The plan for the envisaged new regional airline is an outgrowth of the market research and regional experience of Balkan Consortium Holdings USA, Inc. (BalkConsort), garnered over a nearly three-year period, beginning in mid-1999.
BalkConsort, which is proposing to found the new airline, is a U.S. corporation registered in the State of Delaware and headquartered in Chicago, Illinois, with a Southeastern European regional headquarters located in Panorama, just outside Thessaloniki, Greece. BalkConsort, together with its partner companies and associations throughout the countries of Southeast Europe and beyond, identifies key business and profit opportunities and develops projects and strategic partnerships to implement and benefit from them.
Early on following its establishment in the region in mid-1999, BalkConsort identified a growth opportunity in the aviation and travel sector in Southeast Europe. This opportunity is occasioned by growing economic, political, and social stability, and consequent significant business expansion, within and between most of the countries of the region; vastly expanded outside contact and support with and for the region, occasioned by the aftermath of the Bosnia and Kosovo conflicts; extensive UN, NATO, and other international-organization operations in the region; and such multilateral initiatives as the Stability Pact for Southeast Europe, the Southeast Europe Cooperative Initiative, and the Southern Balkan Initiative.
Additionally, the company has determined that maximum potential from this growth opportunity can be obtained not only by linking certain key destinations within the Southeast European region, but by linking the region with carefully selected destinations in Western Europe and beyond. It further has identified significant unmet demand, and significant short-, medium-, and long-term growth potential, represented by Turkey and the rapid growth of the Turkish economy and its domestic and international air-travel market, particularly in light of Turkey's growing economic and political integration with the European Community and Europe as a whole.
Ancillary Travel Services In response to the growing travel-market potential of the region, represented in particular by the large expatriate community living and working in parts of the region, including Bosnia-Herzegovina, Kosovo, the Former Yugoslav Republic of Macedonia, and Albania, BalkConsort established Hassle-Free Holidays, a package-travel wholesaler and retailer, in mid-2000.
Both Hassle-Free Holidays and its partner organizations are expected to feed customers and traffic to the regional airline and utilize the airline's services when possible, and will act as additional low-cost outlets for marketing the airline through their planned electronic-commerce websites. Locally established retail travel agencies can serve as a base for the airline's sales and operations in the key niche market of Kosovo, and Hassle-Free Holidays already has established other close links with retail agencies in Skopje, Thessaloniki, and Athens, and is working on developing similar relationships with agencies in Istanbul, Ankara, Tirana, and elsewhere both within and outside the Southeast European region.
Other related company activities of BalkConsort BalkConsort currently maintains strategic partnerships or associations with companies in the following functional and geographic areas, all of which can serve to support, augment, or supplement the proposed new airline's core aviation business:
Construction, construction management, and construction technology (U.S., Greece, Turkey, Albania).
Environmental engineering, including water and waste water treatment and solid-waste management (U.S., Italy).
High-level security, demining, and explosive-ordnance removal (U.K.).
Aviation services and airport development (Albania).
Travel services and package travel development and marketing (Greece, FYRO Macedonia, Kosovo, global).
Free-trade zone development (U.S.).
The company owns 50 percent of a private U.S.-Albania joint venture limited-liability company, Rruget e Mira sh.p.k., founded in early 2001 and based in Tirana, Albania. The joint-venture company is set up to undertake primarily public road and street construction and reconstruction projects, as well as general construction and development projects, in Albania.
It also is considering tendering, either on its own or more likely in conjunction with a major international engineering and construction firm, for the build-operate-transfer (BOT) concession the Government of Albania will let for the planned new passenger terminal for Rinas (Tirana) International Airport.
In addition, BalkConsort also holds exclusive license rights to two advanced U.S.-developed construction technologies in the 10 countries of Southeast Europe, including Albania, Bosnia-Herzegovina, Bulgaria, Croatia, Greece, Macedonia, Slovenia, Romania, Turkey, and Yugoslavia (including Kosovo).
These technologies, combined with other building technologies, products, and methodologies the company and associated companies represent, can offer significant advantages to the new airline should it pursue, either on its own or in conjunction with BalkConsort, development and construction of new passenger-, baggage-, and cargo-handling facilities and other related installations.
Legal relationship and company status of the new airline BalkConsort intends to spin-off the proposed new airline operating company into a separate legal entity under the continued partial ownership and general oversight of BalkConsort, acting as a holding company. Investments in the new airline may be made either through BalkConsort, as a share of its total capital holdings, through an E.U.-based daughter company described later in this section that will be BalkConsort's proxy for its interests in the new airline company, or directly into the new airline operating company.
To obtain maximum flexibility in terms of certification and flight and landing rights, it is important that the primary carrier operate under an air operator's certificate (AOC) granted by an European Union country. Since current E.U. requirements stipulate that European Union nationals (companies and individuals) hold the majority ownership interest in any E.U.-flagged carrier, it is critical that overall ownership in the new airline be structured in such a way that the majority interest is held by E.U. nationals.
According to its overall organizational plan, BalkConsort anticipates reorganizing itself into an off-shore holding company (BC Holdings International Ltd), most likely registered in Anguilla, and transferring the current share ownership of Balkan Consortium Holdings USA, Inc. to the new off-shore holding company. BalkConsort USA will then become a daughter marketing company of BC Holdings International, with a majority of its shares owned by U.S. stockholders (necessary for it to fulfill its role as a U.S. marketing company capable of winning U.S. government contracts reserved for U.S.-owned companies), and a minority share owned by BC Holdings International as a holding company.
The corporate organizational plan then calls for the establishment of a daughter marketing company in the E.U., similar to BalkConsort USA, to be held partly by BC Holdings International as minority shareholder and with a majority of ownership held by E.U. nationals. This daughter company (BalkConsort EU) may own all or part of the new airline operating company, provided that majority ownership in the airline meets E.U. requirements for an E.U.-flag carrier.
BalkConsort (in its new identity as BC Holdings International and as "BalkConsort EU") anticipates maintaining or appointing positions on the new airline operating company's board of directors proportional to its direct or indirect ownership interest in the airline, with other board positions held or named by other investors in the airline proportional to their ownership interests. Additionally, some board positions will be held by non-equity members, nominated by BalkConsort and the other investors and strategically selected by the board, whose presence and guidance can serve to advance the new airline's operations, business interests, financial positioning, and expansion.
It is anticipated that the new airline operating company will be established as a limited-liability company in one or more E.U. countries, the country or countries to be determined based on tax requirements and relative tax and business operating advantages, and other substantive considerations. For instance, registering and basing the company in Luxembourg may offer significant tax, as well as logistic, advantages to the new airline.
Meanwhile, it may be necessary to register a subsidiary company in another country, such as Switzerland for example, to obtain necessary landing rights or slots in that country. Furthermore, if - as is being considered and is detailed elsewhere in this business plan - the airline acquires British-built aircraft, it may be advantageous from the perspective of obtaining British export financing to base the company outside the U.K.
Additional AOCs may be obtained by subsidiary carrier companies established outside the E.U. for substantive reasons such as outlined above.
The final company structure, including ownership arrangements, national company registrations and AOCs, and basing, will be determined based on consultation and negotiation between BalkConsort and prospective investors, and with the expert guidance of its project team of tax, business, and aviation advisors and consultants, and others as may be needed.
2.1 Company Ownership
It is anticipated that a portion of the ownership in the new airline operating company will be held by BC Holdings International Ltd, most likely through an E.U.-registered daughter company, along with one or more strategic private investors. Investment in the new airline operating company may be made directly in the airline operating company or through investment in BC Holdings International or its E.U. daughter company as the holding company for the airline, with shares apportioned according to the equity investment involved. However, as previously stated, the majority ownership stake in the new airline must be held by E.U. nationals for the airline to qualify for an E.U. AOC, considered an essential element of the overall organizational plan. BalkConsort is prepared to discuss and negotiate specific ownership arrangements in detail with prospective investors. Equity requirements are discussed in the Start-up Summary that follows.
For planning purposes, any subsidiary airline companies established by the parent airline operating company, as described in the previous section, shall be considered to be wholly owned subsidiaries of the parent airline operating company, although individual sub-ownership arrangements may be made in individual cases of such subsidiary companies, particularly in cases where local ownership interests might be required by prevailing law in the countries in question.
Balkan Consortium Holdings USA, Inc., the current entity formulating this proposal, is a privately held Delaware (U.S.A.) corporation. As noted in the previous section, a new off-shore holding company, BC Holdings International, Ltd., will be set up, with stock ownership in BalkConsort USA transferring to the new entity. It is anticipated that subsequently BC Holdings Ltd. will set up an E.U. daughter company which would then hold a share of the new airline, based on its relative stake in the airline.
2.2 Start-up Summary
Most of the planned start-up costs are apportioned to the following six areas, in approximately declining value:
Dry leasing or purchasing three (followed by two more by the end of the first year of operations) mid-to-large-size regional jet aircraft, most likely the 99-seat British Aerospace Avro RJ100 (or the older predecessor to the RJ100, the BAe 146, which also offers a quick-convert passenger-cargo version), or the 85 - 99-seat Avro RJ85, or the next-generation follow-on versions of those two Avro jets, the RJX100 or RJX85.
Provision of a sufficient cash reserve to assure timely payment of the leasing or finance payments and operating costs of the aircraft through at least the first six months of operations.
Marketing, advertising, and public relations costs, including costs of setting up a website capable of offering flight and fare information and making online sales and reservations, and related Internet marketing, as well as conventional print and broadcast advertising, and public relations activities.
Costs associated with recruiting, training, and certifying flight and ground operational crews.
A reserve to cover overall operating costs, aside from aircraft operating costs, over at least the first six months of operations.
Administrative and legal costs incurred in setting up the business and the airline operations.
Assumptions governing start-up costs are shown in the following table and chart.
Legal and consulting
Route and market study
Office supplies, stationery etc.
Brochures and marketing materials
Software and systems development
Expensed equipment and off. furniture
Expensed vehicles (8)
Public relations and advertising
Crew, staff training and manuals
Total Start-up Expenses
Other Current Assets
Start-up Expenses to Fund
Start-up Assets to Fund
Total Funding Required
Non-cash Assets from Start-up
Cash Requirements from Start-up
Additional Cash Raised
Cash Balance on Starting Date
Liabilities and Capital
Accounts Payable (Outstanding Bills)
Other Current Liabilities (interest-free)
Additional Investment Requirement
Total Planned Investment
Loss at Start-up (Start-up Expenses)
Total Capital and Liabilities
2.3 Company Locations and Facilities
Financial, traffic, and other studies currently are underway to determine the optimal prime basing location for the proposed new airline. Among the locations under study are the following eight:
London City Airport, London, United Kingdom;
Stanstead Airport, London, United Kingdom;
EuroAirport, Basel/Mulhouse, Switzerland/France;
Amsterdam, The Netherlands;
In selecting a location to base the new airline, the following 11 major considerations are being evaluated, in roughly descending order of relative weight:
The tax and business regime in place in the selected locale. A low profit tax rate and a regulatory and political climate supportive of business, and particularly foreign investment, are key considerations.
The availability of relatively low-cost facilities suitable for basing both the business and aircraft-support operations, as well as the aircraft, is another key consideration.
The availability of sufficient landing and parking slots and gate facilities to permit the desired level of service at the base airport.
The ability to interconnect with one or more major carriers for onward interline arrangements both within Europe as well as to trans-Atlantic and global destinations.
A location that, given the maximum range of the selected aircraft, will enable non-stop flights to the most important destinations within the new airline's service area in Southeastern Europe and Turkey and, at most, one-stop service to more distant or secondary destinations.
The existence of relatively high-traffic volume between the base location and one or more key interchange points to provide sufficiently high load factors between the base location and onward destinations and points of origin.
The existence of a reasonably high level of cargo traffic, including opportunities for interline trans-shipment of both inbound and outbound cargo.
The support of a larger airline with which the proposed new airline can establish a particularly close working relationship.
The support of local airport and aviation authorities to facilitate establishment, certification, and ongoing operation of the airline and its aircraft.
A location outside of the U.K. to facilitate British trade finance on acquisition of the new aircraft, should decisions be made to acquire British-built Avro aircraft as previously noted, as well as to purchase, rather than lease, the aircraft.
A range of other factors, including the availability and cost of local skilled workers, the growth potential of the market selected, year-round climatic and weather conditions as they may affect flight operations, the "cache" of the locale for marketing purposes, the cost and convenience or difficulty involved in command and control of the airline involving key personnel, some of whom may be based at various other locations, and so forth.
It is anticipated that most routine maintenance will be performed at the base location, with some more minor maintenance and repairs relegated to other locations in the route network. In both cases, most of this routine maintenance and repair work will be contracted out to established and experienced service providers, reducing the need for the new airline to maintain its own extensive maintenance and repair teams and facilities.
The airline will, however, perform its own normal line maintenance at home base and will utilize locally available services away from home. Aircraft also may be based at key airline hub locations away from the home business base as well.
With acquisition of British-built aircraft, major overhauls and heavy maintenance may be performed at British Aerospace's Woodford facility in the U.K. on a selective basis. In addition, it is anticipated that separate fixed-cost maintenance agreements will be entered into for both the airframes and the engines, or these elements will be included in any dry-leasing arrangements entered into.
Estimates for total labor and spare parts costs have been calculated as a fixed per-hour cost and included in the portion of this business plan dealing with anticipated operating costs.
Sufficient apron and hangar space for staging, parking, and storing, as needed on a short-term basis, up to the entire initial five-aircraft fleet will be required at the base location and any other hub locations selected.
As the fleet expands over time, additional parking and storage space will be needed either at the main base location or at regional hubs in the airline route network. Additionally, sufficient office space, preferably in one central location at or near the base airport, will be required to house the airline's main administrative offices and its central reservations system.
While the airline may consider establishing its own sales offices in key market locations, in general sales will be handled through a combination of Internet marketing utilizing the airline's own website as well as other Internet travel websites, designated general sales agents in given locales, and regular travel agencies everywhere.