A Funding Jolt for DayJet

Posted by: Justin Bachman on May 07

The largest air shuttle operator, DayJet Corp., laid off nearly half its 260 employees this week as it was unable to secure $40 million to expand to a fleet of very light jets serving 20-30 fully-developed markets in the Southeast. DayJet, which is based in Boca Raton, Fla., flies business travelers among 45 smaller cities in Florida, Georgia and Alabama. The VLJ-air taxi model is one that has generated heavy press coverage and some skepticism. DayJet targets business travelers who may not be keen to drive three-five hours each way on a business trip but also love to avoid big airline fares and hubs. The 100 job cuts were spread throughout the company, which said in a statement to workers that “given the current state of the U.S. capital markets, the timing of our planned financing could not have been worse.”

Interestingly, this is one airline contraction in which the credit crunch – not jet fuel prices – is starring as the villain. Fuel accounts for less than one-fifth of DayJet’s operating costs, chief financial officer John Staten said in a telephone chat Wednesday afternoon. He emphasized repeatedly that the job cuts do not affect DayJet’s current service or the viability of its business model, which features Eclipse Aviation 500 jets carrying up to three passengers on trips up to 1,100 nautical miles. The company, which launched service in October, 2007, says it has about 1,500 registered “members” and a rebooking rate of 40%. DayJet’s average flight is one hour, with fares averaging $600-$700. Its load factor is 1.8 people. (An amusing data point, to be sure.) DayJet has raised $60 million from private sources, to date, and has debt facilities totaling $140 million. “These cutbacks had absolutely no bearing on the fundamentals of the DayJet model,” Staten says.

But here’s the rub, the proverbial turkey in the jet engine, that speaks to the current capital troubles, as outlined in its statement: “DayJet’s business model is based on operating at a critical mass, requiring investment ahead of growth. We hired and trained a number of employees in anticipation of future growth and always planned for additional capital investment at this stage.” In other words, the expense arrives before the revenue. These days, with the finance world spooked, that’s a no-no. It is also one reason United parent UAL Corp. was forced to plead with its bankers earlier this week to revamp terms on some $1.5 billion of debt. The airline said May 6 it had received the “flexibility” it needs from a consortium led by JP Morgan Chase, Citi and Credit Suisse.

DayJet says it will continue to expand, albeit not as rapidly.