Bombardier has agreed to sell the assets of its fractional ownership business, Flexjet, to a new owner, which placed an substantial order for up to 245 Bombardier business jets, including 55 firm orders for Wichita-built Learjets.
Bombardier plans to sell Flexjet to a newly created company called Flexjet LLC, a company set up by the buyer, Directional Aviation Capital, for $185 million. The transaction is subject to governmental approvals and is expected to close before the end of the year.
The new company has placed a firm order for 85 business aircraft: 25 Learjet 75s, 30 Learjet 85s, 20 Challenger 350s and 10 Challenger 605 jets. The order is valued at $1.8 billion based on 2013 list prices. The agreement includes options for an additional 160 business jets valued at $3.4 billion. If all options are exercised, the total value of the order will total approximately $5.2 billion.
The actual impact to Bombardier’s bottom line will likely be lower, however. Companies typically give deep discounts off list prices for large orders.
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Directional Aviation is an Ohio-based investment firm that already owns fractional ownership company Flight Options, along with multiple other companies focusing on aspects of private business aviation.
“This marks the next step in Flexjet’s evolution,” Pierre Beaudoin, Bombardier president and CEO, said in a statement. “The sale of Flexjet’s activities is a unique business opportunity that will allow Bombardier to focus on its core business areas. I am confident that under its new ownership Flexjet will pursue its growth and diversification, continue to offer an outstanding experience to owners and customers, and will expand its brand globally.”
Flexjet, based in Richardson, Texas, is one of North America’s largest fractional ownership companies. NetJets, owned by Warren Buffett’s Berkshire Hathaway, is the largest.
The agreement to sell Flexjet will allow Bombardier to focus on its core manufacturing operations, Peter Arment, an analyst with Sterne Agee, said in an analyst’s note Thursday.
Bombardier formed the Flexjet division in 1995 to support the expansion of business jet travel and for market penetration of its Learjet and Challenger business jet products, Arment noted.
Flexjet operates Bombardier aircraft exclusively and is Bombardier’s biggest customer. It has taken delivery of more than 225 Bombardier business jets since the company began 18 years ago.
With Flexjet, customers buy a fraction of a plane then pay monthly management fees and pay charges for flight time under a five-year contract. Flexjet also offers jet cards that come with a certain amount of annual flight hours, charter services and aircraft management.
The fractional ownership business was hurt during the economic downturn.
But Flexjet is reporting growth in its business.
For the first six months of 2013, Flexjet reported 96 percent growth in new fractional and jet card sales when compared with the first half of 2012.
Sales of new fractional shares increased 112 percent during the first half of the year, while new jet card sales grew 68 percent, the company said.
Last month, the company also said it planned to hire 20 more pilots this year to keep up with demand.
Besides Flight Options, Directional Aviation’s portfolio includes Aerospace Products International, Air Services, Constant Aviation, Corporate Wings, Nextant Aerospace, Sentient Jet, Sojourn Aviation and Spinnaker Air.
The companies provide a variety of aircraft services, such as aircraft maintenance, executive transport, charter, retrofit and sales along with fractional ownership.