Silverjet: 'I wish everyone would shut up'

The boss of Silverjet is defiant as 'bloody experts' tell investors to sell at any price and his business-class planes fly half-empty. But, asks David Parsley, for how much longer can he burn up cash?
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The Independent Online

Many have tried – and failed. Starting an airline is a troublesome business, as Lawrence Hunt, chief executive of Silverjet, is finding out to his and his shareholders' cost.

When one of your rivals, with a similar business model, goes bust after months of insisting business is great, the doomsayers are always going to focus on you.

Just before Christmas, Maxjet's attempt to wow the corporate traveller came to a dramatic end when thou- sands of passengers were left without a flight as the American-based group filed for Chapter 11 bankruptcy protection. Its five planes were grounded and so were the hopes of the company.

And Maxjet isn't the first to have gone under. Back in 1996, Franco Mancassola launched British carrier Debonair, a more upmarket version of the traditional budget airline. The business raised £25m via a flotation but couldn't take on the likes of easyJet or Ryanair. It closed in October 1999.

Ever since the collapse of Maxjet, Hunt has been defending the virtues of his Luton-based airline. It has not gone too well so far. The shares are at an all-time low, with Silverjet valued at just £11m, and the bad news was piling up last week.

First, the reclusive Reu- ben brothers, David and Simon, declined to convert their £10m loan into 22 per cent of the stock at 60p a share, leaving Hunt with some hefty repayments until December 2009. Then, just days later, the Stansted-based Eos Airlines said it was introducing flights to and from Dubai and New York Newark. Silverjet flies twice a day to Newark and once a day to Dubai.

"Whether Silverjet survives or not is frankly down to the toss of a coin," says one leading airline analyst.

Hunt does not sound as upbeat in person as his PR messages suggest. He is an angry man – angry at the press, the analysts and anyone else who dares predict his company's demise.

"I wish everyone would just shut up and let us get on with it," he says. He resents the "toss of a coin" comment and launches into a stubborn defence. "Most so-called analysts said three things when we announced our launch, and we've proved them all wrong so far," he claims. "One: they said we'd never get it [Silverjet] financed. Two: they said we'd never get a plane off the ground. And three: they said we'd never have high enough load factors. What they now don't say is that we achieved all these things. We got to 80 per cent load factors much quicker than anyone thought, and we got incredibly close to break even in January."

Indeed, there was a time, eight months after the launch, when Hunt could boast that 80 per cent of his seats were occupied. But now, with three Boeing 767s on the fleet each equipped to carry 100 passengers, the numbers don't look so healthy. The planes flew half empty last month and the figures are not looking much better for this month. Hunt is expecting load factors to creep up to 60 per cent for February – still below the magical break- even 65 per cent.

Over at Eos, which currently flies four Boeing 757s from Stansted, the pressure is also on. However, Adam Komack, chief lifestyle officer, is oozing confidence. "I think when people compare us to Silverjet, there's been a fundamental misunderstanding. We provide a better product and better service on a more efficient model. We fly 757s with 48 fully flat beds. So if you do the maths, we're flying with a load factor of almost 70 per cent. Our clients include nine out of 10 of the top glo-bal banks, and our backers are in it for the long haul."

Eos is backed by a number of private investors from the US and Dubai, keeping it out of the public gaze.

Mike Stoddart, an analyst at Daniel Stewart & Co, doesn't give Silverjet a chance of survival. Even before last week's bad news, he issued a 32-page research note advising investors to "sell at any price".

"Everyone's a bloody expert," says Hunt. "Since Maxjet went under, there's been a lot of negative sentiment from people who do not understand why we're essentially different to other airlines. They don't understand the business model."

Such comments are incredibly rare from a media-savvy company, and Silverjet certainly knew how to court the media and the City in the run-up to its first flight last year. Pictures of a smiling Hunt, relaxing on a red sofa pitched on the runway at Luton, created a buzz around Silverjet and gave him a Branson-like veneer. He enjoyed the publicity then – not so now. And his statements seem more about resentment of his critics than a solid case for the airline's survival.

Take the promise that Silverjet will hit its first profits next month. March has been set in stone as the turning point since Hunt up-dated the market in January. However, amid the vitriol for his enemies, he lets slip a vital hint that things may not be good.

"I don't think we're going bust," Hunt says, breaking one of the first rules of PR by repeating a negative suggestion. "We're on track to make a profit in the next month or two."

The "next month or two"? March is supposed to be the month. I pick Hunt up on this and, while he back- tracks furiously, one can't help thinking the negative publicity is having an effect on March bookings.

"I've stated that load factors are expected to be at 70 per cent in March," he says. But what is he stating now? Have the doomsayers affected customer confidence? "There are some nervous people who have seen the negative comments, but we're focusing on filling aircraft at the right price, and if we do that we'll prove everyone wrong."

Has Silverjet got enough cash in the bank? Is a rights issue on the cards? Is the airline for sale?

"We've got no plans for a rights issue. Look, we've got £14.5m in the bank. We set out to raise £20m in November and raised £22m. We've got investors coming to us all the time saying they'd like to invest."

So let's break that comment down. In November Silverjet had £22m – via an issue of 20 million new shares and the Reuben brothers' loan – in the bank. Now, under three months later, it has £14.5m tucked away. So on a rough calculation, Silverjet has been burning over £2.5m a month. That gives it less than six months to start making some serious money or it's out of cash. But, as Hunt says, investors are banging his door down. Any takeover offers?

"We've had no bids and we're not in any talks," he responds. "If we ever get an official offer then I'll have to put it to the shareholders, but there's not one on the table right now."

If you want to travel to New York in style then Silverjet, for £1,000, does offer good value. You get your own lounge away from the tin shed of the main Luton terminal, and you get a comfortable and enjoyable flight – one in four of the airline's passengers are repeat custom. But perhaps it's too cheap and perhaps, as the analysts would testify, the planes are too big. And with competition from BA now extending to all-business-class flights to New York from City Airport, life may be about to get even tougher. For Silverjet's sake, let's hope all those experts are wrong.

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