Most airline executives will go through their careers without seeing their company undergo a change of ownership. Managers at Antwerp-based VLM went through two in six months. Having survived that rollercoaster ride, VLM is focusing on a return to a quieter life—and profitability.
Formed in 1993, Vlaamse Luchttransport Maatschappij, or Flemish Air Transport Company—invariably abbreviated to VLM—posted 10 consecutive profitable years up to 2008 when it was acquired by Air France KLM Group via the company’s existing CityJet subsidiary. CityJet operated a network of regional services for Air France.
By that point, VLM’s dark-blue liveried fleet of Fokker 50s was the biggest operator at London City Airport, shuttling executives to a small group of western European business destinations such as Rotterdam, Luxembourg and Amsterdam on more than 500 weekly flights.
Having become part of CityJet, VLM’s aircraft gradually acquired the latter’s name and color scheme, operating ACMI services on its behalf.
In April 2014, however, a long-trailed extraction of CityJet from Air France KLM was finalized when it was acquired by German investor Intro Aviation. Within six months VLM had, in turn, been the subject of a management buy-out from Dublin-based CityJet.
“Intro’s interest was always in CityJet, not VLM,” newly appointed VLM CEO Hamish Davidson said in February. This had become apparent fairly quickly, with the result that the second separation deal “was effectively running in parallel with the buy-out from Air France.”
VLM chairman Arthur White owns 80% of the shares, with the remaining 20% held by private investors.
Davidson said it was also quickly apparent that “Air France ACMI flying wasn’t going to continue and was going to decrease very quickly. At the start of 2015, between 85%-90% of our revenue stream came from ACMI flying; it is now down to less than 15% of total revenue.”
Replacing that income was an urgent necessity throughout 2015, although VLM and CityJet maintain a relationship, with VLM operating services from London City to Rotterdam and Antwerp on CityJet’s behalf.
“Ultimately it comes down to how much ACMI business there is in Europe for a 50-seat turboprop [airline]. That’s the limiting factor.” While there is still some appetite for this business, ultimately VLM accepts it will have to turn away from this revenue stream.
The two replacements are charter operations and renewed scheduled services under the VLM brand.
VLM estimates that charter services will make up around 15% of its income in 2016 and it allocates 1.5 to two aircraft for this. Unlike some other regions of the world where jets are regarded as de rigueur for charter services, the turboprop Fokker 50s have retained a useful niche in Europe, Davidson said. “Fifty-seat charter has become a good business for us. It seems to be a good fit for football team-type operations in the UK and Germany.”
The fleet still has a considerable lifespan ahead of it: “None of the aircraft have gone over the 45,000-cycle mark that would effectively be the half-life of the aircraft,” Davidson said. “We believe there’s a lot of life left in the aircraft.”
VLM has taken steps to keep its aircraft interiors up to spec. The old KLM CityHopper-style seats have been replaced with a more modern style that improves passenger perception of seat pitch and legroom. Davidson believes VLM is the only operator to have outfitted its aircraft in this way, commenting that the arrangement achieves a feeling of spaciousness.
In December 2015, VLM completed a sale and leaseback deal for four of its Fokkers, partly to improve the company’s liquidity: “Any airline nowadays likes to be in the business of operating rather than owning aircraft,” he said. The other seven F50s are paid for and are thus not a drag on the balance sheet.
SSJ deal scrapped
In October 2014, VLM announced a deal to acquire up to 14 long-range versions of the Sukhoi SSJ100 Superjet. Under a letter of intent with Ilyushin Finance Co., VLM took the option to lease up to four SSJ100LRs and a further purchase option on 10 aircraft. The Superjets were initially planned to arrive in April 2015, with a delay then being announced until 3Q 2016. However, this deal has been scrapped.
“The SSJ will not go ahead. I know a lot of work went into that [deal], but it doesn’t rule out continuing to look at how we re-fleet the business looking forward,” Davidson said.
The decision to drop the Russian regional jet was taken primarily because of VLM’s exposure to potential risks from an aircraft whose long-range version had not yet achieved European Aviation Safety Agency certification.
Additionally, over the course of 2015, geopolitical factors—the rising tension between Russia and the West over the conflict in Ukraine—“became an ongoing concern,” Davidson said, although this was not the driving factor behind the decision to halt the deal.
His remit, he said, was to get the business on a firm footing and look at it strategically. Over the next six months or so decisions will be taken on the future direction in which the company will grow. He hopes a defined plan would be in place by 4Q 2016.
“We most certainly won’t turn away from evaluating the potential of the new jets coming into the marketplace,” Davidson said.
Whatever new aircraft are procured, VLM intends to remain a full-service operator as it expands its scheduled services. These will initially be focused on Belgium, Germany and the Netherlands. “We’ll redevelop the name as a scheduled operation because it did disappear a bit in the Air France period.”
VLM intends to serve secondary or tertiary city pairs, such as Antwerp-Southampton, Rotterdam-Hamburg or Waterford, Ireland-Birmingham.
“We’ll try to operate a little bit under the radar. There’s no point, as a 50-seat turboprop carrier, in operating to places that have low-cost carriers within a 100km radius,” Davidson said.
That expansion of scheduled services began early this year with the commencement of several scheduled services from Friedrichshafen, in southern Germany, as VLM moved in to a location previously served by now-defunct Austrian regional InterSky.
VLM is serving Düsseldorf, Hamburg and Berlin from Friedrichshafen and is considering a service to Antwerp, which would link up with the cluster of routes fanning out from its Belgian base. That base—one of Europe’s oldest airports, dating back to 1930—is the subject of a substantial expansion project that will increase the departure area and improve landside facilities. At this point, the near simultaneous departure of two VLM flights and one Embraer E195 from leisure charter company TUI is enough to over-stretch the facilities.
The upheavals of the past year meant that 2015 was not profitable, but turnover for the current year is estimated at €32-€35 million ($35-$39 million). “We will be back in the black by the end of 2016,” Davidson said. Davidson is a banker by profession who spent more than 20 years with British Aerospace and whose last role was at Haitian start-up Sunrise Airways.
European regional services have in recent years been difficult to make pay, although the low price of fuel has helped on that score and Davidson is confident that VLM will have the cost structure to make the most of its route network. With its name once again becoming a familiar sighting at western European regional airports, Davidson is confident that the Belgian carrier can find the necessary passengers to make sure it is here to stay.