Air taxi service provider DayJet Services ceased operations Sept. 19, parked its fleet of 28 very light jets, terminated most employees and told its customers it could no longer honor reservations.
The shutdown rekindled the debate over the role of air taxi operators and very small aircraft in offering a meaningful alternative to travelers seeking to avoid the hassles of commercial airline travel.
DayJet, based in Boca Raton, Fla., had said last spring that it needed $40 million in financing, and it blamed the current global financial crisis for its inability to secure funding. Its website said that the company shut down immediately after failing to arrange financing the day before.
"Without access to growth capital, we have no choice but to discontinue operations," DayJet founder Ed Iacobucci said in a statement. Iacobucci continues as chairman of the company but turned over CEO duties to John Staten, DayJet's CFO and senior vice president of operations.
Access to capital is tight for all industries currently, not just aviation, said George Hamlin, managing director of Airline Capital Associates in New York.
"I think people are going to take a good, hard look at business risk now and be pretty wary of it, unless there's an astounding return and/or it's pretty well guaranteed," Hamlin said.
"In the aviation business, it continues to amaze me that a fair amount of money has been available to new entrants in recent years. Virtually all of them have failed."
DayJet said that since October 2007, more than 2,400 individuals had paid a membership fee to be able to book per-seat, on-demand transportation to 60 small and medium-size cities in Florida and neighboring states. The company had flown more than 9,000 flights since it began operations.
Flawed business plan?
Analysts and aviation consultants questioned whether the company's business plan, based on selling individual seats on small planes, had been adequately researched.
The VLJ industry suffers from a lack of an identified market -- those who demand such services and are willing to pay for it -- that is sufficient to generate a profit at costs that exceed those of airlines, said aviation consultant Robert Mann.
"In theory, prospective users get great utility with the VLJ air taxi model, but the true, fully allocated economic costs are not being passed through. Thus, someone with a deep pocket would have to subsidize the operation until the market size matured adequately, the costs dropped sufficiently, or until they sold it to the next greater fool who thought one of those might come true," Mann said.
Mike Boyd, president of Boyd Group International Inc., based in Colorado, said the DayJet on-demand concept "was one of those solutions looking for a problem. The sheer per-seat cost of the operation made it untenable to be a major vendor of air transportation."
Air taxi supporters disagreed. DayJet had done an excellent job of "working to understand their customers in advance of launching operations," said Joe Leader, president of the Atlanta-based Air Taxi Association.
In July, DayJet's Staten said the company was targeting midlevel managers who might drive four to eight hours rather than get on a commercial flight.
DayJet was totally on target with the need and market for this type of travel, said Phil Quist, vice president of SATSair, based in Greenville, S.C. His company has been operating an on-demand air taxi service for two years in the Southeastern U.S.
The fledgling air taxi industry stepped in to help stranded DayJet passengers. SATSair, ImagineAir and North American Jet agreed to provide on-demand air transportation to all of the affected cities. The three companies offer service on a per-plane basis, rather than DayJet's per-seat model.
North American Jet flies the same Eclipse 500 jet as DayJet. SATSair and ImagineAir fly the Cirrus 22, a single-engine piston aircraft. Both aircraft can carry up to three passengers.
The Cirrus is ideal for flights of about one hour, replacing drives of four hours, said Quist, whose company operates 26 aircraft. The Eclipse is superior on longer flights where altitude, speed and economies of scale come into play. "But on these short flights, they may land five or 10 minutes ahead of us, but they're not going to be that much ahead of us," Quist said.
Boyd called the air taxi, with small airplanes that cost $800 to $1,000 an hour to operate, pretty hard to make work without volume demand. "Except in a few rare applications, air taxi is a pipe dream in the U.S.," Boyd said.
DayJet was the largest single customer for Eclipse Aviation, the Albuquerque, N.M., manufacturer of the six-seat jets. DayJet also criticized Eclipse for failing to install missing equipment or make agreed-on repairs of technical discrepancies.
Eclipse was not aware of the problems mentioned but knew DayJet had been seeking capital for the past six months, said spokeswoman Alana McCarraher. She said Eclipse's business model has never relied solely on DayJet, and waiting customers would be eager to move up in line for aircraft coming off the production line.