Interview - Silver lining

Martin Lynch had 30 years with British Airways before moving to top-end - yet troubled - carrier, Silverjet. He tells Jenny Hirschkorn about the new challenges he faces.

When Lawrence Hunt, founder and CEO of business-class only airline Silverjet, decided his business needed a finance director with experience of the industry, his search led him straight to Martin Lynch. Lynch, 52, is about as experienced as they come.

He has been in the travel business since leaving school to join Sovereign Holidays as a finance trainee and, once he had his ACCA qualification under his belt, he moved on to British Airways, where he spent 30 years climbing the financial ladder.

'I moved jobs every two or three years to get experience in different parts of the organisation,' he recalls. 'For example, I spent three years in New York as director of finance, USA.' Then, as head of revenue accounting for the entire company, he played a pivotal role in the transition from manual to electronic ticketing, downsizing the department and introducing a lot more automation to the business.

Lynch left British Airways two years ago and was working within the XL Leisure Group when he was approached for the Silverjet job. It was just 16 months since the fledgling company had made its initial public offering, and Lynch was to replace John Bavister, who had been finance director during the setting up and funding of the business. Why, then, the need for a replacement so early on in the life of the company?

Says Lynch: 'They felt that they needed someone who'd had airline experience to really come in and help to manage the growth of the business both from a management of costs perspective and also investment for growth and, particularly, revenue management. So, those were the key aspects that I brought to the role.'

What was it, then, that particularly attracted Lynch to Silverjet?

'It was a growing company and a very exciting time to join the business. I came here last September and have been involved in helping plan the next two routes. While we're consolidating our existing routes to New York and Dubai, we're about to acquire two new aircraft and are looking into where they will go.' North America, Johannesburg and the Far East are all strong contenders.

A cut above

The Silverjet service is altogether different from anything else on offer. The airline is predicated on the demand for a premium service at a far lower price than mainstream carriers can offer. It is not the only company to have been aimed at this market and American rival Maxjet famously collapsed at the end of last year, but Lynch insists that the business models of the two companies have less in common that people think.

'In some respects people do see Maxjet as similar to us, but when you analyse it, it is very different,' he explains. 'They chose a different size aircraft. They didn't have sufficient seats, so they couldn't carry sufficient passengers at the right price to pay for their business. Also, they didn't have daily services: they didn't operate at weekends so they weren't really sweating their assets and getting full use out of them.' He also maintains that Maxjet's operating costs were a lot higher.

From the customer's perspective, Silverjet's proposition has a number of frills that Maxjet didn't offer. I am meeting Lynch in the company's private terminal, a little silver building squeezed innocuously between the main terminal and EasyJet's mammoth orange headquarters at Luton Airport, and it is unquestionably an airport experience unlike any other.

The check-in is more like an upmarket hotel reception, and passengers, who can arrive as little as 30 minutes before departure, are whisked through it in no time and ushered directly into the lounge area. No need to come into contact at any stage with lesser mortals flying on economy and charter flights. True, Luton Airport is still struggling to shrug off the less-than-glamorous image enshrined by cockney model Lorraine Chase in the famous 1970s Campari ad, but hey, keep your eyes closed till you're through the door and you could be - soon will be - in New York or Dubai.

In flight, there are flat beds and just 102 seats per plane, and state-of-the-art entertainment systems, all for an average ticket price of around £1,000.

The target market is evenly split between business travellers, most of whom tend to be SME types keeping a tight rein on the purse strings, and well-heeled tourists choosing Silverjet for little more than premium economy on BA or Virgin.

It all sounds like a recipe for success, and yet the share price has gone into a tailspin since it floated at 112p in May 2006 and later flirted with the £2 mark last spring.

Clearly the Maxjet demise shook confidence in the all-business class model. Then came a savage sell note, issued by analyst Mike Stoddart of brokers Daniel Stewart. Stoddart questioned whether the airline could ever achieve the load factors needed to break into profit, and calculated that the all-in cost of operating flights was twice the revenues that the company is currently generating.

It didn't take long for Lawrence Hunt to come back accusing Stoddart of being 'a complete muppet' and making a series of 'schoolboy errors', but even a buy note from Silverjet's broker Arden couldn't repair the damage.

So I ask Lynch to clarify the picture. Just how many people does the airline need to carry to break into the black, and when is that likely to be achieved?

'Stoddart said that it costs over £130,000 to operate a return flight. In fact, at around £70,000, our costs are nearly half that. Our break-even point is in the mid-60s (percentage) mark. In January it was around 54%, but we are aiming for break-even in March.' So, this month we should find out if the target was reached. Meanwhile, Hunt has blacklisted Stoddart. 'There's an exclusion zone around Luton for him,' he announced.

Stoddart is not the only persona non grata on Silverjet. London's mayor, Ken Livingstone, got into hot water with the company when he arrived in New York two hours late, due to an air traffic control computer failure, and announced to a journalist: 'It was the worst flight of my life.'

He has since redeemed himself to some extent by claiming that he was referring to the turbulence during the flight rather than the airline's service, but Hunt is reported as saying he will cancel any flight that the mayor is booked on.

Turbulent times

Thirty thousand feet above the Atlantic is not the only place that there has been turbulence. Silverjet's share price plunged further on the news that another business-class only operator, Eos, announced that it would be extending its service to include flights from London to Newark and Dubai. So it hardly came as a surprise when, on the same day, the Reuben brothers, the UK property developers who had provided a £10m loan to Silverjet, abandoned their plan to convert the loan into an equity stake because of a collapse in the share price to less than half of the 60p conversion price.

Lynch believes the failed conversion had a disproportionate effect on the share price, because the funds, which were negotiated at the favourable rate of 2% above Libor, remain in place and, he says, the Reuben brothers remain very supportive of the business.

He also brushes aside concerns over competition from Eos. They are, he says, considerably more expensive - comparable to a first-class service - and he views them more as competition for British Airways and Virgin rather than for Silverjet.

Through it all, Lynch is putting on a positive face and believes the company is on track for its target of 10 aircraft by the end of next year. Although juggling the schedules to ensure that flights do not take off so close together as to jeopardise the peace and quiet of the private terminal could prove a challenge, there is space to extend the building should that prove necessary.

The business model works, he maintains, and even British Airways has announced plans to launch a business class service across the Atlantic from London City Airport. Lynch sees this as a positive indication rather than a threat. 'City doesn't have the facilities for a private lounge like we have here, nor does it have the capacity to really grow out of there. Also, planes will have to refuel along the way, because the runways are too short to accommodate planes with full fuel tanks.'

Lynch says he doesn't anticipate any difficulty raising the finance for the expansion, and places much of his faith in the high level of brand awareness that the small company has already achieved. 'Although we are a very small airline at the moment, we've got a very big brand and we should be able to capitalise on that to give us greater resilience and profitability.'

If he's right, the old adage about clouds, silver and lining could take on a whole new meaning.


•    Revenue for the half-year ended 30 September 2007 was just over £30m. The loss for the period was £13m.

•    The company has around 300 employees.

•    Silverjet's Boeing 767s, fitted out with 102 6'3" flat beds, would normally be configured for 270 passengers or more.

•    The airline operates a twice daily service between London Luton and Newark New York and once between London and Dubai.

•    The company scooped a clutch of awards last year including the Sunday Times Travel Award for best airline.

•    Silverjet's steamy viral ad on You Tube has had over 200,000 viewings.


Who: Martin Lynch

When: 1955

Where: Dulwich, London

Qualifications: FCCA, MBA

Work: Finance trainee, Sovereign Holidays; various financial roles, British Airways; finance consultant XL Airways and Honda Europe; finance director, XL Airways USA; finance director, Silverjet.

Life: Travel; football (he's a Chelsea supporter and still plays once a week); charitable work for The Wooden Spoon, which raises money for disadvantaged children.

iPod: He doesn't have one, but his favourite group is the Red Hot Chili Peppers.

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