Hangar8’s strategy, AIM listing and Lineage 1000

November 2010 was a good a month for Dustin Dryden founder and CEO of Hangar8 the UK business jet manager and charter company. At the start of the month the company was floated on the London Stock Exchange’s Alternative Investment Market. In the last week it took delivery of Europe’s first Lineage 1000 on behalf of a customer. This is the biggest jet the company has ever managed.

November was a good a month for Dustin Dryden (pictured), founder and CEO of Hangar8, the UK aircraft and management company. At the start of the month the company was floated on the London Stock Exchange’s Alternative Investment Market. In the last week it took delivery of Europe’s first Lineage 1000 on behalf of a customer. This is the biggest jet the company has ever managed.

Dryden founded the company in 2002 with his credit card. He was just 22-years-old but had held a professional pilot’s license for a number of years and had experience selling aircraft. The company started out selling and managing aircraft later getting an aircraft operators certificate and now manages 21 aircraft – the new Lineage 1000, one Falcon 2000EX, one Challenger 601, one Hawker 4000, Hawker HS125s, Citations XLS, five Citations Jets, and one Beech B200 Super Kingair Aircraft.

Hangar8 issued shares worth £2 million ($3.1 million) valuing the company at £10 million. Dryden owns 63.4% of the company with Rowan Irving, the chief pilot, holding 15.7%. Invesco Asset Management (6.3%) and Octopus Investments (4.6%) were the largest buyers of the issued shares.

Cash from the issue will be used to increase Hangar8’s line maintenance – which Dryden says will pay back in less than a year – and to acquire smaller aircraft managers. He says they are looking at three acquisitions that would cost less than £2 million in total.

The other benefit from the initial public offering – which he estimates may have cost £750,000 -is marketing. Dryden believes that Hangar8’s listing will give it an advantage over competitors. “Customers know that a lot of aviation companies have lost money in the last few years and the fact that we are listed with published financial statements means that customers can see we have cash, can know we will turn up and can afford to fly.”

Hangar8’s listing document shows that the company lost £797,000 in 2010 after losing £450,000 in 2009 and £455,000 in 2008. However, as a private company it may not have been run for maximum profit. Dryden says it will make a profit in 2011 has been profitable for the first six months.

Management and charter

Hangar8’s model is not to own any aircraft instead managing them for customers and where possible making them available for charter. Dryden says the company will never own its own aircraft.

Aircraft management is a competitive market and relatively low margin. Hangar8 has historically only been able to make a little more than breakeven on each contract. However, Dryden now says the company has reached a critical mass and can handle more aircraft without increasing fixed costs – provided it already manages the aircraft type.

“It depends on the aircraft type – with larger aircraft more profitable – but you need at least 10 aircraft to break even,” says Dryden.

The company has said that it will add at least four aircraft in the financial year ending in April 2011. It has already added two and Dryden is confident it will achieve this. Privately he is looking to double the company’s fleet in the next few years – through acquiring aircraft managers and organic growth.

The company’s main profits come from charter.

Hangar8’s charter business is equally split between business and leisure. Although the company’s headquarters are at the newly re-named London Oxford Airport (which is 63 miles from central London or a one hour 45 minute drive) – and it is the airport’s biggest user – aircraft are based all over Europe and Africa. Crews work for 12 days travelling with the aircraft and then return to base when owner’s need them. This is different to many other charter companies which fly out from hubs. “If we are flying a customer to Angola the aircraft will typically stay in North Africa to be made available for another charter,” says Dryden.

North Africa is a growing market for the company. “I spent time flying in Africa at the start of my career and most of a crew have considerable experience in the region,” says Dryden. “We are very comfortable operating there and see this as a considerable barrier to entry for competitors.” He also says that the Hawker 4000 is a fantastic aircraft for Africa because it is very reliable. He says North and West Africa accounts for about 10% of charter.

Dryden says that the UK and Germany are very competitive charter markets with over-capacity. He estimates that 40% of their charter business is comes from Russia and Ukraine. “I would like to take credit for our Kiev business but we had a Ukrainian customer who introduced us to the region and there is huge demand there.”

Hangar8 is keen to add larger aircraft with more lucrative charter rates. “It costs us the same amount to provide a £250,000 Lineage 1000 charter as it does for a £15,000 Citation XLS charter,” says Dryden. “So we are focusing on mid-sized and larger aircraft.”

Even though the average aircraft size is growing, Hangar8 still has an average load factor of 2.5 passengers.

Although Hangar8 has got a lot of publicity from the Lineage 1000 and Dryden says they have had significant interest in chartering the aircraft it is not available at the moment. It is the owner’s first long-haul aircraft and Dryden says that they need to see how much they want to personally use it before making it available for charter. Several aircraft in the fleet are only used by their owners.

Most of Hangar8’s original customers came from around Oxford. While it already has customers all over Europe and North Africa the company is also looking at launching aircraft management in India and getting aircraft operating certificates in other countries.

Not bad for a company that was started for £750 in – yes, you guessed it – Hangar number 8 at London Oxford Airport.