Cigar Aficionado

Traditionally, anyone who needed to fly nonstop between New York and Tokyo had to use a commercial airline. Even if he had business jets at his disposal, none of his multimillion-dollar aircraft would have had the range to fly 6,000 miles nonstop.

That is, until now. Four of the world's major aerospace manufacturers--Gulfstream, Bombardier, Boeing and Airbus--have introduced a class of business jet designed to fly up to 6,500 miles without needing to refuel. The risks inherent in developing these new aircraft have led to an all-out war between manufacturers in a market already known for its cutthroat pricing and vitriolic, pull-no-punches marketing campaigns.

To get their point across, the manufacturers have hired a variety of pitchmen who they hope will appeal to their respective markets. For a time, Boeing used Australian golfer Greg Norman to appeal to potential customers that it calls "high-net-worth individuals and global business leaders." Gulfstream is appealing to the intellectual side of its customers by hiring Microsoft chief technology officer Nathan Myhrvold as its spokesman in the print media.

Fortunately for manufacturers, the popularity and sales of these aircraft have greatly surpassed expectations. More than 230 have already been sold at about $35 million each. That's for a "green" aircraft without a finished interior or exterior paint. The complete outfitting of the interior--from galleys and showers to the latest in electronic office equipment and satellite-based communications systems--costs $4 million to $5 million more.

Las Vegas-based Marnell Corrao Associates is typical of the type of company lining up for one of the new long-range business jets. As one of the world's premier hotel-casino architects and contractors--Marnell Corrao designed and built Steve Wynn's Mirage and Bellagio casinos in Las Vegas, as well as many others in Vegas and elsewhere--the company makes numerous trips that are short in duration, but long in distance.

Many of those trips are to remote locations with small airports not suitable for large commercial jets. One week its employees are in Asia buying carpet and tile; the next they are in Europe purchasing crystal chandeliers and marble. Marnell Corrao also regularly provides international transportation for the many highly specialized consultants build state-of it relies on for lighting, sound, hydraulics and other disciplines used to build state-of-the-art casino-hotel resorts.

"A lot of our projects are under a time and money constraint," says Marnell Corrao chairman and CEO Anthony Marnell. "If we're working with special showroom rigging or pumps for a water feature, then we go right to the factories, which are accessible to shorter fields. We don't fly into JFK or Heathrow. If we're going from Las Vegas to Los Angeles, a 40-minute flight, we want to go into Santa Monica, not LAX; then have a two-hour meeting and continue on to Hong Kong."

At 6,500 nautical miles, the range of the new aircraft is typically twice that of regular business jets and gives their users unprecedented nonstop reach across the continents. Typically, this new jet can fly eight passengers and a crew of four nonstop from New York to Tokyo, London to Singapore, or San Francisco to Moscow, for example. Anywhere in the world can be reached with only one stop for refueling.

Even though these "bizjets" are thought of primarily as a business tool to whisk CEOs to far-flung boardrooms around the world, delivering them fresh and ready to negotiate on arrival, the demographics of the buyers of these aircraft have somewhat surprised manufacturers.

Boeing Business Jets, for example, expected half of all sales to come from Fortune 200 corporations instead of the present 25 percent of sales, according to Boeing Business Jets president Borge Boeskov. He believes, however, that they will eventually account for half, as executives adapt to seeing a privately owned 737 on the tarmac and overcome what he calls the "perception problem" among stockholders.

"Quite often there are only a couple of people flying in these [aircraft]," says Boeskov. "A couple of people stepping off an airliner can cause a perception problem."

Instead of the corporations, the most active group of buyers for these transports has been high-net-worth individuals, such as entrepreneurs. Boeskov expected that market to account for about 30 percent of sales, but it's been closer to half.

The third segment for these aircraft are heads of state, VIPs and military customers. The Boeing and Airbus models are proving to be popular with governments from small countries that don't want their presidents flying around in $125 million Air Force One-type 747 aircraft, but are comfortable shuttling them about in the smaller airliners. In the Middle East, Kuwait Airways purchased three Gulfstream Vs last year for transportation of senior Kuwaiti government officials. The aircraft will be used for executive transport and emergency, long-range medical evacuation. In all, 24 countries operate Gulfstreams in government service, including the United States, which has flown the jets since 1967 and presently has 41 in service.

The superlong-range capabilities of the new aircraft are also particularly attractive to the military. In late 1998, the U.S. Air Force 89th Airlift Wing, the special missions unit that chauffeurs White House executives and members of Congress, took delivery of a VC-37A--the military designation for the Gulfstream V.

At $35 million a copy for these new superlong-range aircraft, an observer might think the selection of aircraft was limited. On the contrary, prospective buyers have never had so many choices. The fight for the world's most exclusive travelers is a battle among the golden names of aviation.

Gulfstream and Bombardier have gone head-to-head for years. What makes this competition different are the new combatants: Boeing and Airbus. Neither had produced a business jet before, but both saw the lucrative market as too rich to pass up. Gulfstream estimates total potential sales for the new class of business jets at 400 to 500 aircraft, making the market worth as much as $17.5 billion.

The first superlong-range aircraft to be announced was the Gulfstream V, followed by Bombardier's Global Express, then the Boeing Business Jet and the Airbus A319CJ (Corporate Jetliner).

Gulfstream's heritage dates back to 1958 with the twin-engine, prop-jet-powered Gulfstream I introduced by Grumman, which owned Gulfstream until 1978. The company followed the GI with the Gulfstream II in 1966, which became popular with corporations and government agencies because of its large cabin. The Gulfstream III was introduced in 1978, and by 1987 Gulfstream was producing one of the industry's most popular long-range business jets--the Gulfstream IV-SP.

Owning a Gulfstream became the epitome of success, from the hills of Hollywood to the boardrooms of Wall Street, and many of the people today who are trading up to one of the superlong-range business jets are trading in a GIV-SP.

After 1978, the company changed hands several times--from Grumman to Allen Paulson, the former owner of famed racehorse Cigar, to Chrysler and eventually to Forstmann Little, a private investment firm, which purchased it in 1990 for $850 million. In May, the Savannah-based company changed hands again as it was bought by defense contractor General Dynamics for approximately $5 billion.

It was Forstmann Little's deep pockets that led to the development of the Gulfstream V, commonly called the GV (pronounced gee five). The aircraft was conceived, developed, certified and brought to market in just over three years-- about two years ahead of the competition--and cost $800 million to develop. Approximately 20 have already been delivered and another 80 are on order. Seagram Co. was the first customer for the GV. To celebrate reaching the 100-sale milestone, Gulfstream awarded its 5,500 full-time, nonexecutive employees the option of purchasing 100 shares of company common stock at $43 a share. Gulfstream was trading at $49.50 at the time of the offer. Employees can exercise the option any time over the next 10 years.

Gulfstream had the large business jet market to itself until 1980, when Montreal-based Canadair introduced its own wide-cabin aircraft--the Challenger. Canadair remained independent until 1986, when it became part of the widening aerospace holdings of Bombardier, the Montreal-based manufacturer of subway cars and Skido snowmobiles.

The acquisition of Canadair kicked off a worldwide aerospace buying spree. In the early 1990s, Bombardier purchased Wichita's famous Learjet Corp., as well as two of aviation's oldest aircraft manufacturers-- de Havilland of Toronto and Short Brothers of Belfast, Northern Ireland. The resultant company has been one of the aerospace industry's most successful over the past several years. With the development of the 50-seat Canadair Regional Jet (CRJ), which is quickly becoming the aircraft of choice for many commuter operators, replacing propeller-driven aircraft on their longer routes, Bombardier has become one of only two builders of commercial jets in North America. (Boeing is the other.)

In 1993, Bombardier launched its own ultralong-range business jet. Called the Global Express, this aircraft matches the GV in range and price, but has a larger cabin and higher top speed.

The Boeing Business Jet program is a joint venture between Boeing and General Electric. The aircraft is based on a derivative of Boeing's popular 737 airliner. The BBJ combines the size of the fuselage of the next-generation 737-700 with the strengthened wings and landing gear from the larger and heavier next-generation 737-800.

Risk-sharing partner General Electric is providing the BBJ's engines through its GE Aircraft Engine subsidiary, which is working on the Boeing project in conjunction with France's top engine builder, Snecma.

After two years of development, the BBJ flew for the first time in September 1998. Boeskov says the BBJ has widely outperformed Boeing's initial predictions for the aircraft, and the market has responded. The company had originally hoped to sell six to eight a year. Instead, 46 orders have been confirmed since its mid-1996 launch, and Boeing plans to build 29 aircraft in 1999.

Boeing pegs the market for ultralong-range business jets at 600 aircraft--a bit higher than the Gulfstream estimate. It now believes it can capture 40 percent of that market, or 240 planes.

"Two years ago, people doubted that Boeing was serious about getting into business aircraft," says Boeskov. "Now we have a real airplane for those who are doubters." Announced customers for the BBJ include, not surprisingly, General Electric chairman Jack Welch, who has ordered two, and Florida Marlins owner Wayne Huizenga.

The last to enter the market for long-range business jets, in mid-1997, was Toulouse, France-based Airbus Industrie--a consortium of France's Aerospatiale, Germany's Daimler-Chrysler Aerospace Airbus, the U.K.'s British Aerospace and Spain's Construcciones Aeronaticas S.A. In recent years, Airbus has become a powerful number two to industry leader Boeing in the world market for commercial airliners, now selling more than 40 percent of the world's commercial aircraft.

Airbus's A319CJ Corporate Jetliner is almost identical to its A319 narrowbody jetliner, but it carries more fuel.

Though Airbus's long-range business jet orders are fourth in the four-company race, Airbus executives believe they will make up ground in the coming years--particularly because the A319CJ's cabin is larger than all of its competitors, including the BBJ, and because of its fly-by-wire flight control system, which relies on electrical connections rather than metal cables.

"We think there is a demand for 20 to 24 airline-class business jets per year," says John Leahy, Airbus's senior vice president for commercial aircraft. "Boeing thinks they'll take all of it, but we think we will take half that, which is the same rate in the commercial market in the competition between the 737 and A319."

Though Leahy would not name any A319CJ buyers, he says Airbus has 12 firm commitments for the aircraft. The only announced customer is a conglomerate of Kuwaiti companies called Mohamed Abdulmohsin Al Kharafi. M.A. Al Kharafi's A319CJ will be configured to carry up to 30 passengers, with a mixed layout for VIPs and guests.

The manufacturers aren't shy about discussing what they believe are the unique merits of their jets. Gulfstream, for instance, touts the fact that its Gulfstream V is the only one of the four aircraft to have been certified by the Federal Aviation Administration as of the first quarter of 1999. While the other planes are awaiting certification, company spokemen note, the GV is being delivered to customers today.

The GV has set 55 world and national records--30 city-pair records and 25 performance records for distance, speed, altitude, time-to-climb and payload carrying capability--since receiving FAA certification in 1997. In one example, a GV with seven passengers and a crew of four flew from Washington, D.C., to Dubai, United Arab Emirates, on a nonstop flight of 6,330 nautical miles in 12 hours, 40 minutes. Average speed was 556 miles an hour.

In mid-1998, the aircraft was also honored with aviation's most prestigious award, the Robert J. Collier Trophy, by the National Aeronautical Association. The trophy has been awarded annually since 1911 "for the greatest achievement in aeronautics or astronautics in America, with respect to improving the performance, efficiency and safety of air or space vehicles, the value of which has been thoroughly demonstrated by actual use during the preceding year." Past recipients include pioneers Orville Wright and Chuck Yeager.

While the Gulfstream V's accomplishments have been impressive, Bombardier has not been shy about discussing the GV's shortcomings--particularly that the aircraft is a derivative of an older design. To some customers, this is an advantage, because these older designs have proven their reliability over time. But not to Bombardier.

Of the four competing aircraft, only Bombardier's Global Express can boast of a built-from-scratch design. The other business jets are modified versions of existing aircraft, with some of their designs two decades old.

"The primary reason we went with Bombardier was because they designed an aircraft for the twenty-first century instead of extending older technologies," says casino builder Marnell, whose company now flies a GIV but has ordered a Global Express, which Bombardier will deliver in about a year. "The other manufacturers are taking an engineering idea that is probably 25 years old and continually extending that design. We felt, as an investment, we were compelled to go with next-generation technology."

For Boeing and Airbus, the most obvious attribute of their models is their size. A cabin that might seem cramped for the approximately 120 passengers those aircraft were originally designed to carry is downright spacious for the handful of people likely to fly on the corporate/VIP versions of the aircraft.

The A319CJ has the larger cabin of the two, with a length of 78 feet, width of 12 feet, 2 inches, height of 7 feet, 3.1 inches, and volume of 7,000 cubic feet. The BBJ is 14 inches longer, but has about two inches less head room and it is about six inches narrower.

Airbus's Leahy offers one benefit that his competitors can't match. Because the company's corporate jet is based on a certified commercial aircraft--the A319--it can be easily configured for airline use should the operator want to sell or lease the aircraft. The Boeing Business Jet can't, because its design incorporates features from two different models of the 737. The other two jets are not airliners.

That flexibility gives the A319CJ a "higher residual value," allowing operators to ride out the "boom and bust in the corporate jet market," according to Leahy. The aircraft's cockpit is identical to the ones used in the full line of Airbus jetliners.

While the enormous cabin of each manufacturer's aircraft is its main selling point, it also causes Boeskov's aforementioned "perception problem." Having one of these four ultralong-range--and pricey--jets in the company holdings doesn't always go over well with stockholders.

That's one of the reasons for the popularity in recent years of fractional ownership plans. These plans typically offer customers one-eighth, one-quarter and one-half shares in business aircraft. The fractional ownership company maintains the jets, having them on-call when needed.

Executive Jet International developed the fractional ownership market in 1986, and it is the market leader today with a customer base of about 1,200. The Woodbridge, New Jersey-based company was recently purchased by Warren Buffett's Berkshire Hathaway Inc. for $725 million. Executive Jet has purchased GVs and BBJs for its portfolio, and Boeing has said that nine of the initial aircraft to roll off its assembly line in Washington state will go to Executive Jet.

"We think the Boeing is a perfect fractional airplane," says Executive Jet chairman and CEO Richard Santulli. "There are governments and rich people that are going to want to buy a Boeing. But most people don't travel long range and with a lot of people."

For those people, as well as Fortune 200 companies that need an aircraft for fewer than 200 hours per year, it makes economic sense to buy a share in a business jet rather than the entire aircraft. At Executive Jet, a one-quarter share in a BBJ costs about $11 million. For that, the customer gets on-demand usage of the aircraft--request the jet, and it's ready within six hours--for 200 hours a year.

The success of the NetJets program--the name of Executive Jet's fractional ownership plan--has prompted others to get into the business.

Bombardier saw fractional ownership as a way to sell its own Lears, Challengers and Global Expresses, so in 1995, it started Flexjet. The Dallas-based Flexjet now has 65 jets with 350 individual customers, with 90 jets and 500 customers anticipated by the end of the year, according to Steve Phillips, director of marketing. Share owners can upgrade or downgrade the type of jet according to their needs, says Phillips, using a Lear jet for a Manhattan to Chicago trip, for example, while taking a Global Express for a Los Angeles to Tokyo flight. Flexjet also offers its customers the use of more than one jet at the same time. As far as availability, "We don't have an issue of supply," says Phillips. "When we need jets, we get them."

The third major player is Wichita-based Raytheon Travel Air, which offers its parent company's Beech King Air turboprop as well as the Beechjet 400A and Hawker 800XP in its fractional ownership portfolio, though none of them are ultralong-range jets. Clients have the option of choosing among the aircraft to suit their needs.

Like Boeing's Boeskov, Santulli has been surprised by who is buying fractional shares in its ultralong-range business jets."We thought it would be more skewed to large companies," Santulli says. "If you asked me last year, I would have said 70 percent of the buyers would be Fortune 200 companies." Instead, those companies account for less than half.

The number of individuals and corporations willing to spend $35 million on superlong-range business jets proves that timereally is money.

Barry Rosenberg is a New York-based journalist specializing in business and technology.

FOR FURTHER INFORMATION, contact the manufacturers at the following numbers: Airbus (703/834-3434); Boeing (206/655-9800); Bombardier (514/855-5000); and Gulfstream (912/965-5555). For additional information about fractional ownership plans, call Executive Jet (and the NetJets program) at 800/821-2299; Flexjet at 800/FLEXJET; and Gary Hart, president of Raytheon Travel Air, at 316/676-8222.