Halogen Guides Jets spoke to the CEO of XOJets, Paul Touw, following the company’s announcement that it had secured nearly $2.5 billion in financing. We spoke to Touw about how XOJet stacks up against NetJets and what the cash influx means for international expansion.

HG: In what sense do you see yourself as a competitor to NetJets?

We overlap in terms of 50 percent of the customer opportunities out there. They are in the card business and the small jet position. A third of their sales are 25-hour card members and a large portion of that is small jets. As far as we are concerned there is no viable business in that market—the numbers don’t add up, it’s a loss leader. The other part of their business is 100-hour plus contracts and larger aircraft and we do compete with them there.

HG: What is wrong with the basic fractional model à la NetJets and how does XOJet address it?

The fundamental problem with fractional is that the business model is conceived on the business model of selling jets. The idea is that if we can fractionalize them, we can sell more of the jets. So they are thinking first and foremost of selling jets, not on how to best serve the private aviation needs of the customers.

If you are a fractional provider you’ll sell every kind of business jet you can get your hands on. NetJets’ fleet has something like 18 types of jets, so they have to employ so many different pilots, and mechanics each for the specific jet types.

Our model from the start is not about selling jets. We’re all about the most efficient mechanism and system of moving people around on private jets. If you have a structural cost advantage, that is if you can make televisions or cars for half the price of your competition, it gives you an enormous advantage. We do one thing and do it well. Because of that we’re more reliable both for our customers and for the bottom line.

HG:Can XOJet’s model scale to an international market?

Well, I can tell you exactly what doesn’t scale and that’s 18 different aircraft types. Every XOJet mechanic works on Citation X’s. The pilots, flight attendants, everyone knows this jet. You get enormously good at doing one thing extremely well. I think one of the strengths of our model is that it’s designed to scale.

HG:Presumably, though, you will have to introduce another aircraft type for your fleet, one with a longer range to serve the international market?

Absolutely. We are looking for a third aircraft type, and I’m afraid right now I can’t really speak to exactly what models we’re looking at, in order to not damage our negotiating position with the manufacturers. The way we are structured though, adding another model doesn’t do anything to adversely affect our ability to maintain efficiency. Each model is like a different company. You can take the same model and duplicate it.

HG: What can you tell us about your joint venture with Tasameem Real Estate Company (The United Arabe Emirates based investment firm who will partner with XOJet for their middle east expansion)?

We’ve laid down in principle an architecture for the joint venture. From now on it’s a matter of execution. The law is such that foreign firms cannot own airlines outside of their native country, which is why we have to seek out this kind of partnership. Even still, there’s a government process that takes three to six months. We’d like to be off the ground and running by the end of 2008.

HG: So will you be looking at joint ventures beyond the Middle East? In Russia or the Far East for example?

Absolutely, talks are ongoing. We feel that if you have a system that works you should replicate it.

Up next: The Halogen Guides Take on this $2.5 billion windfall.