’t say we don’t have time. We just aren’t taking that marketing approach – to ‘go after’ private flight departments.”

The future of Morningstar Partners and other fractional jet companies is unclear. After all, it is easy for cash-strapped executives to decide to forgo jet ownership entirely, rather than save money by going the fractional route. Still, Morningstar has weathered other recessions, and it is bolstered by its ongoing contract with FedEx, current fractional jet owners, and its maintenance and service business. “Times are tough, but they’re not fatal,” says McGoey.

Clearly, Morningstar Partners is not letting the recession destroy its plans for future growth. Instead, the company is taking a cautious approach that keeps tabs on the state of the market, without giving up its ambitions and goals. In this sense, the economic slump is a slowdown for this experienced Edmonton company, but not the end of the road.