On-Demand Air Travel

Very Light Jets (VLJ) Impact the Transportation Paradigm

February 20, 2008

Summary •  The market is developing to fill the gap between commercial travel and

full or partial private jet ownership. There’s a clear service opportunity.

•  Current demand in the northeast region of the US is estimated to be in excess of 1,000 flights per day. The market is here now.

•  Existing on-demand air travel (ODAT) operators in the southeast region of the US have been successful and are expanding operations. Pioneers are doing well.

•  Industry economics support strong returns under expected initial conditions and offer accelerated returns as network effects develop. Financial returns can be very attractive.

February 20, 2008

What is On-Demand Air Travel?

•  Point to point – Typically using small airports. •  Unplanned – Clients set flight schedules. •  Small planes – One to four passengers. •  Flight times – One to two hours. •  Fares competitive with full-fare coach + time. •  No up-front or capital investment required. •  Other model options being pursued:

–  Larger planes with bathrooms for longer trips. –  Pricing per-seat versus per-plane.

February 20, 2008

A Mix of Catalysts •  Commercial air travel challenges

–  Increasing access time to/from airport –  Longer delays at check-in and security –  Disruptions and delays more common due to higher volumes.

•  Urban centers have expanded geographically –  Less convenient to major airports –  More congestion on roads and rails –  State and local governments are funding solutions.

•  New aircraft technologies (VLJs) •  Developing infrastructure for small airports (SATS) •  Greater demand for speed, privacy and security

February 20, 2008

Analog to Digital: Small Aircraft Transportation System (SATS)

•  Proof of concept pioneered by NASA five year R&D program from 2000 to 2005

•  SATS extends safe, new technology-supported air transportation beyond commercial airports to thousands of small public use landing facilities nationwide

•  VLJs combine economics and technology for SATS to become new paradigm consumer air transport option

•  VLJ on-demand air transport services considered critical market enablers for advancing SATS vision

February 20, 2008

VLJ + SATS = Disruption •  VLJ on-demand air transport services within SATS

environment could recast consumer air transport paradigm –  Shift consumer use and air traffic away from

commercial hub airports –  Reduce current capacity strain on ATC system at hubs –  Support local economic development around small

public use airports –  Resulting travel planning and economic ripple effects

from evolution of personal air transportation market

February 20, 2008

VLJ Market Growth Forecasts

•  Multiple industry segments include air taxi, charter, business aviation and owner-operators.

•  Some prior forecasts: –  FAA: US market to see 400-500/year with 6,300

operating in 2020. (2007) –  Embraer: Between 5,200 to 5,700 by 2017. –  Honeywell: 6,500 by 2016.

•  Current consensus thinking is around 800-900 deliveries per year through 2016.

February 20, 2008

Market Analysis Model

February 20, 2008

TSAM model developed by Virginia Tech Air Transportation Systems Laboratory in conjunction with NASA.

Headline Market Study Results

February 20, 2008

Year Annual Demand

Cumulative Demand

2007 322,170 322,170

2008 330,000 652,170

2009 337,714 989,884

2010 345,762 1,335,646

2011 354,852 1,690,498

2012 363,793 2,054,291

2013 372,947 2,427,238

2014 381,975 2,809,213

2015 390,635 3,199,884

Large market exists today versus being an emerging growth market.

Shifting Demand from Driving

February 20, 2008

Year Automobile Commercial Air

2007 277,074 45,291

2008 283,885 46,335

2009 290,457 47,489

2010 297,472 48,495

2011 305,356 49,731

2012 313,083 50,932

2013 321,073 52,118

2014 328,858 53,376

2015 336,360 54,524

Round trips per year shifted to on-demand air travel.

Market Dynamics

February 20, 2008

2009 2010 2011 2012 2013 2014 2015

Trip Demand (000) 337 345 354 363 372 381 390

Share 1% 7% 20% 25% 30% 35% 40%

Trips (000) 3.4 24 71 91 111 134 156

Passenger Hrs. (000) 4.2 32 103 136 167 200 234

Revenue (M) $9M $68M $216M $286M $352M $421M $492M

Trips/Day/Plane 1.0 1.7 2.0 2.2 2.4 2.6 2.8

Planes Required 11 46 118 138 155 171 186

Rev/Plane (000) $787 $1,488 $1,827 $2,079 $2,268 $2,457 $2,646

@10% Net $1M $7M $21M $29M $35M $42M $49M

@15% Net $1.4M $10.3M $32M $43M $53M $63M $74M

[$2100/hr, 1.25 to 1.5 hr trip, 300 day year]

Per-Plane Economics

February 20, 2008

Hours 600 800 1000 1200 1400 1600

Revenue (000) $1,260 $1,680 $2,100 $2,520 $2,940 $3,360

DOC (Fixed at $900/hr) $540 $720 $900 $1,080 $1,260 $1,440

SG&A (Fixed at $1M) $1,000 $1,000 $1,000 $1,000 $1,000 $1,000

Net (000) ($280) ($40) $200 $440 $680 $920

Net Margin (22%) (2%) 10% 17% 23% 27%

ROA (18%) (3%) 13% 28% 43% 58%

[$2100/hr, $1.6M Purchase Price, No Financing Adjustment]

Some Recent Adoption Signs DayJet Expansion: New customer adds have increased from 20

to 50 per week. Corporate sale dynamics are solid (1 month to trial, 75% ask for quotes, 50% fly, 35% repeat.)

SATSair Success: Using small piston planes the company has found strong demand and raised prices. Business customers take multiple planes. Flying 1,500 customers/month. Blind dates. 26 planes. No advertising.

North American Jet: Very pleased with Eclipse planes. 100% acceptance rates. Low DOC experience. Still some kinks. Lots of planes with a handful of Eclipse 500’s.

February 20, 2008

Building an ODAT Business

•  Value driven, feasible business model(s) •  Available/accessible financing •  Effective marketing •  Strong operations planning/execution •  Regulatory and governmental support •  Great management

February 20, 2008

Air 2.0 Industry Resources: www.research2zero.com/ondemandairtravel.html

February 20, 2008

Or contact us: Kris Tuttle

Director of Research Research 2.0

1313 Washington Street Boston, MA 02118

kris@research2zero.com 617-828-6462 (mobile) 617-381-4762 (office)

Supplemental Material/Appendix

February 20, 2008

VLJ Characteristics •  Advanced technology materials for lightweight airframe

and power plant manufacturing •  Next generation avionics, automated “glass” cockpit •  Maximum Takeoff Weight (MTOW) below 10,000 lbs. •  7 person total (passengers + pilots) capacity •  Capability to operate safely on 3000 ft. runways •  Approx. 1,700 nm maximum flight range •  $.70 – 1.50 per mile direct operating cost (DOC) •  $1.2 – 3.7M acquisition purchase cost

February 20, 2008

VLJ Challenges

•  Production – Orders and requests for VLJ planes have expanded rapidly and scaling up has not been without setbacks.

•  Certification – Meeting FAA requirements given limited financial resources and timeframes is difficult.

•  Financing – More robust financial options need to develop over time to bring more VLJ options to the market.

•  Flight Operations – Operators need to gain hours with the new aircraft to move up the experience curve to optimize operational efficiency.

February 20, 2008

It’s still early in VLJ market!

The Eclipse 500

•  Innovative construction •  6 seats, 1125 nm range •  41,000 ft ceiling, 370 knots

cruising speed •  Pratt & Whitney PW610F

engines •  Reputation for quiet

operation •  2,800 plane order book •  New European investment

and operational support •  $1.6M acquisition cost

February 20, 2008

Proliferating VLJ Options

February 20, 2008

SATS Solution Components

•  Automated flight management systems for higher volume operations at airports without control towers or terminal radar

•  Guidance and display systems for safe landings in low-visibility conditions at minimally-equipped airports

•  On-board graphic and data displays supporting safe single pilot flight operations

•  Seamless integration of VLJs into national air space •  Lots of interesting breakthrough technology coming

February 20, 2008