CitatationShares Becomes CitationAir With New Business Model

Fractional jet operator CitationShares, which has sold shares of Cessna private jets to individuals and corporations, said Friday it would change its name to CitationAir, and adopt a new business model to replace the struggling fractional business.

As with other fractionally own jet operators, CitationAir, mostly owned by Cessna, a unit of Textron Corp. (TXT), has seen revenue plummet with the economic downturn. Last summer, CitationShares laid off pilots and other workers to match a shrinking market for private jet services. At the beginning of the year, 25% to 30% of customers sold their shares in private jets to raise capital, said Steve O'Neill, chief executive of the unit.

The company will honor existing contracts, but plans to cut costs by sharply reducing the percentage of fractionally owned jets, O'Neill said during a meeting in New York Friday.

"Some people have said the fractional ownership model is broken, and I don't disagree with that," he said in a presentation that was broadcast by telephone.

Under the new business model, individuals and corporations will be able to buy whole aircraft from Cessna, and have them managed by CitationAir. Cessna will continue to do the maintenance work for CitationAir. CitationAir will rent time out on customer's jets to other customers, generating revenue for the planes' owners.

The move will cut capital spending and operating costs for CitationAir, O'Neill said. In the past, the company owned 25% of its fleet - at a cost of $10 million per plane - to provide additional service for fractional owners as needed. As well, CitationShares was forced to hire charters on peak travel days and times to make sure it could provide flights for all fractional owners.

Cessna will keep selling planes to corporate flight departments, but now can provide those customers with supplemental service from CitationAir. In the past 12 months, Cessna has sold 12 aircraft to businesses that will use CitationAir to manage their aircraft, the companies said.

Citation is one of four major North American competitors in the fractional jet space, including the largest and oldest, NetJets, owned by Warren Buffett's Berkshire Hathaway Inc. (BRKA,BRKB).

Citation now has a total fleet 80 aircraft, with roughly 69 in active use. One-fourth of the fleet are aircraft that are managed for others, O'Neill said, and 6% are owned by CitationAir. The company plans to dispose of those owned aircraft once they are paid for.

CitationAir, which started a corporate travel business last year, now has 15 corporate contracts in the works, O'Neill said. The fractional jet company first opened for business in 2000.

CitationAir is 92% owned by Cessna, and will likely convert to a 100%-owned operating division at the beginning of next year. Textron doesn't break out financial results for the unit.

-By Ann Keeton, Dow Jones Newswires; 312-750-4120; [e-mail]