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The premium airline’s collapse owes as much to managerial mistakes as to rising fuel costs

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(TVLW) – Most chief executives wind down in the run-up to Christmas – but not William Stockbridge. In the past few weeks Stockbridge, the chief executive of Maxjet, has worked furiously to rescue the business airline he founded just four years ago.

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(TVLW) – Most chief executives wind down in the run-up to Christmas – but not William Stockbridge. In the past few weeks Stockbridge, the chief executive of Maxjet, has worked furiously to rescue the business airline he founded just four years ago.

As he raced against time to secure new finance, Stockbridge must have feared his luck had run out: with just days left to save the business, the 57 year-old lost his mobile phone.

On Christmas Eve he threw in the towel and put the Aim-listed, US-based airline into America’s Chapter 11 bankruptcy procedure.

For Stockbridge the collapse ends the dream of creating an airline targeting business passengers – promising hassle-free, luxury travel. For his shareholders it is a costly lesson in the dangers of investing in airlines and a rare failure for some of the world’s shrewdest hedge funds.

It had all seemed so different a few months ago. “Maxjet pioneered the affordable transatlantic all-business-class segment two years ago and in the last half year we have continued to consolidate our leading position,” Stockbridge boasted as he unveiled the company’s maiden results in the summer. “We are now diversified into four scheduled markets, all of which are displaying encouraging demand.”

So how did Maxjet spiral out of control and crash so spectacularly? Insiders point the finger of blame at American lawyers, saying the company would have had a couple of extra weeks to find a backer in Britain, where there is less risk of class-action lawsuits.

“You had US bankruptcy lawyers speaking to the board saying you will be personally and criminally liable if you continue to run this thing. It wasn’t possible to do the best for the company because the lawyers wanted their pound of flesh,” claimed one source.

“There were a whole range of potential investors from wealthy individuals to institutional investors but the time just slipped through their hands,” said another source close to the process. But others believe the fault for Maxjet’s collapse lies much closer to home.

“It came as something of a surprise that it had deteriorated so quickly. You could wonder whether the management did that good a job. The thing should have survived its problems,” said one insider.

Rivals in the cut-throat airline sector are not slow in criticising Maxjet’s timetable, route maps and aircraft. Aviation experts pointed to the company’s schedule of destinations, which included London to Las Vegas and Los Angeles as well as the normal London-New York route, as a major weakness.

By expanding to the west coast destinations early in its development Maxjet had to put on a service that did not offer daily frequency, normally considered a necessity for business-class customers.

Intense competition from the traditional multi-class airlines and rival business-class-only operators Silverjet and Eos meant that Maxjet did not manage to lift its fares above the minimum threshold required to keep flying.

“Their average fare was probably a long way below the business plan because of the general level of competition,” says Chris Avery, an aviation analyst at JP Morgan. “They would never have achieved their business plan.”

By operating Boeing 767?200s Maxjet was using aircraft that had neither the best operating profile nor the best fuel efficiency, crucial elements of a successful airline. Safety requirements for its aircraft meant that Maxjet was limited to routes that passed within 180 minutes’ flying time of the nearest diversionary airport, something that added to its transatlantic journey times and fuel costs.

In premium-class aviation the specification of seats and service is king. Unfortunately for Maxjet, it sometimes settled for second best. Its seats did not fold flat and its airport passenger lounges were not of the same standard as some of its competitors’.

These factors may seem petty to passengers used to travelling in the back of the plane but in the world of premium travel where both Silverjet and Eos had a demonstrably better offering they are what separates failure from success.

“Customers have become very demanding in the luxury sector,” says Lawrence Hunt, the chief executive of Silverjet. “They want flat beds, enthusiastic cabin crew and private check?in. Maxjet just didn’t give them that and it was reflecting in their income. We were getting yields per seat of up to 60 per cent more than them.”

Extraordinarily, given that it had a fleet of just six aircraft, Maxjet kept one plane on permanent standby – something described by Douglas McNeill, an analyst at Blue Oar, the broker, as “ruinously expensive”.

“They have had a few problems to contend with, but most of them have been of their own making,” says McNeill.

Whoever was to blame, Stockbridge – who is on a remuneration package of $300,000 with a performance-related bonus of $225,000 – was forced to make a humiliating statement on Maxjet’s website on Christmas Eve.

“I sincerely apologise to our shareholders, employees, customers and suppliers. Our efforts to raise additional capital have been unsuccessful. Our management team and directors vigorously explored alternative courses but sadly determined that a bankruptcy filing would best protect our customers and creditors.”

America’s Chapter 11 bankruptcy procedure gives companies protection from creditors and theoretically a good chance of survival. But insiders say there is very little prospect of salvaging anything from the wreck of Maxjet and no real hope for the airline’s 450 US-based employees.

The company’s collapse will leave the board out of pocket to the tune of an estimated $30m. Hedge fund investors including Cheyne Special Situations and Citadel also lose out.

Stockbridge and his family owned shares in the company and are expected to lose around $1m. But the biggest loser is Kenneth Woolley, a non-executive director who put around $20m into Maxjet through shares and loans.

For Maxjet and the other business class-only airlines, the cost of achieving take-off was always going to be onerous. So when Maxjet asked for trading in its shares to be suspended at the beginning of December as it sought “clarification of its financial position” the message of doom was being spelt out pretty clearly.

Yesterday calls to Maxjet’s head office in Dulles, Virginia were answered only by a recorded message saying: “You have reached Maxjet Airlines’ corporate headquarters. If you would like to leave a message, press one.”

It seems Stockbridge – an aviation historian in his spare time – has consigned Maxjet to the history books.

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