BACKGROUND REPORT: VLJ INDUSTRY AND COMMUNITY AIRPORTS

Very Light Jets (VLJs) are a new phenomenon in aviation. They are a new category of jet aircraft being produced by as many as six major players and an additional host of "wannabees".

Eclipse Aircraft founder Vern Raburn, former Microsoft executive, had the initial vision of a low cost jet to be delivered for under $1,000,000.00 and produced in large numbers, up to 1,000 per year. For perspective, that is 3 times the entire number of conventional business jets delivered in 2003. With the idea of putting a "plane on every corner to be hailed like a taxicab" the idea was to not only build an aircraft but to change forever the charter and fractional business model - this was not an idea, it was a phenomenon.

Moving ahead, Cessna Citation legitimized the concept by designing the Citation Mustang to be a VLJ - thus proving that there must be some merit to the idea. However, Citation's Mustang has a price over twice as much as the intro price of the Eclipse. Most of the other entrants are designing aircraft closer to the Eclipse in price (however, the price of all the aircraft is rising on the realities of production). Embraer recently entered the fray also, adding further momentum to the concept; however, the current reality of all the VLJ talk is that it is mostly conceptual. Not a single VLJ has been certified by the FAA, much less delivered to a customer by any manufacturer.

There are many moving parts of the business model to be nailed down: Who will the buyers be? Who will the pilots be? (The number of qualified, high performance pilots is going down, not up) Who will insure them? (Insurance companies are currently tightening the noose around owner-pilots of high performance aircraft. Why? The accident rate is terrible!) Who will loan the money? Lenders will follow the lead of insurers.

THE WAY AHEAD

It is most likely that VLJs will be built and will create a major effect on the market, over time. However, Stratigent believes this will be incremental change. This incremental change is very good for our airport development clients because it gives them time to evaluate how to best capitalize on VLJ private ownership, VLJ Charter Operations and VLJ Fractional Ownership management businesses, all of which have the potential to add value to airport operations and prestige to the communities nearby.

Robert Crandall, former CEO of American Airlines, has formed a VLJ Air Taxi company called POGO. Crandall believes an integral part of the future integrated US air transportation system will be air-limo operations based on very light jets. His hope, he said, is that "Pogo will become the premier, on-demand, point-to-point jet service for flights within 500 miles." Meanwhile, Pogo's timeline could shift to the right along with the expected certification date of the Adam A700 very light twinjet, 75 copies of which Pogo announced it had ordered last May. However, Crandall said in Las Vegas that Pogo is not committed to the A700, and is also in talks with Eclipse and Cessna. "We believe there will be a certified VLJ in the spring of 2006 and Pogo will start operations in the summer. If there isn't an airplane available, our startup will be delayed." Based on industry delays to date, Stratigent believes that Crandall's plans will be delayed.

POGO's VP for Planning, Mike Bower, explained the air taxi concept as using VLJs for trips within 500 miles of NYC using 700 airports. Target customers are the "mass affluent", who work hard, play hard, are brand conscious, and place a high monetary value on time. DAY JET, a POGO competitor, will provide no-frills affordable transportation between secondary markets catering to business travelers, such as sales persons and maintenance technicians.

ANALYSIS

Stratigent believes that neither of the above business plans are currently ideal for our airport development clients. Why? First of all, our clients are in long-term development processes with currently operating facilities that need some break even potential now. Second, trying to lure production, sales and/or maintenance facilities for VLJ manufacturers or air taxi operators is a long term and low probability of success option.

Of the manufacturers of VLJs, only Adam Aircraft has not identified whether it will build regional service facilities. However, they have established a service center in Lakeland, FL. Eclipse has already named Gainesville as their SE Regional service center. Embraer has no plan for service centers and Cessna can use their already established nation-wide network of dealers and FBO service centers. However, gaining a Cessna service center for our clients is a high priority part of our development plans - but this strategy does not rest on the tenuous shoulders of the VLJ market.

Stratigent does believe that in certain affluent markets, the VLJ sector will be quite robust over time and present various profitable business opportunities both for dealers (sales and service), air taxi operators and fractional companies. Stratigent may be able to leverage our relationship with Mr. Crandall, providing we can present a strong business plan, to bring POGO to some of our airport development clients.

BOTTOM LINE

The VLJ industry is in its infancy. It will be a gradual phenomenon that will ramp up over a 7 to 10 year period - thus providing our airport development clients the luxury of moving toward the VLJ piece that develops the strongest ROA for the airport authority and the community.

Stratigent will stay closely engaged with the VLJ players as well as the ancillary businesses so we can best advise our clients on the Way Ahead.