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Eurosky – Products

3.1 Product Definition

Eurosky will offer a Fractional Ownership Program for business aircraft in Germany and adjacent European countries. Eurosky’s product offering is an innovative business aircraft service intended to provide a single source for its customers’ short and medium range executive travel needs.

In Eurosky’s program, each customer can purchase one to four interests in a Beechcraft King Air B200, a modem turboprop aircraft. A quarter share entitles its owners to use the aircraft 100 flying hours per year. Customers holding two or more shares will be able to use two aircraft simultaneously. Flights can be ordered 24 hours a day, 365 days per year. Eurosky guarantees aircraft availability within a response time of 12 hours. In case of non-availability of the customer’s specific aircraft due to maintenance or usage by one of the other owners, Eurosky assures to provide an alternative aircraft. Eurosky will then use other aircraft from its fleet or purchase external capacity.

The aircraft is equipped with six comfortable leather seats, a private lavatory, a baggage compartment accessible during flight, a power outlet for portable computers and a full service refreshment center for drinks and cold meals. The crew consists of one pilot and one co-pilot. Eurosky will take responsibility to provide experienced and highly trained crews. Following the concept of the “Primary Crew”, the customers are serviced by the same crew whenever possible. Flight attendant service can be offered upon request.

Due to German legislation, the title to an aircraft cannot be shared by several parties. Thus, there will be a separate legal entity for each aircraft acting as its legal owner. Instead of directly buying a portion of the aircraft, customers will acquire an interest in the company that owns the aircraft. The interest is depreciated over a period of 10 years, which enables customers to receive full tax credit for their investment.

Following the depreciation period of 10 years, the interests are repurchased by Eurosky at fair market value specified in the “Aircraft Bluebook”. After two years in the program, customers have the right to return their shares to Eurosky with a three-month notice period. In conjunction with the aircraft manufacturer, Raytheon Aircraft Company, Eurosky guarantees the liquidity of the interests in the aircraft and will buy back the interests at fair market value.

Eurosky will offer additional services to supplement its Fractional Ownership Program. For example, customers will be able to acquire flying hours beyond their time allotment. Further, Eurosky will engage in air charter brokerage in case customers require larger or supplementary aircraft. Also, a chauffeur-service in conjunction with Sixt-Budget will be offered for major cities in Europe.

3.2 Aircraft Choice

The choice of the Beechcraft King Air B200 as Eurosky’s primary aircraft directly relates to the customer needs identified through Eurosky’s market research. Main concerns were safety aspects, cost-effectiveness, dispatch reliability, speed, operating flexibility and comfort. The King Air B200 provides an excellent blend of these attributes. Exhibit 4 on the facing page shows a picture of the aircraft and its cabin. It was found that over 80% of all flights do not exceed a 1.500 km (810 nm) stage length, a distance that can most efficiently be handled by a turboprop aircraft. In addition, Eurosky’s interviewees have expressed a favor for turboprop aircraft with regard to easier (cost-) justification before shareholders, employees, customers and suppliers.

The King Air family is manufactured by Raytheon Aircraft Company of Wichita, KS. It is the most successful business aircraft design and is renowned for high cabin comfort and unsurpassed operating reliability. The King Air 200 series, which is the medium fuselage size, has sold almost 2,000 times worldwide. It provides 50% more payload than its closest jet competitor, is more cost-efficient (especially in terms of fuel burn) and can use shorter runways. The King Air B200 will provide Eurosky’s customers access to over 150 airfields in Germany, compared to 28 being served by scheduled airlines (see Exhibit 5). In Europe, the King Air B200 can reach approximately 2000 airports. The speed disadvantage of the turboprop in comparison to business jets and commercial airlines is overcompensated by these “logistical” advantages.

In terms of cabin size and comfort as well as acquisition cost, the King Air B200 will beat all comparable jets. Even the noise level inside the cabin of the King Air B200 is lower than in some of the smaller business jets.

The aircraft with the serial number BB-1609 to be delivered in March 1998 could be the first aircraft to enter Eurosky’s fleet. Further deliveries will be scheduled with the manufacturer with a four to five months lead time.

3.3 Pricing

Eurosky’s fee structure includes three separate items. A quarter interest in the aircraft is priced at 1,950,000 DM ($1,150,000). This will provide customers with a 25% equity stake in the company that owns the aircraft. The price is set to offer an acquisition price below the aircraft’s list price while still generating an average margin of 17% for Eurosky due to discounts obtained from the manufacturer (see Cost of Goods Sold & Pricing in Appendix 8.1.1). Favorable aircraft pricing conditions from the manufacturer result from quantity discounts as well as the fact that Eurosky will tap market niches inaccessible to the aircraft manufacturer. Eurosky will thus obtain a pricing advantage from its ability to increase the total sales volume of aircraft for the manufacturer without cannibalizing other market segments, e.g. individual aircraft owners.

The second charge is a monthly fee of 15,000 DM ($8,800) covering the fixed cost of the aircraft operation (e.g. insurance, crew salaries, training and hangarage). An hourly fee of 2,200 DM ($1,300) is charged for every flight hour occupied by the customer. This charge covers direct operating costs, such as fuel, maintenance, and airport fees. In addition to normal charter market prices, Eurosky’s fee includes all additional costs, such as air traffic control (ATC) fees and airport charges.

Eurosky will guarantee prices to its customers during the first two years of the contract. After two years, customers may trade back their shares, and Eurosky will retain the right to adapt the prices to actual market conditions.

The pricing for Eurosky’s core product is very competitive compared to alternative offers, i.e. aircraft ownership, charter and other Fractional Ownership Programs. The monthly recurring fee lies substantially below the fixed costs incurred in the operation of an own aircraft. Compared to average per-hour charter prices, Eurosky is able to charge its customers 21 % less in its hourly fee. Exhibit 6 on the facing page provides a comparison of the annual budget for a fully owned aircraft, Eurosky’s Fractional Ownership Program and charter. Considering an annual demand of 100 occupied flying hours, Eurosky’s Fractional Ownership Program will beat full business aircraft ownership by 55%, while the service offered is comparable. Compared to charter, the annual budget for Eurosky is somewhat higher. This however, is compensated by the additional value Eurosky creates by offering guaranteed aircraft availability and by reducing transaction cost.

3.4 Product Benefits

In contrast to its direct competitors, Eurosky has two decisive competitive advantages. First, Eurosky is entirely based in Germany. This will allow optimal coverage of the most attractive market in Europe, namely Germany and the adjacent countries. This region holds the largest number of potential corporate customers and is strategically located in the center of Europe.

The second competitive advantage of Eurosky is its product offering that hinges on a turboprop aircraft, which exactly meets customer needs. In addition, Eurosky’s innovative legal setup allows its customers to receive full tax credit for the depreciation of their investment.

Table of Contents Appendices
1. Executive Summary
2. Market Analysis
3. Products
4. Company
5. Marketing and Sales
6. Operations
7. Financials
Pro-forma Financials
Resumes of the Founder Team
Board of Advisors
Key Advisors
The information and ideas herein are the confidential,
proprietary, sole, and exclusive property of Eurosky’s founders.

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