Photograph Courtesy Blink

On June 10, 2008, two years and two days after receiving their HBS diplomas, Peter Leiman and Cameron Ogden (both MBA ’06) watched a Cessna Citation Mustang with four passengers taxi down the runway at London’s Farnborough Airport for a short flight to Antwerp. The pair was witnessing the inaugural flight of Blink, a European air-taxi service they had first conceived of while students at the School.

The scene didn’t offer much drama — just another small plane taking off from the thousands of regional airports that dot the globe. The Mustang, however, is symbolic of a term familiar to every good HBS student. With its relatively low price tag (about $2.8 million) and low operating costs (40 percent less than existing small jets), the twin-engine Mustang and other “very light jets” (VLJs) represent a “disruptive innovation,” a term introduced by HBS professor Clayton Christensen.

This new category of aircraft, developed out of research done in the mid-1990s by NASA and aircraft-engine manufacturers, tied in well with government-funded efforts to decrease congestion at major hubs by encouraging more traffic at the country’s regional airports. Weighing in at less than 10,000 pounds, VLJs typically have a range of about 1,200 nautical miles before refueling, accommodate three or four passengers, cruise at about the same altitudes as commercial airliners, and have the capacity to land on runways as short as 3,000 feet.

The promise of private-jet travel’s convenience and efficiency, at a fraction of the cost, made more than a few entrepreneurs on both sides of the Pond sit up and take notice. As cofounder and CEO of e-Dialog, an early entrant in the field of e-mail direct marketing, William Herp (MBA ’89) was comfortable with new ideas. “I love to go in and turn the tables on things,” Herp says with a smile during an interview at the offices of Linear Air, an air-taxi service based in Concord, Massachusetts. “Just ask my wife and kids.”

As VLJs were being developed, Herp, his e-Dialog employees, and many other Americans were experiencing the difficulties of flying in a post-9/11 world. Long lines at security, delays, and meager service were the least of it. For many business travelers, getting from a big city to a smaller one was a tricky, time-consuming proposition, often requiring the additional expense of an overnight stay. What if a business team needing to travel from Boston to Syracuse, New York, for example, could simply phone in the night before and book a nonstop sixty-minute flight for not much more than the cost of last-minute business-class tickets on a commercial airline? The team could show up ten minutes before their flight, hop onboard, conduct business in the private cabin, attend their meeting, and fly home later the same day. The same would hold true for a Boston–New York traveler using the area’s smaller, regional airports.

Leiman, Ogden, and Herp, founder and CEO of Linear, are all betting that travelers, particularly business travelers, will appreciate the efficiency of this scenario. But can “air taxis” really take off in the current economic climate? Will companies economize by placing an even greater value on executives’ time and book flights with companies like Blink and Linear Air — or will organizations tighten their belts by simply cutting travel across the board?

“I think the core issue for everyone is the same, which is how do you buy time?” remarks HBS professor Bill Sahlman, coauthor with Jackie Donnelly Russell (MBA ’92) of a recently published case on Blink taught in the second-year course Entrepreneurial Finance. “With a new venture, the early days are not so bad because you pick off the early adopters who are willing to pay the price because they need the service. I’m rooting for them all, but it’s going to be hard.”

STANDING BY: Blink’s cofounders Ogden (left) and Leiman, on the tarmac at London’s Farnborough Airport. The seeds for their venture were sown at HBS, where they met and collaborated on a field study examining the efficiencies of business travel using very light jets (VLJs).

Photograph Courtesy Blink

While Blink and Linear Air are both air-taxi services, the different approaches to launching each business demonstrate that the entrepreneurial journey has more than one path.

Herp started Linear in August 2004 with $1 million from friends and family, using much of that initial infusion as a down payment on a Cessna 208 Caravan. VLJs would not be available until late 2006, and Herp figured the small turboprop would be a good means of testing his idea in the marketplace. Linear Air began by offering point-to-point service to over 500 cities in the Northeast, the Mid-Atlantic, eastern Canada, and the Caribbean. Using Linear’s internally developed Web reservation system, or phone, a customer reserved the entire plane, with pricing set on a per-hour basis. A typical day trip, such as the Boston–Syracuse example above, would run $4,400. Divided among the Caravan’s eight passengers, the per-person cost could potentially be as low as $550. In addition, Linear offered seasonal scheduled services, sold on a per-seat basis, between Nantucket, Boston, and New York City, and between Washington, D.C., and the Outer Banks of North Carolina. By 2007, Linear had six Caravans in its hangar and counted 1,200 customers as repeat users. Herp also raised two more rounds of equity financing of $2.5 million each in 2005 and 2006. In August 2007, Linear took delivery of its first VLJ, an Eclipse 500 purchased on the secondary market.

The brainchild of high-tech engineer and venture capitalist Vern Raburn, the Eclipse 500 offered the lowest up-front cost (at $1.6 million) and highest fuel efficiency of any of the VLJs. Building a jet is a complex business, but Raburn attracted substantial backing, including investors such as Bill Gates. Herp notes that the Eclipse’s wings are produced in Japan, its tail assembly in Texas, and its engines in Canada, to name just a few parts assembled at the company’s plant in Albuquerque, New Mexico. Unfortunately, the plane’s original engines failed to meet expectations, necessitating a redesign and switch to a new supplier. Plagued by delays and cash-flow problems, Eclipse Aviation filed for Chapter 11 bankruptcy court protection in November 2008 despite high advance demand for its planes. In January, a judge approved the sale of Eclipse’s assets to Eclipse Jet Aviation International, an affiliate of Luxembourg-based European Technology and Investment Research Center Aviation.

Eclipse’s slow decline in the last half of 2008 was hard on Linear Air. In August, Herp’s jets were grounded for a period of time until parts became available. Now, with Eclipse Aviation in a period of restructuring, Herp sees an opportunity to adapt Linear’s business model and to offer, for a monthly fee, aircraft management and maintenance services to owners of the Eclipse VLJs in existence. Linear will have permission to fly those and pass along 85 percent of revenues to their owners.

“It’s a way to grow without expending any capital,” remarks HBS associate professor Mary Tripsas, coauthor of a case on Linear with Davin Chow, Adam Prewett, and Kevin Yttre (all MBA ’08). Tripsas, who teaches the Linear case in the elective Leading Innovative Ventures, sees the instructive qualities of flexibility, experimentation, and risk management in Herp’s overall approach to building Linear. (In contrast, the air-taxi service DayJet, launched in October 2007, placed an up-front order for 239 Eclipse 500s and used a chancier, less profitable per-seat pricing model for its Florida-based operations. The company ran out of money and ceased operations last September.)

Despite the difficult fundraising climate, Linear raised equity financing of $3.5 and $1.3 million in July and November 2008, respectively. “We have a significant database of customers and the ability to operate the Eclipse commercially under our flight certificate,” observes Herp. “That’s an asset we can leverage as we develop a ‘hunker- down’ strategy to get us through this period of uncertainty, both with the Eclipse and with the broader economy. I see this as an interim step that will allow us to level off and get to the point where we can start climbing again.”

ALL ABOARD: Herp’s strategy in building Linear Air incorporates flexibility and experimentation. Recently, the company began to offer aircraft management and maintenance for a fee to owners of Eclipse VLJs. Linear will have permission to fly the jets under its management while 85 percent of revenues will go to their owners.

Courtesy Linear Air

The tables were turned on Blink’s Peter Leiman and Cameron Ogden when they returned to the HBS classroom last October for the discussion of Sahlman’s case. Now they were silent protagonists, not active participants in the discussion. “It was a fantastic luxury to have ninety great minds thinking through the issues we face,” says Ogden, who serves as co-managing director with Leiman.

“Whenever we came to a decision point during the start-up phase we would joke with each other, ‘They’re at the end of the A case, they’re looking at each other in despair, what do they do now?’ It was very rewarding to actually get that input,” Leiman adds.

In June, Blink will celebrate one year of serving its European customer base. The road to that milestone began at Soldiers Field, where Leiman and Ogden met through a mutual friend on their first weekend at HBS. Leiman’s background includes a stint at the White House with President Clinton’s advance staff, experience launching a low-cost airline in China, and time at UBS Warburg’s London office. Ogden, whose CV includes various roles in finance and the nonprofit sector, worked most recently for Bridges Ventures, a London-based venture-capital firm with a social mission led by Sir Ronald Cohen (MBA ’69).

The pair first learned of the VLJ opportunity as second-year students and partnered on a six-month field study with the supervision of former HBS faculty member John Wells to study the efficiencies that Wal-Mart (with one of the largest corporate fleets in the world) would enjoy by using VLJs. Their research showed that introducing the new jets would reduce the company’s travel budget by over 25 percent. The savings held firm even when employees at salary levels below $50,000 used the VLJs to travel.

“As progressive and value-conscious as Wal-Mart was in using aircraft, we figured that there had to be opportunities for other corporations to extract that same value,” says Leiman.

The decision to base the business in Europe was driven in part by Ogden’s personal ties to his native England but primarily by what the pair saw as a better business opportunity. “In the United States, the air-taxi model is a regional play; in Europe, it’s a Continental play,” Leiman notes. “The schedules are so inefficient in Europe that it’s impossible to do day trips, and airfares are also very expensive on a relative basis when compared with the United States. We provide business travelers with a tool that enables them to do something that they can’t do on their own.”

Leiman and Ogden went on a road trip after graduation, visiting VLJ manufacturers in Albuquerque (Eclipse Aviation), Denver (Adam Aircraft), Wichita (Cessna), and Brazil (Embraer) before deciding that the relatively higher price and operating costs of the Citation Mustang were balanced by Cessna’s record as a proven manufacturer in the industry. They also immersed themselves in the topic of business aviation, pulling information from interviews with customers, professors, and competitors.

With $1 million of seed funding, Leiman and Ogden prepared a business plan to pursue greater funding. While their initial attempts to attract investors in the United States, the United Kingdom, and Europe were unsuccessful, they continued to move ahead.

“You have to believe so much in your vision of what you’re doing that no matter how many people say no, you keep saying yes,” remarks Leiman. The pair made the decision to set up two separate companies under the Blink umbrella — one for business operations and the other to own and lease the planes to the operating entity. They knocked on the doors of over sixty venture capitalists, private equity investors, and hedge fund managers. Eventually they raised $30 million from three private family investors.

A CAR SERVICE WITH WINGS: Weighing in at under 10,000 pounds, VLJs offer significant savings through greater fuel efficiency and a price tag that’s about half that of other small jets. Air-taxi proponents believe those economies will open up private-jet travel to a broader base of business and pleasure fliers.

Photos Courtesy Linear Air

Blink was committed to delivering the finest operation team in business aviation, hiring the recently retired head of flight operations of British Airways and two other senior colleagues to contribute management and operational support.

They also began to explore the possibility of a partnership with TAG Aviation, Europe’s largest business-jet charter operator. After some discussions, TAG agreed to allow Blink to operate under its Air Operator’s Certif-icate (AOC) for a monthly fee, greatly increasing its speed-to-market by offering access to airports across Europe.

Today, Blink has five Mus-tangs on the ground and expects to take delivery on an additional VLJ every month for the next two years. It offers varying prices for advance purchase and walk-up fares as well as a prepay shuttle program for frequent-fliers.

Despite the economy’s global downturn and the looming specter of European competitors such as JetBird (scheduled to begin service this year), Leiman and Ogden seem generally optimistic and glad to have taken the start-up plunge over a sure-thing job in finance. In fact, most would agree that nothing is assured these days. “These are certainly challenging times,” concedes Leiman. “But in the first nine months of operations we’ve kept revenues in line with costs. So far, we’re delivering on what we said we’d deliver.” The goal is to break even by mid-2010.

Analysts differ on the viability of the air-taxi business. Whether it will be an exciting, profitable new entry in the aviation business or a “dot-com with wings,” as some have called it, remains an open question. “Our industry is in the early adopter phase,” says Linear’s Herp. “There’s still some time and development that needs to take place before we cross the chasm. The point we are at right now involves the strong stomach aspect of being an entrepreneur.” With that said, Herp, Leiman, and Ogden seem ready to buckle their seatbelts, and weather whatever turbulence comes their way.

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