Veles AIR

Business PLAN

VELES AIR

2019

  • Background to the Project including socio-economic, national/international factors.

These days business aviation is one of the most developing and perspective areas in aviation. This tendency is valid not only worldwide but for our country too. Business Aviation resolves one of the most important problems in business — the time factor. The development of business aviation makes this fast transport available for all business levels — not only for the big business but for the average business as well, even for the small business. In the era of communication, the transport, especially the fast transport, is very important issue for economic prosperity.

  • The Proposal — brief description of the Project, aims, objectives, justification.

This is an investment project.

The intention is to purchase airplanes

The aims are to compensate the lack of airplanes for the company activities; to expand our business; to satisfy our customers; to increase the quality of our service.

The objective is to buy 2 brand new airplanes — two Challenger 605.

Our experience and our analysis define the most effective way to achieve the desired outcomes. The above defined objective reflects our good experience in the operation and a well established practice of maintaining the airworthiness of the airplane types, defined in the present project. Our present and potential clients have used and want to use these types of aircraft. These types of aircraft are the most preferable on our market.

We are an old, well known and valuable customer of Bombardier Inc. — the manufacturer of the airplanes from the project. We have a well established communication and a good relationship with them. We have received the best prices from them during our investigation of this project.

We can achieve the full customer satisfaction and high quality of our service with less operational cost by purchasing brand new airplanes with optional equipment and modifications by our choice. It is very important that the applicable warranties for the brand new airplanes will cover half or the whole period of the project concerning the return of the investment.

  • The Company — brief history, operations, markets, products, last 3 years’nFinancials — Cash Flows, Profitability, Balance Sheets and key ratios.

In 2004 AVB-2004 JSC was founded — an aviation company licensed for commercial air transport. AVB-2004 strengthened its position on the aviation market in the area of business aviation. AVB-2004 was in possession of all necessary licences according to the EASA requirements, granted by the EASA Member State — the Bulgarian CAA.

AVB-2004 operated with one airplane Cessna 550 Bravo, two airplanes Learjet 60/ 60XR, one Challenger 605 and one Challenger 850.

In November 2010 AVB-2004 was reorganised and changed its registration into AVB-2010 JSC. All staff from AVB-2004 was reassigned to AVB-2010. AVB-2010 continued operating the airplanes of AVB-2004. The main function of AVB-2010 is commercial air transport. AVB-2010 has received all licences according to the EASA requirements and was licensed by the EASA Member State — BG CAA. AVB-2010 was an Air Carrier in the field of business aviation.

In January 2013 a new company VELES AIR JSC was established, which succeeded to the aviation activities of AVB-2010. All staff of AVB-2010 was reassigned to VELES AIR. The main function of VELES AIR is commercial air transport. At present VELES AIR operates one airplane Learjet 60 XR.

VELES AIR has a licence to carry out line maintenance of Challenger 605 and Learjet 60 airplanes The aviation company manages the airworthiness of one airplane Cessna 525 for another operator. The company changes above were associated with the ownership of the company and with the ownership of the airplanes it had been operating. Initially AVB-2004 was owned by the owners of the airplanes. The company was the owner most of the airplanes. AVB-2010 company was independent from the owners of the airplanes. In 2012 the owner sold the airplanes and they are waiting of buying other airplanes which will then be operated by the company VELES AIR. When the owners sold the airplanes the aviation company changed its name and was re-registered.

VELES AIR succeeded to a well developed market, that had been developed for 7 years and a stable clientele. Despite its short new history VELES AIR has a good repute among clients, which is a result of the management and administration of the company led by the Executive Director. At present the aviation company has a well developed market, but has a lack of airplanes to meet the demands of that market.

  • The Products — including trademark/copyright/patent/ licensing and other arrangements; the products’ cutting edge over competing ones.

The products of the airline are:

  • Commercial Air transport;
  • Airworthiness Management;
  • Maintenance
  • Others

The company possesses a licence to carry passengers, cargo and mail and a licence for transport of dangerous goods.

The company operates ones of the newest airplanes in their class in comparison with the competitive firms in the region and that is a significant advantage over them. This enables bigger comfort, even luxury on commensurable prices. Besides new airplanes require less current expenditures for maintenance. The statistics shows that the airplanes stops due to technical problems are less with new airplanes. These factors have formed a stable clientele.

In its effort to keep and develop the quality of its services the company intends to buy 2 brand new airplanes.

  • The Markets — including Market Growth, Competition, and Marketing Strategy to achieve market shares and sales.

In spite of (notwithstanding of) the period of world recession the market in South-East Europe, Russia and the Middle East in the niche of business aviation is expanding. Bulgaria is a bridge between Europe and these markets. The airline has stable position on these markets. That defines the strategy of the company’s development.

Strategy of VELES AIR

The strategic aims of the company are:

  • To retain the position it has already won on the developed markets and mainly on the Russian market;
  • Search for new and less developed markets like Cyprus, Greece, Serbia, Macedonia, Montenegro, etc.
  • Higher level and wider scope of offered services
  • Higher standard in servicing of clients in comparison with competitive carriers.

The airline will take all the opportunities for reduction of prices and for more effective utilization of its airplane fleet.

Marketing Strategy

The key factors on which the VELES AIR marketing strategy is based are the comfort, convenience and safety of clients. In addition the company strives to use the latest information and electronic technology.

The marketing Strategy of VELES AIR is directed towards the customers (4C):

  • Customer needs and wants
  • Convenience
  • Cost to the customer
  • Communication

The airline will utilize a combination of methods to achieve the recognition that it both desires and needs.

VELES AIR will conclude the agreements with intermediate firms for searching clients in final destinations, where the airplanes could be at a concrete moment in order to minimise empty flights and to attract additional inconstant clientele.

VELES AIR will consider the planned expansion of its fleet as a new beginning and will try to benefit from the attention on the market.

Strategy of developing marketing

The airline will endeavour to realize the potential demand into realistic offering in shortest terms. Strategy of sustaining marketing

VELES AIR will analyze continuously its pricing policy. The means for optimisation of the expenses and for reduction of the flight cost price are constantly sought after.

The airline will stress in a greater degree on the advertising. The airline will take an active part in international aviation forums and shows. Information and advertising desks will be organised. Partnerships to the different levels will be looked for.

The airline will be advertised at big business forums.

Price Strategy

The nature of business aviation defines the price policy of the company — fixing the price per hour for the concrete type of airplane. The airline has good experience in applying this strategy. This strategy will be used for this project as well. It offers to the clients a high quality on reasonable and predictable price. The price is fair and clear. The main principle is reasonable price basis combined with high quality service, more and more convenience and comfort on board. It is not the company’s intention to offer the lowest prices or to keep high prices due to the high quality of the services offered. The price is specified on the basis of the company’s own statistics for aircraft utilization and in comparison with the prices offered on the market.

Stimulating Strategy

VELES AIR will emphasise on the airplanes’ comfort and luxury. It will offer packages for the price reduction at guaranteed monthly utilization of the airplanes, including the conclusion of long-term contracts

Special attention will be paid to the development of the company’s internet site. The site will be used for advertising and as a well developed information system.

The personal contact with the clients by the management of the company and by the customer department is the other accent of the stimulating strategy.

A close contact is sustained with the handling agents at the airports abroad and in Bulgaria in order for higher quality and faster services.

Sales Strategy

The sales strategy is a part of the full strategy and marketing approach.

The airline will focus its efforts on finding other agents, which can direct their clientele to the services

that the airline offers.

Seles forecast (sales projection)

• Production — availability of materials and labour, and security of same. Land & Buildings required.

Technology & Equipment, including providers of both. Operational details.

The company has set up its basis for a successful implementation of the project. Facilities and human resources are already available. For the needs of the project new people will not be employed. The airline has trained pilots, which have flown on the airplanes of the same type like the ones in the project. All pilots fly on more than one type of airplane. The technical staff was trained on all types of airplanes as well. That staff has successfully managed the airworthiness of these types of airplanes. The ground operational personnel has successfully organised the operations of these types of airplanes. All the personnel of the airline are people with proven good experience, which are ready to start and realize the project. The bigger part of the personnel has worked for the airline since its foundation in 2005. The others have been appointed during the extension of the firm on the different stages of its development.

The realisation of this project in itself secures that the number of staff will be kept unchanged or increased if necessary. By the realization of the project the company takes care of the interests of its employees as well. The project is an acknowledgement of their successful work too. The airline defines the human factor as one of the key factors for the successful activities of the firm.

VELES AIR will apply different incentives for its personnel. It will develop the firm culture. It will emphasise on the significance of the time and the importance of every one of the staff. The airline will continue keeping the high rating of working positions which it offers on the labour market. The technology for the project is already in use in the VELES AIR activity. The equipment for the project are the three airplanes, the consumables, required for their operations, spares and materials, tools and equipment for maintenance and repair of the airplanes. The providers of the technology and equipment are reliable partners. The aviation company has well established communication with airports, handling agents, aviation authorities and administrations in countries where the flights will be carried out. There are good relations with the manufacturers of aircraft and aeronautical equipment and providers of spares, consumables and other materials. The airline has contracts for maintenance of the airplanes from the project with appropriately licensed organizations. The operation of new aircraft will be carried out according to the well established an excellent working practice of the company. The airline’s experience will enable the company to offer services with the airplanes on the market, to receive orders and to plan the airplanes operations immediately after their delivery. The time for their registration and the issue of all necessary documents for their operations will be used actively. The goal is to speed up the start of the operation of the airplanes. The experience of the company will enable it to have all registration procedures and the issuing of all certificates carried out in the shortest period of time.

The future operation of the aircraft is a routine for the company and is subject to improvement and development.

  • Sales & Distribution Arrangements — including the sales force, warehousing, transportation.

During the realization of the project the already available contracts for sales will be used. That will contribute to a successful start of the project and to repaying the investment in the predetermined term and even earlier.

The airline has contracts with partners with which they offer complex services, for example airplane, helicopter, limousine. The company offers additional assistance of the clients during their trip or facilitates the organization of the transport of cargo to help the clients. The clients, which use the services of the aviation company can take advantage of the contacts and the assistance of the company to fulfil their intentions.

  • Administration and related facilities — including IT and staffing.

The airline’s administration has 7 years good experience. It has used the newest technologies in accounting and business services. It provides synchronization and optimization of business processes. It creates the image of the company.

The Management Team — the function of each member and an organization chart.

EXECUTIVE DIRECTOR  
FLIGHT OPERATIONS MANAGER  
GROUND OPERATIONS MANAGER  
AIRWORTINESS MANAGER  
MAINTENANCE MANAGER  
QUALITY MANAGER — OPS  
QUALITY MANAGER — PART M /PART 145  
SMS MANAGER  
COMMERCIAL MANAGER  
CHIEF ACCOUNTANT  

• Research & Development — effort required to maintain competitiveness and profitability.

VELES AIR pays special attention to research and development in its activity. Statistics is one of the basic tools for that. It expresses the state of an industry, the degree of competition, evaluation of the competitors.

The airline assesses the economic risks and strives to reduce them. This system contributes to strictly redirect resources to reduce the risks in the company activities.

AVB-1010 keeps a high level of the personnel qualification. The newest information technologies are used. The innovations which would increase the safety of the flights and quality of the services are introduced.

Research and development will assist for updating and adapting of the airline’s marketing strategy according to the state and trends of the market. It will define the strategy of the moment. The company will use experience and achievements of other companies, research institutes and universities.

The main factors which are in consideration worldwide in the area of aviation are:

  • Optimization of business processes;
  • Customers needs

List of Official Approvals and Licences required for the project.

S  Air Carrier Licence

S   Air Operator Certificate

S   Certificate of Registration

S   Certificate of Airworthiness

S   Airworthiness Review Certificate

S   Noise Certificate

S   Aircraft Radio station Licence

Implementation of the project and the Timetable.

TIMESCALE
AIRCRAFT DELIVERY
1 month 2 month
Challenger 605 Challenger 605
RETURN INVESTMENT
1 Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y

• The Project Cost — broken down under the different heads of Capital Expenditure, (Land & Civil Works, Buildings, Furniture, Fixtures & Fittings, Plant & Equipment, Vehicles, Technology/know-how, Goodwill), Preliminary & Pre-operative expenses, Working Capital, Interest during Construction, and Contingencies.

Item Project Cost $ Promoter’s Equity $ Funding Required $ BGN
  (a) (b) (c) = (a)-(b)  
Preliminary & Pre-Operative Costs 130 000,00 0,00 130 000,00  
Capital Expenditure: 63 619 268,00 0,00 63 619 268,00  
Land & Buildings, 0,00 0,00 0,00  
Plant & Equpment, 0,00 0,00 0,00  
2 Airplanes, 63 619 268,00 0,00 63 619 268,00  
Office Equipment, fixtures, furnishings and fittings, 0,00 0,00 0,00  
Others (Specify):     0,00  
      0,00  
Total Capital Expenditure 63 619 268,00 0,00 63 619 268,00  
Working Capital 0,00 0,00 0,00  
Contingencies 1 274 985,36 0,00 1 274 985,36  
Total Cost 65 024 253,36 0,00 65 024 253,36  
Project oversight Fee -10% 6 502 425,34 0,00 6 502 425,34  
Intermediaries’ Fee — 2% 1 300 485,07 0,00 1 300 485,07  
Grand Total 72 827 163,76 0,00 72 827 163,76 109 240 745,64
  • Promoters’ Capital Contribution — towards the project cost — amount and percentage and Collateral offered.

For the project company’s capital will not be used.

  • Funding Requirement & Modus — e.g. loan — details of term, grace period, proposed repayments and security, or equity investment — proposed shareholding, dividends, exit, exit premium.

• Any Government incentives/support for the project. No Government initiatives are connected with the project.

  • SWOT Analysis: Analysis of Strengths, Weaknesses, and Opportunities of, and Threats to, the Project. Strengths:
  • The airplanes are brand new. This attracts the attention of the clients. It increases their safety, comfort and luxury;
  • The applicable warranties cover half or the whole period predicted for repayment of the investment;
  • Presence of stable clientele;
  • Good experience in the operation of these types of airplanes;
  • Well set up relations with suppliers and subcontractors for maintenance of such type airplanes;
  • Well trained flight and technical staff with good experience;
  • Good repute of the airline is a significant factor for the distribution of the regional market to the advantage of VELES AIR;
  • The company’s own maintenance organization will save a lot of funds for the maintenance of the airplanes.

Weaknesses:

  • For the investment an outside investor is used. This raises the final cost of the project with about 25%. The term for the repayment is prolonged.

Threats to the project:

  • Great cataclysms, which can influence world economy and especially business aviation;
  • The launch of new airplanes which could outclass all indicators of the airplanes from the project — as price per hour, which in the next 10 years is highly improbable;
  • Great defects, after the end of the warranties, which would require replacement of expensive components — making the accounts a large amount of additional expenditures are foreseen, which are exactly for such contingencies, or the money for them can be accumulated as a reserve if the expenditures are not made.
  • Sensitivity Analysis: Analysis of the impact on the Project when major adverse/critical factors come into

play, and what steps will be taken to mitigate this impact.

In establishing of the cost of the project an amount for contingencies is foreseen. It is a part of the requested financing. This is a sufficient reserve for redirection of the financial resources for the reducing of the influence of adverse/ critical factors. It is a guarantee for the stability of the project. Another factor for the stability is the successful activity of the company till now. The warranties of the aircraft engines, etc. are the third factor reducing vastly the impact of adverse circumstances.

• Financial projections for 10 years — Gross Revenues, EBIDTA (earnings before interest, depreciation, tax and amortization), net Profit (after tax, interest and depreciation), Cash flow, balance sheets, and ROI (Return on Investment).

Financial Plan

This section of the plan offers the core elements for evaluating the financial viability of the project. Both in text and in charts and tables, all the key elements are presented to offer a frank appraisal of the venture and the opportunity it presents.

2.1 Important Assumptions

The general financial and business assumptions and the key parameters presented below formulate the financial portions of this business plan.

Our own statistics defines the following model and clear, realistic expectations.

No. Index PREDICTION measure
1. Total Flight Hours, incl. 1.1+1.2.+1.3. 1952 hours
1.1. Total Flight Hours at work, incl. 1.1.1 +1.1.2.+……… 1.1.n 1920 hours
  1.1.1. Challenger 605 1920 hours
1.2. Total Flight Hours in ferry flights, incl. 1.2.1 +1.2.2.+……… 1.2.n 24 hours
  1.2.1. Challenger 605 24 hours
1.3. Total Flight Hours in training, incl.3.1 +1.3.2.+…….. 1.3.n: 8 hours
  1.3.1 Challenger 605 8 hours
2. Total expenses (2.1.+2.2+2.3+2.4+2.5+2.6) 3 882 400 BGN
  2.1. Expenses for materials — subtotal 2 542 400 BGN
  2.1.1. Fuel Consumption — total 2 342 400 litres
  Challenger 605 — 1000 kg/ hour per airplane — 1200 l/ hour 2 342 400 litres
  2.1.2.Expenses for spare parts, materials and accessories 200 000 BGN
  2.2. Expenses for external services — subtotal 640 000 BGN
  2.2.1. Expenses for lising of aircraft 0 BGN
  2.2.2. Expenses for insurance 240 000 BGN
  2.2.3. Expenses for training 0 BGN
  2.2.4. Expenses for Maintenance 400 000 BGN
  2.3. Expences for depreciation 0 BGN
  2.4. Expenses for wages 200 000 BGN
  2.5. Expenses for insurances 50 000 BGN
  2.6. Other expenses 450 000 BGN
3. Net revenues (Net Incomes) 22 464 000 BGN
  3.1. Revenues from transport of passangers mail and cargo — total 22 464 000 BGN
  3.1.1. Challenger 605 22 464 000 BGN

Projected value of sales

Expected revenues

1 Month

Aircraft €/hour Hours/month Number of aircraft Revenues from sales
Challenger 605 6 000 15 2 180 000
Total in BGN       351 000
2 Month Aircraft €/hour Hours/month Number of aircraft Revenues from sales Challenger 605 6 000 95 1 570 000 Total in BGN       1 111 500 3-12 Month Aircraft €/hour Hours/month Number of aircraft Revenues from sales Challenger 605 6 000 80 2 960 000 Total in BGN       1 872 000

2-10 Years

Aircraft €/hour Hours/month Number of aircraft Revenues from sales
Challenger 605 6 000 960 2 11 520 000
Total in BGN       22 464 000

The data above are on the basis of the statistics from the self experience.

2.2 Key Financial Indicators

The chart clearly shows good, stable financial results, withoutconsidering a growthof sales, only by keeping the sales levels, which the airline has successfully maintained for 7 years yet. A considerable increasing of the expenses is foreseen.

2.3 Break-even Analysis

The futures of the flights – charters, previously ordered meansthat the revenues will be always more than the expenses. If a break-even point exists it is about thenumber of flights which guarantee the return of the investment for the predicted 10 year period.

2.4 Projected Profit and Loss

 

2.5 Projected Cash Flow

2.6 Projected Balance Sheet

2.7 Business Ratios