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Cynics may think he's crazy...

One airline's castoffs are another's startup fleet  Aug 04, 2008

For aviation entrepreneur Tim Morgan, the woes of major carriers globally have turned out to be a blessing locally.

Planes are being grounded from Chicago to Dublin as airlines wrestle with high fuel prices. With few takers willing to rescue the castoffs, Mr. Morgan feels like the kid in the candy store, wondering what to pick for the launch of a Calgary-based tour and charter operation, temporarily named NewAir & Tours Group.

Cynics may think he's crazy to be kicking off a new aviation venture in the face of red-hot oil prices, but the former WestJet Airlines Ltd. executive insists the timing is just right.

Instead of being stuck with older McDonnell Douglas MD-80s, he has turned his attention to acquiring either Boeing or Airbus models that are newer and more fuel efficient.

Mr. Morgan and his management team, including three other former WestJet executives, are close to securing deals to deploy planes for this fall's launch of NewAir.

NewAir's largest shareholder is Toronto-based Westerkirk Capital Inc., a private equity firm that invests on behalf of the family of Victoria's Sherry Brydson, who is the niece of the late billionaire Ken Thomson.

As airlines worldwide scale back routes, the inventory of used planes is growing, including Boeing 737s in the 300, 400 and 500 Classic series, and the Airbus family of A318, A319, A320 and A321 planes.

Earlier this year, NewAir considered leasing 130-seat MD-80s, but Mr. Morgan now has the opportunity to choose from attractive leasing terms for used Boeing and Airbus planes, with the lure of saving on monthly fuel bills.

"We've eliminated some planes and we're narrowing it down. We are looking at aircraft, other than the MD-80s," said Mr. Morgan, a WestJet co-founder who left the carrier in 2005.

He knows Boeing planes well because WestJet began operations in 1996 with three 125-seat Boeing 737s in the original 200 series.

Calgary-based WestJet, which no longer has any Boeing 737-200s, has gradually expanded and upgraded to a fleet of 76 Boeing 737 "Next Generation" aircraft in the 600, 700 and 800 series, with an average age of 3.2 years.

"I love Boeing 737s, and I think they're great planes, but that doesn't necessarily mean that we're going there," Mr. Morgan said in an interview from his office near Calgary International Airport.

The 130-seat Airbus A319, for instance, is on a shortlist on his desk. Mr. Morgan said NewAir is nimble enough to switch gears in time for the launch of tour operations by the end of 2008.

"We want to be more efficient," he said. "There are a number of planes out there that could work for us, and that has changed over the past six months."

Mr. Morgan, WestJet's former head of operations, is spearheading NewAir with help from three other former WestJet executives: William Lamberton is NewAir's vice-president of sales and marketing, Alan Mann is chief financial officer and Gareth Davies is vice-president of aircraft technical operations.

Mr. Davies is scouring the world for deals, helping to narrow the shortlist of planes. "We're doing what we need to do to make this work, and we'll be coming out of the woodwork with an announcement," Mr. Morgan said.

He expects NewAir to have three planes by year-end, and add another three in 2009. The goal is to have NewAir focus on niche markets - smaller cities often neglected or under-served by WestJet, Montreal-based Air Canada and tour operators.

NewAir has modelled itself after Las Vegas-based Allegiant Travel Co., which runs a vacation division and low-cost airline, but Mr. Morgan is adapting the U.S. concept for Canada.

No final decision has been made yet on which aircraft to lease, but he points out that while Allegiant has had success in operating MD-80s in the United States, it isn't dealing with the challenges of Canada's less-populated market.

NewAir envisages tapping into niche markets, first in Western Canada and eventually other parts of the country. Mr. Morgan is focusing on point-to-point service, saying that consumers in smaller Canadian cities get frustrated whenever they are forced to make stopovers at larger airports before arriving at their final destinations.

NewAir has yet to set its non-stop charter schedules, but it has told investors that secondary Canadian markets could include Regina, Saskatoon, Kelowna, B.C., Fort McMurray, Alta., and Grande Prairie, Alta., while vacation destinations will likely include Mexico, Jamaica and the Dominican Republic.

"Imagine NewAir executives flipping flapjacks on a Saturday morning on Main Street in Western Canada, lightheartedly shooting the breeze with locals," according to NewAir's confidential business plan sent to investors.

During winter, service will be offered from Western Canada to one or two destinations in Mexico and/or the Caribbean. In summer, NewAir plans to shift its attention to domestic routes, flying between Western Canada and an eastern destination for a limited time, possibly including Montreal.

"NewAir's in-flight product will be upbeat and comfortable, with one class of seating," said the business plan. "The airline will maintain a low-cost carrier structure while selling items of value to consumers that do not increase the overall cost per available seat mile."

Consumers will be able to choose from a basic package or pay extra for "priority baggage, insurance, window-aisle upgrades and so on."

NewAir also plans to benefit from "incentives offered by many secondary airports such as reduced landing fees."

One airline's castoffs are another's startup fleet

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