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Aviation Week

XOJET Completes $2.46 Billion Fleet Financing

05/20/2008

By John Morris

The biggest financing in the history of business aviation--and one of the top 10 in all of commercial aviation--has been completed by XOJET, which raised $2.46 billion to fund its fleet expansion from around 20 to 127 corporate jets.

The major investor is Tasameem Real Estate of Abu Dhabi, which, through a mixture of debt and equity, will acquire a minority ownership stake in XOJET and a major share in a joint venture in the Middle East.

"This is by far the largest financing in business jet history," XOJET president & CEO Paul Touw told Show News. "It is highly unusual to have achieved it in the current credit climate where five airlines have recently gone under, and it shows a strong faith in our business model by investors who are known to be extremely discerning in where they put their money."

XOJET last year ordered 30 Citation X business jets worth $600 million and 20 Bombardier Challenger 300s plus 60 options worth $1.9 billion. The California-based company plans to have 127 business jets in operation by 2011.

Touw would not say how much Tasameem is investing but noted that its ownership in XOJET will be less than 10%. Other investors include veteran aviation investor TPG, Export Development Canada (EDC), White Oak Global Advisors, LLC and Touw himself. The equity financing round was advised by Morgan Stanley.

Some $964 million will be made available immediately to XOJET, which has already secured more than $500 million in previous funding. The remaining $1.5 billion in additional financing will be made available upon launch of the planned joint venture with Tasameem, which is expected to occur later this year.

"This comprehensive financing package will enable XOJET to be the first large-scale business jet operator to fund the vast majority of its own fleet," said Touw. "And it will enable us to go global with our business model starting in the rocket-ship growth area of Abu Dhabi."

XOJET’s business model differs from most in that the company buys, maintains and operates its own aircraft and charges monthly fees for guaranteed availability. "Our average contract is for five years and 187 hours of guaranteed time," said Touw. XOJET then aggressively sells on-demand charter on airplanes that would be deadheading for their next destination. "Less than 3% of our flights are deadheading," he noted.

His current fleet of 20 aircraft are each flying 1,200 to 1,300 hours a year, "which is three times the average," Touw said. Those 20 are generating revenue like a fleet of 60 aircraft. "Think of the capital tied up in those assets. If you can make $400 million work like $1.2 billion, you can see why all roads lead to aircraft utilization."

Touw has particularly harsh words to say about fractional ownership, which, like many other programs, requires the customers to buy the aircraft in one way or another. "If you buy 400 hours from a fractional it would be cheaper to buy your own aircraft," he noted. "Those kinds of programs are using the timeshare plans of the 1970s really to sell aircraft."

In contrast, XOJET came in with a completely different system that’s economic and super efficient, Touw said, and it doesn’t ask its customers to finance the aircraft.

Noting that U.S. consumers spend $30 billion a year on private aviation, he said the success of XOJET’s financing marks a big turning point in investors viewing business aviation as a commercially viable transportation solution. "A lot of us feel this could be the beginning," Touw said.