air taxi public financing dubai2008

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On-Demand Air Travel Financing in the Public Markets Dubai - March 10, 2008 Very Light Jets – Middle East Dubai, UAE March 10, 2008 Kris Tuttle, Director of Research [email protected]

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This presentation is an update on financing Air Taxi companies in the public markets. It was given in March of 2008 while the markets were weak but still working. It covers the dynamics at that time. Since then several of the companies have had more trouble or gone out of business. Public markets have been closed.

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Page 1: Air Taxi Public Financing Dubai2008

On-Demand Air Travel

Financing in the Public Markets

Dubai - March 10, 2008

Very Light Jets – Middle East Dubai, UAE March 10, 2008

Kris Tuttle, Director of Research

[email protected]

Page 2: Air Taxi Public Financing Dubai2008

Discussion Points •  Current financing market: Workable

•  Status of a semi-developed public market: Patchy

•  A litmus test: POGO

•  Public market status: Still uncertain

•  Reasons to care: WACC, ROIC, LTV, etc.

•  Outside the box: OpenIPO, Global Exchanges, Celtics

Dubai - March 10, 2008

Page 3: Air Taxi Public Financing Dubai2008

Background

•  Emerging technologies since 1979 –  Pre-commercial microcomputers, Carnegie-Mellon –  IBM Strategy, Development, Marketing and Sales

•  In financing such since 1992 –  Active investor, NYU Stern School –  UBS, SoundView, Adams

•  Research 2.0 launched in 2005 (Software) •  Air 2.0 practice launched in 2007

–  Interest, Contacts, Timing, Resources

•  Retained to provide related research on POGO IPO

Dubai - March 10, 2008

Page 4: Air Taxi Public Financing Dubai2008

Private Market Pockets •  Financing is still largely hand to hand combat •  Market leaders like DayJet and Eclipse are okay •  Second tier companies also fundable but…

–  Largely private investors willing to commit to long durations –  Fairly small in size: One to ten million per investor –  Lots of companies go begging: Actually good news.

•  Related company private financing –  Kayak.com $196M –  Zipcar raised $100M in equity financing to 2006 and now doing

asset-backed and using cash flow (GE).

Dubai - March 10, 2008

Page 5: Air Taxi Public Financing Dubai2008

A Patchy Public Market

•  Today the market for travel-related companies is mixed.

•  “Upstart” airlines haven’t done very well.

•  Online travel services have fared better.

•  Niche software and service providers are embraced.

Dubai - March 10, 2008

Page 6: Air Taxi Public Financing Dubai2008

Ryanair

Dubai - March 10, 2008

Page 7: Air Taxi Public Financing Dubai2008

Frontier Airlines

Dubai - March 10, 2008

Page 8: Air Taxi Public Financing Dubai2008

Southwest Airlines

Dubai - March 10, 2008

Page 9: Air Taxi Public Financing Dubai2008

JetBlue

Dubai - March 10, 2008

Page 10: Air Taxi Public Financing Dubai2008

Expedia

Dubai - March 10, 2008

Page 11: Air Taxi Public Financing Dubai2008

Ctrip.com

Dubai - March 10, 2008

Page 12: Air Taxi Public Financing Dubai2008

Blackboard

Dubai - March 10, 2008

Page 13: Air Taxi Public Financing Dubai2008

POGO IPO

•  Filed for 7M shares at $14.50 (mid-point) for $101M •  Implied valuation of about $153M •  Few minor details:

–  No current assets, no existing operations •  But:

–  Strong management team –  Solid market potential & business plan

•  Marketing now, closing expected week of March 18

Dubai - March 10, 2008

Page 14: Air Taxi Public Financing Dubai2008

Northeast U.S. Market

Dubai - March 10, 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]

Page 15: Air Taxi Public Financing Dubai2008

Investor Feedback •  What about the Eclipse?

•  How will the company differentiate itself?

•  Is this the right business model?

•  No real push back (yet) on: –  Market potential –  Financial model

Dubai - March 10, 2008

Page 16: Air Taxi Public Financing Dubai2008

OpenIPO

•  Traditional IPO capital markets are a deep mystery •  Dutch auction

–  All investors bid what they want to pay –  Offer pricing and allocations set objectively

•  Market is developing –  Google, Morningstar, NetSuite

•  Disruptive model still in early stages

Dubai - March 10, 2008

Page 17: Air Taxi Public Financing Dubai2008

Potentially Low WACC

Dubai - March 10, 2008

We say $12…

… the market says $26.

(We still say $12.)

Page 18: Air Taxi Public Financing Dubai2008

Thinking Outside the Box

•  Creative Finance •  OpenIPO •  Could “affinity” equity work? The Celtics •  Other Exchanges

– London, Dubai

Dubai - March 10, 2008

Page 19: Air Taxi Public Financing Dubai2008

Dubai - March 10, 2008

To sign up for free Air 2.0 research alerts visit us at: www.research2zero.com/ondemandairtravel.html

Questions and requests just contact me at [email protected].

Research 2.0

•  We offer research and advisory services to company managements, investors and investment banks.

•  Offices in Paris, Boston and New York

•  Lightweight, on-demand business model •  Strong network of resources on staff and via contract •  Our approach is honest, independent and unstuffy

Page 20: Air Taxi Public Financing Dubai2008

Going Public Workshop

•  The foundation •  POGO example (roadshow and support) •  Investment banks and research •  Creating financing

– OpenIPO – Loyalty programs? – Assets and alternative structures

•  Other exchanges: London, Dubai

Dubai - March 10, 2008

Page 21: Air Taxi Public Financing Dubai2008

The Foundation

•  The basic stuff – Management – Business Process – Financial Controls

•  Secret Sauce •  Effective marketing •  Strong operations planning/execution •  Regulatory and governmental support

Dubai - March 10, 2008