It has been a testing few days for all-business class airline Silverjet,
which flies from Luton airport to both New York Newark and Dubai.
First news emerged that the billionaire Reuben
Brothers had decided not to convert a £10 million loan they had
given the airline in November into shares. If that were not enough, one of
its keenest rivals - premium carrier Eos
– then announced it was planning
to launch services to Dubai too. Silverjet’s shares – which are listed
on the secondary AIM exchange – plunged as a result and now stand at just
15.5p, far below the 112p at which it listed back in May 2006.
Since then, the media has been full of doom and gloom about Silverjet’s
future. But hold on a minute, let’s get some perspective here.
First, let’s take a look at the Reuben Brothers’ decision not to take shares
in the airline. The two options open to them on 11 February were exchanging
their £10m for 18.3 million shares, then priced at 24p, or carrying on with
the loan until December 2009, when it is repayable at an attractive rate of
LIBOR plus 2%. Converting to shares would have instantly valued their
investment at £4.4m. Yes, there’s the potential future upside but it’s not
something most share dealers would agree to do easily.
I think the most significant thing to come out of it is that the brothers have
not asked for repayment of their loan. If they were truly worried about its
future, they would have foreclosed. Indeed, at the time of the decision, the
brothers said: “We continue to believe the company has a sound business
model and excellent prospects for the future to become a major player in the
global aviation business.”
Secondly, let’s take a look at the competition from Eos. I personally think
that the passengers that the two airlines attract are very different. Eos is
essentially a traditional first class product which is called business class
only to make companies feel comfortable about sending their business
travellers on it. Silverjet, on the other hand, is a business class product
through and through but at far lower fares than the traditional carriers.
Most business travellers I have spoken to about Silverjet cannot rate it
highly enough. There’s the odd grumble about having to go to Luton but the
service, both on the ground and on the plane, are impeccable.
Some people may be concerned about the airline’s viability. Despite the share
price, the airline must have plenty of cash, amassed from the loan, a £12m
share issue and a successful January sale. I suspect a certain amount of
mischief-making in the current wave of rumours about the airline but I
personally think there’s little to worry about at the moment. I could be
proven wrong – and I hope I am not because Silverjet brings much needed
choice to the business travel sector – but I believe that the airline has a
rosy future.
There was a great commercial once for Alaskan Airlines which showed all these people in business and first feasting like Caligula and then you went to the back of the plane and it was like a scene from the Gulag Archipelago or Dante's Inferno. There's always been this huge class divide. Silverjet deserve a lot of credit for making business class affordable to the ordinary punter who fancies treating himself to a little bit of lucury for once.
Charlie A., Esher, UK