NetJets ordered 50 Phenom 300s from Embraer at NBAA. A favoured nation clause in Flight Options’ 2007 Phenom 300 order means that Embraer cannot sell the aircraft at a lower price than was offered to Flight Options.
When Fight Options ordered 100 Phenom 300 corporate jets in December 2007 the $746 million list prize size of the deal was enough to raise Embraer’s share price by 1% within minutes of the announcement. The US fractional operator also signed up to a maintenance support deal that Embraer valued at $200 million and took an option for another 50 Phenom 300s.
Embraer waited to see if Flight Options would be able to afford the aircraft. The management team at Flight Options that placed the order left and the owner that supported the decision sold the company to a group of investors led by Ken Ricci, who is now chairman.
“Embraer was worried that the original order wouldn’t be for real,” said Ricci. “But we gave them a lot of comfort when we released the audited financial statement in December 2009 showing a $25 million profit – the first profit for five years.”
One rumour at the NBAA exhibition was that Embraer had actually broken an agreement that Flight Options would be the only fractional ownership company allowed to market the Phenom 300 in the US.
“We never had an exclusive agreement,” says Ricci. “We did however have a favoured nation clause where Embraer could not sell Phenom 300s at a lower price to another fractional operator.”
NetJets was able to negotiate a lower price than Flight Options when it ordered in 2007 but by doing so has helped its competitor out due to the favoured nation stipulation.
“We will be getting substantial discounts,” said Ricci.
Ricci added: “We are not worried about competing on the Phenom 300. Although we are having some teething troubles with the aircraft we will have had the aircraft to market for three years before NetJets and we are used to competing with them – like on the Hawker 400 and Hawker 800 for example. In fact we love competing against them.”
One rival manufacturer said that they are surprised by the price that NetJets achieved. “We can’t believe the deal is at such a low price,” he said. “It is a deal no one else could have done.”
Ricci, who did not negotiate the 2007 order, believes the favoured nation clause is far more valuable than being the only fractional operator able to sell shares in Phenom 300s. Flight Options has taken delivery of its first Phenom 300 with three more expected to be delivered this year. It has sold all of the shares in the first three aircraft.
Embraer is optimistic that NetJets will exercise options for a further 100 Phenom 100s. The first deliveries are due in 2013.