ummah airways - business plan

8/2/2019 Ummah Airways - Business Plan

1/71

CI Consultants

108 Shirecliffe Lane

Sheffield, UK. S3 9AE

+44 (0) 795 154 0631

+44 (0) 114 275 2368

[email protected]

Those who serve the people are their leaders ...

and we lead by example!


2/71

Private and Confidential

Business plan 3.0 Ummah Airways

CI Consultants Ltd Copyright 2006Registration No. 4138904

Confidentiality Agreement

The undersigned reader acknowledges that the information provided by CIConsultants in this business plan is confidential therefore, reader agrees not to

disclose it without the express written permission of Syed MA Rahman or MarlinaWong.

It is acknowledged by reader that information to be furnished in this business plan isin all respects confidential in nature, other than information which is in the public

domain through other means and that any disclosure or use of same by reader, maycause serious harm or damage to CI Consultants and associates.

Upon request, this document is to be immediately returned to Syed MA Rahman or

Marlina Wong.

___________________

Signature

___________________Name (typed or printed)

___________________

Date

This is a business plan. It does not imply an offering of securities.


3/71


4/71


5/71



CI Consultants Ltd Copyright 2006

Registration No. 4138904 Page 2

Utilization of the latest electronic and informational technologies in salesand marketing reservations, ticketing and check-in scheduling and

resource planning cargo tracking and operational oversight. Suchtechniques as internet marketing, reservations, and sales electronic

ticketing and check-in online quality control, resource planning,operational oversight, cargo and baggage tracking, and customer service,

all will reduce staffing requirements while offering ease-of-use and greatly

enhanced access by, and convenience to, the customer. Recognition that not everyone is geared for the electronic world, leading

the proposed airline to provide a high level of non-electronic service as

well, particularly to the many newer, less-experienced travelers - butfuture loyal customers - found in the region.

Ensuring a friendly, cooperative, enjoyable, yet highly professional face tothe customer.

Development and implementation of cooperations, associations, and

partnerships with other larger, more established, and highly regardedairlines both within and beyond the region to provide an extensive rangeof connections, through fares, frequent-flyer mileage sharing, and other

passenger and client advantages through interline arrangements, codeshares, common hubbing, and so forth.

In short, the goal of this new airline is to be known to the passenger and thecargo customer by its proposed motto: "Those who serve the people are their

leaders and we lead by example"

Primary financial results anticipated during the first year of operations include:

Average passenger load factors in the 60-80 percent range, depending onroute and season, reached within the first year of flight operations, andincreasing thereafter to the 75-90 percent range.

Revenues approaching 15 million USD within the first six months of flight

operations, exceeding 40 million USD by the end of the first year, 90million USD in the second year of operations, and nearly 150 millionUSD in the third.

A gross operating margin of close to 20 percent achieved within the first

year of operations, reaching close to double that by the third year, andwith steady growth enabling rational expansion of the airline thereafter.

Even in the first year of operations, a pre-tax pro fit of 2 million USD isanticipated. This is applying a very conservative business model, and isachieved on an initial investment of less than 12 million USD, yielding a

return on equity of 11.5 percent. The accompanying chart illustrates thegrowth and profit potential present.

A key element contributing to the success of this new carrier will be itsorganizational and management team. Leading this team is CI Consultants, a


6/71





U.K. corporation that is regionally based in Malaysia and which knows the regionand its business needs. CI Consultants, together with its partner companies and

associations throughout the countries of OIC Countries and b eyond, identifiesbusiness and profit opportunities and develops projects and strategic

partnerships to implement and benefit from them.

Joining the CI Consultants team are aviation, finance, and marketing experts withlong and successful track records, including extensive experience organizing andmanaging other start-up airlines of both a regional and global scope. This

organizational and management team, which is described in greater detail in thesection of the business plan dealing with the Management Team, will help reducethe risk and ensure the success of the proposed new carrier.

Highlights

1.1. Objectives

The proposed airline will have as its primary objectives the following

elements:


7/71





1. To establish and operate a new global airline aiming specifically atlinking the Muslim countries with the rapidly expanding markets of the57 OIC

countries eventually connecting these countries with china and Africa, andlinking all these destinations, via Western European hubs, to trans-Atlantic

and global destinations.

2. To provide service and absorb unmet demand in three key trafficcategories: unserved and under-served routes on which high demandcurrently exists or can be developed serving key niche markets where

demand is either unmet or poorly served and meeting peak traffic demandson certain key regional, seasonal, and variable routes where very high loadfactors can be predicted despite existing, but lower-quality, competition.

3. To implement an organizational and marketing strategy that will,beginning in the first year of flight operations, achieve average passenger

load factors in the 65-85 percent range, depending on route and season, andincreasing thereafter to the 75-90 percent range, thereby maximizing

revenues and return on investment while minimizing risk.

4. To achieve revenues in excess of 10 million USD per quarter within thefirst six months of flight operations, and exceeding 15 million USD per

quarter, by the end of the first year.

5. To achieve net operating profits in the 25-30 percent range within the first12 months of flight operations, an annualized return-on-investment ofapproximately 20 percent by the end of the second year of operations, and

steady growth enabling rational expansion of the airline thereafter.

6. To achieve the projected results starting with three mid-to-large-size

regional aircraft, growing to five by the end of the first year of operations,similar to the 99-passenger British Aerospace Avro RJ100 or 85 - 99-seat

Avro RJ85 regional jet aircraft, obtained on either a dry-lease or purchase

basis supplementing those aircraft with larger, longer-range passenger

aircraft and cargo liners on a charter or wet-lease basis to serve peak-demand and intermittent routes and periods, as well as cargo demands, as

called for by the business plan and incrementally expanding the fleet sizeand scope on a dry-lease or purchase basis to at least double its initial

capacity by the beginning of the third year of operations to accommodate

projected passenger and cargo growth in the business plan's out-years.

7. To gear operations, and present a professional, serious, growth-orientedimage from the outset, that will set the stage for reasoned, plannedexpansion, mirroring growth rates projected for the first year of operations,and that will enable the airline to extend its regional scope and, in future

years, to transition from its initial regional status into a larger continentaland intercontinental carrier.

8. As an element critical to achieving the airline's other key objectives, toidentify and develop key interline alliances, cooperations, associations, andpartnerships with other larger, more established, and highly regarded airlines

both within and beyond the target region that will enable the proposed airlineto provide an extensive range of connections, through fares, frequent-flyer


8/71





mileage sharing, and other passenger and client advantages through interlinearrangements, code shares, common hubbing, and so forth.

1.2. Mission

The OIC unites 57 states, from Africa to Asia and the Pacific, within one

framework of a single international organisation. Not all the states are Islamic nations' - some have very little Muslim population but all haveagreed to come together to pool their resources together, to combine theirefforts, to share experience and expertise, and to speak with one voice.

The proposed new airline's mission, simply stated, is to fill a niche in the

growing air-travel and cargo markets linking the OIC states together through

transportation developing relationships, trade and tourism between thecountries.

To achieve high, and profitable, load factors by identifying and serving keyroutes and city pairs currently unserved, under-served, or poorly served, and

where significant unmet demand exists and to set a new standard for air

service and professionalism both within the target market region andbeyond.

By utilizing the latest aviation, electronic, and informational technologies,and by designing effective and efficient systems and building in qualitycontrol from the outset, we aim to ensure the highest level of service,operations, and safety, all based around the needs, wants, comfort, andconvenience of the passenger and the cargo client. This combination of

technology, service orientation, and quality oversight will help keep costs ata minimum and maximize profits to the airline and its investors. It also willhelp build the strong customer satisfaction and excellent reputation that will

enable the airline to build solid, and crucially important, interlinearrangements necessary to expand its scope and customer attraction in the

early stages, and which will lead to continued long-term growth both within

the target market area and, looking toward the future, beyond.

In short, this airline wants to be known by its proposed guiding motto:"Those who serve the people are their leaders"

1.2.1. The Vision for the future and its concepts

Initially two leased Boeing 737-200s and essentially will act as a "virtual airline"

contracting everything from pilots to check-in staff. The first booking will be taken byearly 2006, from creative exhibition booths at Kula Lumpur and Jakarta to Jeddah

airport, called ummahLand. Our concept of eliminating travel agents is at times

radical and revolutionary, but proved to be successful for EasyJet in 10 November

1995. Ummah Airways inaugural flight will to take for the skies from Jakartaairport to Kula Lumpur carrying 120 passengers.


9/71





The business will come a very long way in the next ten years. We will acquire, withgreat excitement, our first owned aircraft in 2007 and begin our first international

routes in the same year. We will also look to prize Air Operators Certificate grantedby that year, by then we also will reach financial break-even for the investments,

and place further orders for 12 brand new Boeing 737-300s for delivery by 2010.

By the end of 2006, we will sell our first seat online at Ummah Airways.com, withthe introduction of our "The Muslim's favourite airline" tagline and lead the airlineindustry in the developing countries, making the internet as the preferred

distribution channel. In addition that year we will have purchased 40% of an Araband/or Asian Charter operation.

The business will continue to grow, and will be floated on the Bahraini or Dubai StockExchange end of 2007. We will use the boost of funds and capability to acquired afailing western airline company that year to continue with the growth and ensure

that infrastructures in place to meet those demands. A well planned and successfultransformation will be followed. Airbus will be appointed as our preferred aircraft

supplier and we will order a massive 120 aircraft for delivery over the next five

years. Our first Airbus will go into service in Kula Lumpur by the end of 2008.

From our small and often difficult beginnings, we will have a huge presence across

the Asia with 212 routes across 57 of OIC countries best-placed and most popularairports. Getting there isn't an easy ride and not for those with weak stomachs!

Ummah Airways is a small fish in a very large sea. However, commitment anddetermination will drive our people to believe and recognise that they had a product

that would change the lives of Muslim consumers forever. Along the way, we will pickfights with bigger airlines which will try or threatened to try to use anti-competitivebehaviour to block our way.

We will remember with pride our battles with airlines such as Emirates, Saudia

Airlines and most of all local airlines, when we operate a charter service (complete

with holiday packages, hotels and domestic transportations) to beat their monopoly

on portfolio such as the Hajj & Umrah services and deliver low prices to customers.We will indeed thank our employees for their professionalism and dedication to our

unique values and customer service.

Ummah Airways will still be growing. During 2010 we've will have reached severalmajor milestones: we will have flown our 100 millionth passengers, and we will take

delivery of our 100th Aircraft, as well as our 50th Airbus. In the past ten years we

will have grown to an airline which carries 30 million passengers a year: a feat whichtook Rayan Air and others like it twice the time to achieve. Consistent with our

values of delivering excellent service to our customers through our people, we willhave celebrated our 10th birthday which has been marked by especially event heldby the OIC summit.

I am proud of having presented the vision for Ummah Airways as it will shake upthe industry in the next ten years. We will have provided a huge increase in the


10/71





range of services available to Musims, all at lower prices and the customer havingrewarded us by travelling in numbers that would have seemed impossible a few

years back. Ummah Airways will lead the way, but the customer is the clear winnerand they have responded by travelling more frequently, expanding the Muslim

market for tourism and trade within the OIC countries and beyond.

We will have changed the way that people think about travel, and, in doing so, haveopened up the continent by making it cheaper for people to fly. The Ummah landsare now available to everyone whenever they want - both for business and leisure

travel. We've been responsible for thousands of life enhancing experiences and journeys made made millions of introductions and forged countless friendships.

We've launched a means by which helped people to realise their dreams. I wishUmmah Airways and my successors, in this vision and implementation, all the bestfor the future as Ummah Airways continues to grow.

Ummah Airways the vision for the future

Syed Masrur

1.3. Keys to Success

In descending order of importance, the five critical keys to success for theproposed new global airline are:

Employing an experienced, highly professional managementteam that combines vision realism financial ability solid knowledgeof the aviation business familiarity with, and belief in, the utilization

and benefits of the latest aviation, electronic, and informationaltechnologies on-the-ground knowledge of the region and markets tobe served realization of the crucial importance of an organization's

personnel to its success and a total familiarity with, and commitmentto, the overall mission and goals of the proposed new airline.


11/71





Intelligent, progressive, and aggressive marketing thatidentifies the airline as a different kind of player, one that is

sharper and smarter, and with a higher level of professionalism andoperational standard than is the norm in the target region.

Concentration on safety, with highly trained, dedicated, andprofessional personnel, caring for the passenger and the passenger's

needs and wants, the advantages offered by advanced technology,

and straightforward, understandable, highly competitive tariffs and

fare pricing, all will form key pillars of the marketing strategy. Identification, through careful market research, of unserved or

under-served routes and city pairs in the target market area withsufficient passenger demand to enable high load factors and profitableoperations utilizing the category of aircraft envisaged.

Use of an all-jet fleet of newer, modern, Western-built mix ofregional and national aircraft that offer a high level of comfort,

safety, and fuel and operational efficiency and flexibility, which meetall normal aviation standards, and which offer sufficient, but notexcessive, passenger and cargo capacity on the envisaged routes.

Use of advanced electronic and information technology toreduce staffing and other operational costs expand the potentialmarket base readily capture sales opportunities simplify and speed

passenger, baggage, and cargo handling and enhance customerconvenience and satisfaction.

Additional important, though less critical, keys to assuring the airline'ssuccess include the following:

Identifying, negotiating, and entering into, in the pre-operational stage and early on, beneficial associations,cooperations, and partnerships with larger, more established,

highly regarded carriers both within and beyond the target market

region to offer interline arrangements, through fares, frequent-flyermileage sharing, and convenient hubbing and long-distance onward

connections to passengers. Successful execution of this element of

the business plan is crucial to the overall success and growth of theairline, and must be kept in mind in the organizational plan and

structuring of the airline.

Establishing a high level of operational oversight and qualitycontrol that will ensure that the airline always lives up to its

marketing commitments and fulfills the promise of a high level of

service, customer satisfaction, convenience, and safety, at areasonable, highly competitive fare.

Avoiding the temptation to go head-to-head with establishedcarriers on routes that already are well-served, unless solid evidenceexists of additional, significant pent-up demand, or widespread

customer dissatisfaction with existing services. Maintaining flexibility that enables the airline to always respond and

adapt to changing market conditions and opportunities, without being

erratic, and employing equipment, scheduling, and staffing on a basisthat is sufficient to get the job done properly, efficiently, and at a high

rate of return, without "overkill" or fielding costly excess capacity or,conversely, unduly cancelling scheduled flight operations.


12/71





Identifying, developing, and quickly and cost-effectivelyexploiting opportunities for new markets, new market concepts,

and expanded sales potential.

Supplementing regularly scheduled passenger service with both

regularly scheduled and also special cargo services when and wheresufficient demand exists, and also with seasonal, peak-period, and

other intermittent passenger services on certain key regional,

seasonal, and variable routes where very high load factors can be

predicted despite existing but lower-quality competition, or wherecompetition cannot meet the demand. Larger, longer-range, or

specialized aircraft may be employed on a charter or wet-lease basisto provide these supplemental, but potentially highly profitable,passenger and cargo services.

Looking to combine the core aviation business with ancillarymarketing concepts and activities and ground-based operations

that support, supplement, and complement the aviation elements ofthe business, including such activities as package-, group-, andcharter-travel program offerings value-added sales and customer

services, both land- and Internet-based construction and operation ofenhanced passenger-, baggage-, and cargo-handling facilities andservices and other logical business pursuits both within and outside

the immediate aviation business. Avoiding growth for growth's sake, and instead looking for solid

niche-enlargement opportunities that will allow incremental, but

always profitable, expansion.

Keys to success for the company will include:

1. Maintaining a reputable and untarnished reputation in the community.2. Quality care.

3. Competitive pricing.

4. Flexible hours.

The Success factors will be measured by:

1. Excellence in fulfilling the promise--completely confidential, reliable,trustworthy expertise and information.

2. Developing visibility to generate new business leads.

3. Leveraging from a single pool of expertise into multiple revenuegeneration opportunities: retainer consulting, project consulting,

market research, and market research published reports.

Based on our research, our primary targeted market is Muslim professionals

(ages 25 to 60). With that in mind, we intend to design our facilities toaddress this primary market, while keeping in mind the secondary markets

such a family and businesses.


13/71





We believe that our main keys to success include:

Providing popular and wide-ranging products and services packaged assolutions.

Ample and secure solutions. Seasonal activities for year round needs

The use of state-of-the-art technology Easy access to the company Target high traffic areas for maximum public exposure

Design facilities to service special needs Seasoned management team

We believe that we can minimize certain risk factors by:

Initial capitalization of the company to sustain operations through yearone

Low overhead through the use of multi-skilled employees andcontinual training

Strong customer base through proactive and sustained marketing

Strong community ties and involvement Eliminate sunk costs by out-sourcing

2. Company Summary

The plan for the envisaged new international airline is an outgrowth of themarket research and experience of CI Consultants and associates, garnered over

a nearly three-year period, beginning in mid-2003.

CI Consultants, which is proposing to found the new airline business plan with a

comprehensive feasibility study, is a U.K. corporation registered in the England(Reg No. 4138904) and headquartered in Sheffield, with a far eastern regionalheadquarters located in Kula Lumpur, together with its partner companies and

associations throughout the countries of the OIC and beyond, identifies key

business and profit opportunities and develops projects and strategicpartnerships to implement and benefit from them.

Early on following its establishment in the feasibility study, CIConsultants identified a growth opportunity in the aviation and travel sector in


14/71


15/71





credibility considered an essential element of the overall organizationalplan. CI Consultants is prepared to discuss and negotiate specific ownership

arrangements in detail with prospective investors. Equity requirements arediscussed 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, shallbe considered to be wholly owned subsidiaries of the parent airline operatingcompany, although individual sub-ownership arrangements may be made in

individual cases of such subsidiary companies, particularly in cases wherelocal ownership interests might be required by prevailing law in the countriesin question.

CI Consultants Ltd, the current entity formulating this proposal, is a privatelyheld corporation. As noted in the previous section, a new off-shore holding

company, CI Consultants Holdings Ltd., will be set up, with stock ownershipin Ummah Airways transferring to the new entity. It is anticipated that

subsequently CI Consultants Holdings Ltd. will set up an U.K daughter

company which would then hold a share of the new airline, based on itsrelative 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:

1. 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 the99-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 ofthose two Avro jets, the RJX100 or RJX85.

2. Provision of a sufficient cash reserve to assure timely payment of theleasing or finance payments and operating costs of the aircraft through atleast the first six months of operations.

3. Marketing, advertising, and public relations costs, including costs ofsetting 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 relationsactivities.


16/71





4. Costs associated with recruiting, training, and certifying flight and groundoperational crews.

5. A reserve to cover overall operating costs, aside from aircraft operating

costs, over at least the first six months of operations.

6. 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.


17/71





Start-up

Requirements

Start-up ExpensesLegal and consulting $200,000Route and market study $100,000Office supplies, stationery etc. $10,000Brochures and marketing materials $30,000Design consultants $60,000Corporate insurance $20,000Office rent $50,000Software and systems development $100,000Expensed equipment and off. furniture $150,000Expensed vehicles (8) $100,000Public relations and advertising $80,000Crew, staff training and manuals $60,000Other $30,000Total Start-up Expenses $990,000

Start-up AssetsCash Required $100,000Start-up Inventory $150,000Other Current Assets $50,000Long-term Assets $300,000Total Assets $600,000

Total Requirements $1,590,000


18/71





Start-up FundingStart-up Expenses to Fund $990,000Start-up Assets to Fund $600,000Total Funding Required $1,590,000

AssetsNon-cash Assets from Start-up $500,000Cash Requirements from Start-up $100,000Additional Cash Raised $14,180,000Cash Balance on Starting Date $14,280,000Total Assets $14,780,000

Liabilities and Capital

LiabilitiesCurrent Borrowing $300,000Long-term Liabilities $750,000Accounts Payable (Outstanding Bills) $390,000Other Current Liabilities $30,000Total Liabilities $1,470,000

Capital

Planned InvestmentPrivate investment $10,800,000Government Grants $3,000,000

Other $500,000Additional Investment Requirement $0Total Planned Investment $14,300,000

Loss at Start-up (Start-up Expenses) ($990,000)Total Capital $13,310,000

Total Capital and Liabilities $14,780,000

Total Funding $15,770,000

Start-up


19/71





3. Services

As demonstrated throughout this business plan, it is clear that a strong growthpotential exists for the future, and the airline will gear itself toward sensible,

well-based growth and solid financial and business planning.

The proposed new airline has the potential to become a strong, well-established,and - as the numbers indicate - extremely profitable carrier, starting from now.

4. Market Analysis Summary

Economic growth and the requirements of redevelopment, not to mention theimpending entry of several countries in the region to the OIC Union, are creatingincreased demand for air services between these countries.


20/71





The market combines a variety of elements all of which demand a higher qualityof air service than often currently available:

1. Business travelers requiring convenience, reliability, speed, and schedules built

around business needs.

2. Government and international organization travelers, requiring the same

elements.

3. Personal and leisure travelers from the Asia/ Middle-East/Africa region who

have the money to travel by air and who increasingly demand a higher level ofservice and convenience, but at an economical cost.

4. The "Diaspora," Personal and leisure travelers originally from the OIC regions,but now living and working in sizable numbers in the countries of Middle-east,

Western Europe and USA, with the same demands.

5. Muslim personal and leisure travelers, primarily traveling on the airl ine's

routes for Hajj and Umrah points.

5. Seasonal (primarily summer, with some limited niche markets in the winter

period) holiday travelers, primarily destined for holidays in the Muslim countries,such as pilgrimage and the family packages. Cost, reliability, convenience, anddestination are their concerns.

The proposed new airline will appeal to all these distinct groups by offering better

quality service (and in some cases, offering service where none now exists), at ahigher level of safety, comfort, and convenience, and at reasonable fares, than

currently available. The new airline also will focus on the niche markets identified

in the Service Description section of this plan, enabling it to better serve and tobecome identified as the carrier of choice for those markets.

4.1. Market Segmentation

A complete market analysis and segmentation will require a specificpassenger and destination survey, the cost of which is included in the Start-up Costs for the airline. Preliminary analysis (based on a variety of methods,including observation, interviews with travel- and airline-industry

professionals, economic segmentation, future projections based on marketingplans, and experience with the region and market) for planning purposes,

however, indicates the following approximate market segmentation overall(considerable variations, of course, would be anticipated depending on route,season, and other factors):

Business 15%


21/71





Government and International Organizations 20%

Region-Resident Personal and Leisure Travelers 15%

Diaspora Personal and Leisure Travelers (imgrants) 20%

Western European Personal and Leisure Travelers 5%

Hajj & Umrah Travelers 25%*

* The seasonal Hajj & Umrah (pilgrimage to Saudia and other sacred lands)travel segment of the market to some degree distorts the overall marketpercentages, but might initially be anticipated for two reasons: first, it

compensates for the drop in business and government travel that can beexpected during the peak summer holiday travel season second, asignificant portion of this traffic is likely to be carried on flights employing

specially chartered or wet-leased supplemental aircraft.

The accompanying Market Analysis table and chart below show total potential

markets based on estimated population in each segment, as well as potentialgrowth rates in air travel in the new airline's target market region within

those segments, but do not reflect the anticipated passenger demand from

those markets. Overall make-up of the airline's anticipated passenger loadsby market segment are presented above.


22/71





Market Analysis2006 2007 2008 2009 2010

PotentialCustomers Growth CAGR

Reg ResPers & Leis

20% 130,000,000 156,000,000 187,200,000 224,640,000 269,568,000 20.00%

Business 15% 5,000,000 5,750,000 6,612,500 7,604,375 8,745,031 15.00%Government& IO

10% 1,500,000 1,650,000 1,815,000 1,996,500 2,196,150 10.00%

Hajj &UmrahPers & Leis

10% 10,000,000 11,000,000 12,100,000 13,310,000 14,641,000 10.00%

HolidayTrav(seasonal)

10% 20,000,000 22,000,000 24,200,000 26,620,000 29,282,000 10.00%

W Europe

Pers & Leis5% 260,000,000 273,000,000 286,650,000 300,982,500 316,031,625 5.00%

Other 20% 5,000,000 6,000,000 7,200,000 8,640,000 10,368,000 20.00%Total 10.82% 431,500,000 475,400,000 525,777,500 583,793,375 650,831,806 10.82%

Market Analysis (Pie)


23/71





4.2. Service Business Analysis

The overall airline industry operating between OIC countries consists of four

primary segments:

1. Established mainline Asian carriers (primarily Emirates, Saudia Airlines,

Malaysia Airlines, Etihad, and others) utilizing their eastern routes as spokesconnecting to main hubs in Asia (or Budapest Dubia, Jeddah, Kula Lumpurand Jakarta respectively) and serving to feed traffic to their prime Cross-Asian, intra-European and trans-Atlantic routes (or domestic routes in the

case of larger countries).

2. Smaller, but generally well-established regional airlines primarily from Far

Eastern or the middle eastern states (primarily primarily Emirates, SaudiaAirlines and Malaysia Airlines) that perform essentially the same function as

the mainline carriers or, in the case of carriers like Emirates, link destinationsin East and the west to their own national capitals.

3. Home-based Eastern carriers (such as Suadia Airlines) that often operate

on goodwill, offer a generally added vaue of service (though not always lowerfares), and are often highly regarded, including by travelers from

Southeastern Asia. These airlines connect points within Asia and Middle-east,or they may connect Asian destinations to major destinations in the West.The goodwill exist through association and government level endorsements.

4. There also is a fourth segment worth noting, and that is the fairlysignificant charter market that exists within certain niche or seasonal

markets. This market includes charter flights between third-world ordeveloping countries destinations, such as Africa. These charters are oftenoperated by individual travel agencies or airlines, and often are categorized

by a low level of service and utilization of older, often Soviet-built, aircraft.There also are the vacation charters that operate from Western Europe to

these regions such as Kenya, and the other holiday spots part of the

corporations extended services to the western customers (eg. ThompsonsHolidays).

It is anticipated that the proposed new airline would most closely fit into allgrouping above, but would compete effectively with all four main segments

through a combination of a high level of safety and service, carefully selectedroutes, niche-market service, convenient schedules, reasonable andcompetitive fares, and modern, safe, comfortable aircraft. It also will offerservice on under-served and unserved routes where little or no competition

currently exists.

5. Strategy and Implementation Summary

The airline's strategy has already been adequately explained elsewhere in thisplan: target unserved and under-served markets, seek out niches and unmet


24/71





demand, and offer a higher level of service and a higher standard than thecompetition. The airline will utilize technology to reduce costs and offer better

service and greater convenience to the passenger. In this section we'll examinehow the new airline will go about cutting out its niche through its marketing

strategy.

5.1. Marketing Strategy

The proposed new airline intends to cut out new territory as it goes about

marketing itself. While it will clearly serve the target markets of the OICcountries, it will just as clearly be a different kind of player on the field, and

will seek to be known not only as a Muslim airline, but at the cutting edge of

the aviation business in Asia.

The airline's emphasis on the latest information and electronic technology,

and its stress on comfort, convenience, safety and customer service, will becornerstones on which the marketing strategy will be built.

The airline will utilize a combination of methods to achieve the recognition

that it both desires and needs. A fairly large advertising budget is planned to

buy the space and time to get its name and message in front of the largest

possible group of potential customers that it can. Given the crowded fieldof Eastern regional airlines, it is better to come on like a lion than a lamb, or

you may be lost in the herd.

The airline will also utilize public and government relations to good

advantage to extend and supplement its advertising budget.

There are a number of "hooks," aside simply from its newness, that the

airline can utilize to get the media's attention. The airline is opening up newmarkets, and it also is transcending the technological barrier with the latesttechnology in the business in Muslim countries, or anywhere. It has big

ambitions, but knows that it needs to serve the customer first to realizethem. And it wants to know and serve its markets better than anyone else.

Everything about this airline, from its name to its colors, from the look of itsplanes to its airport kiosks, from its smart but identifiable personalised crew

uniforms to its advertisements and literature should set it apart. And it costslittle more to do things freshly and smartly than the more ordinary way ofdoing things. An organization is new only once in its life, so the airline should

grab that opportunity and get all the attention it can at the outset. And itneeds to have both an adequate budget, as well as an outwardly directedmanagement, to achieve that end. The new airline will become known as

one where all the staff practice the motto, "Those who serve the

people are their leaders!" and "Leading by example".

5.2. Sales Strategy

The airline's sales strategy will flow from its overall concept and marketingapproach. Mass marketing, but with a personal touch utilizing airlineemployees as spokesmen and women to explain that "I have a job to do, and

I do it everyday - for you!", will aim to steer as many people as possible


25/71





either to the airline's website, or to its telephone-based customer-servicerepresentatives. While clients are free to utilize their own travel agents, and

the airline may also want to be accessible through general travel sites suchas Travelocity, the more customers that can be encouraged to use the

airline's own reservations and ticketing services, the less revenue will have tobe shared in the form of expensive commissions.

E-reservations and e-ticketing, combined with e-check-in, make the mostsense for any customers who have online access, and also for the airline

itself. But nonetheless, the airline must not lose sight of the fact that manypeople do not have access to the Internet, or do not care to use it to arrangetheir travel, or perhaps just prefer a more personal touch, and so other

means of access must always be readily available.

The regional and specialized sales and marketing managers, as explained in

the section on Personnel, will concentrate their effort on targeting specificclients that have the potential to offer corporate or group travel (including

contract arrangements), or who are potential air-cargo customers. The airline

will not have the resources to field a large sales team, and so these regionalmanagers must target their efforts, and the airline must effectively utilize its

mass marketing methods as well as the Internet to attract individual

travelers who, once they experience the new airline, hopefully will feel aclose affinity toward it and will become loyal and happy customers.

5.2.1. Sales Forecast

The following chart and table show the projected sales figures forUmmah Airways.


26/71





Sales Monthly


27/71





Sales ForecastFY 2007 FY 2008 FY 2009

SalesScheduled Passenger Revenues $37,653,000 $88,642,656 $139,694,250Scheduled Cargo Revenues $2,282,000 $4,132,800 $5,473,300Special Flights PassengerRevenues

$1,483,200 $2,013,600 $3,502,000

Special Flights Cargo Revenues $34,560 $43,200 $72,000Package trips $79,000 $270,000 $405,000Hajj & Umrah $0 $300,000 $650,000Other $0 $20,000 $60,000Total Sales $41,531,760 $95,422,256 $149,856,550

Direct Cost of Sales FY 2007 FY 2008 FY 2009Scheduled Passenger Revenues $1,995,120 $4,309,920 $5,989,354Scheduled Cargo Revenues $0 $0 $0Special Flights PassengerRevenues

$85,680 $104,340 $167,300

Special Flights Cargo Revenues $0 $5,000 $10,000Package trips $31,600 $108,000 $162,000Hajj and Umrah $0 $150,000 $260,000Other $0 $25,000 $40,000Subtotal Direct Cost of Sales $2,112,400 $4,702,260 $6,628,654

5.3. Milestones

The accompanying chart gives some notional milestones for setting up the

new airline, beginning recruitment, training, and operations, and alsoreaching profitability on a month-to-month basis. The timetable is ambitious,

and it is meant to be. The time for action is now, and once a decision ismade to go forward there will be no time, or resources, to waste. Of course,

once a final plan, team, organization, and financing is in place, a more

refined timetable will be established and specific duties delegated toresponsible team members.


28/71





Milestones

Milestone Start Date End Date Budget Manager DepartmentEstablish a firm financial plan 1/5/2006 1/5/2006 $6,000 SyedMasrur

CI Consultants

Identify an anchor investor 15/5/2006 15/5/2006 $2,000 MarlinaWong

CI Consultants

Commence leasingnegotiations

1/6/2006 1/6/2006 $6,000 MarlinaWong

CI Consultants

Set up new company 5/6/2006 5/6/2006 $1,000 SyedMasrur

CI Consultants

Begin negotiating for offices 5/6/2006 5/6/2006 $500 MarlinaWong

CI Consultants

Select core mngmnt team 10/6/2006 10/6/2006 $500 SyedMasrur

CI Consultants

Commence co. operations 15/6/2006 15/6/2006 $1,500 SyedMasrur

CI Consultants

Make initial aircraft lease pymnt 30/6/2006 30/6/2006 $3,000 MarlinaWong

CI Consultants

Begin hiring key personnel 1/7/2006 1/7/2006 $10,000 SyedMasrur

CI Consultants

Begin crew training 1/8/2006 1/8/2006 $50,000 Out-Sourced

Out-Sourced

Take delivery of aircraft 15/8/2006 15/8/2006 $30,000 MarlinaWong

CI Consultants

Begin inaugural flights 5/9/2006 5/9/2006 $15,000 MarlinaWong

CI Consultants

Operation turns profitable 1/1/2007 1/1/2007 $60,000 SyedMasrur

CI Consultants

Take delivery of fourth aircraft 15/4/2007 15/4/2007 $10,000 MarlinaWong

CI Consultants

Totals $195,500

6. Management Summary

Ummah Airways is putting together what it expects will be a solid managementteam combining extensive aviation industry experience with significantexperience in finance, accountancy, and management. An initial project team is

in place. As more advanced planning continues on the airline and investment is inplace, the full core management team will be finalized and its members broughton-board.

More than in most businesses, management is critically important to an airline,and especially an airline envisaged as this one is. To reiterate a point made earlyin this plan, the right management team is seen as the first and foremost key to

the success of the overall venture. We endeavor to have such a team.


29/71





6.1. Personnel Plan

Along with aircraft acquisition and operating costs, personnel costs represent

one of the two largest cost factors faced by the new airline. Additionally, the

airline's personnel will largely determine the success of the venture.

Therefore, it is crucially important to develop and implement an effectivepersonnel operations and compensation plan.

The Personnel Plan for the new airline reflects the stress on the use oftechnology to reduce staffing and costs, and the concomitant stress on

customer service. Consequently, staffing is heavier (with individual functiondirectors) in such areas as information technology and oversight of suchfunctions as human resources, flight safety, flight maintenance, and ground

operations than might otherwise be the case with a smaller regional airline.On the other hand, functions such as sales and marketing, bookkeeping andfinance, and personnel management are reduced, with the assumption being

that the effective use of advanced, cost-efficient informational technologiesin these areas will make up for the reduced staffing, resulting in significantcost savings while providing superior results at less effort.

It is assumed, based on the experience of other regional airlines in Europe,

that something on the order of 60-70 percent of all reservations andbookings will be made electronically, and such passengers will be ticketed

and checked-in electronically using special electronic check-in kiosks such asthose employed successfully by the U.S. carrier Continental Airlines, leadingto major cost savings in areas such as sales, reservations, and ground check-

in staffing, as well as in commissions paid out to outside travel agencies.

Staffing in the sales and marketing area is aimed at targeted customer

contact to generate corporate and group business, rather than individual

sales, and to develop special marketing programs designed to generatesignificant increases in both passenger and cargo business. Responsibilities

will be divided along both regional and functional lines, with three regional

sales and marketing managers (notionally responsible for Western Europeand USA, Middle-East, and Asia & Africa) and two targeted, global sales and

marketing managers (one responsible for special sales aimed specifically atthe peak traffic/special flights/holiday travel/charters market, the other forair cargo sales), reporting to one director of sales and marketing. Additional

personnel will answer customer inquiries and take reservations on thetelephone at central headquarters, with phone calls forwarded to them fromthroughout the airline market area, and also will respond to e-mail/website-

forwarded inquiries.

All key functional positions throughout the airline, including in the sales and

marketing area, are backed up by professional support personnel, most ofwhom will be cross-trained in different areas, so there will always becoverage of all key functional areas as well as back-up support when work

demand requires it.


30/71





In the ground-service area, the airline will utilize its own personnel to theextent practical in order to assure a more consistently positive experience for

the passenger. All major destinations will be staffed by airline personnel,while at some smaller and more remote destinations, or where local practice

or requirement dictates it, ground handling and service may be contractedout to local service providers.

Even in such cases, efforts will be made to utilize spare flight crew personnelto assist with oversight of ground services and respond to customer needs,

again stressing the airline's focus on cross-training. Finally, as revenues andpassenger demand increases, the Personnel Plan can be expanded to provideadditional ground service personnel at key locations and to expand the

number of locations where the airline provides its own ground-servicestaffing.

Again through the use of e-ticketing, e-check-in, and e-baggage tracking,ground-service staffing requirement will be very light compared with a more

traditional organization. Particularly given the fairly light flight scheduling at

most locations and the convenient size of the projected aircraft, check-insshould be quick and easy, with little waiting in line or fighting with crowds -

major marketing advantages as well.

Given the airline's motto, "We have a job to do, and we do it every day - foryou!", cross-training and cross-functioning will be core elements of the new

airline's personnel-management approach. Everyone will be inculcated withthe spirit that she or he is personally responsible for the passenger and theclient having a positive experience when in contact with the new airline.

Everyone, from the president on down, will be familiar with (and participatein) virtually every aspect of the work and customer-service process (a

method employed successfully by the former PEOPLExpress and other

"people-oriented" carriers and other successful service businesses). While noone will expect (nor want) a receptionist to fly the airplane, nor a sales

manager to perform engine repairs, nor for that matter a pilot or flightattendant to tend to the bookkeeping, common customer-service functions

like check-in, gate monitoring, baggage handling, and answering customer

inquiries can and should be performed from time to time by any and all

available personnel. This process also requires, however, that personnelreceive actual training and experience in these various areas, so they do not

become more of a hindrance than a help.

Even the airline's uniforms will project an image of Muslimprofessional people doing extraordinary work to please and make thepassenger feel comfortable. There will be a stress on informality, utilizing"Islamic and practical uniform" uniforms to again stress the airline's work

ethic and customer-service orientation, making both employee and client feelmore at home. This approach also is in keeping with today's trend towardgreater informality and equality in the work place, and away from the stilted

authoritarian way of the past.

Finally, the proposed hierarchy and salary structure is designed to be both

economical as well as sufficiently attractive and competitive to enable theairline to recruit good, qualified personnel. At the same time, in keeping with


31/71





the overall ambience of the airline, it also stresses relative equality andfairness in its structure. A good benefits package, consistent with, and

perhaps better than, available elsewhere in the industry or related industries,and the more abstract benefits of being part of a well-respected, well-

functioning, professional, winning team, also will be elements attracting goodemployees to the new airline and keeping them on the team.

There are only about 10 pay grades provided for in the salary plan for theentire airline, including executive-level salaries, with jobs that may be

markedly different in terms of function, but similar in terms of experiencerequired, difficulty, and importance, sharing the same pay grade.

Most subordinate grades within given functions are based on a setpercentage of higher-level salaries within the same general function. Inaddition, the plan for pay increases is straightforward and fosters clarity and

understanding, rather than anxiety and unhealthy competition, amongemployees.

Everyone, across the board, from top to bottom in the organization, who

performs satisfactorily will receive a 10 percent pay increase at the end ofthe first year of service (deemed to be the most difficult), and a 5 percent

pay increase at the end of each subsequent year of service (withadjustments made only on the basis of specific across-the-board or localizedissues like inflation, currency devaluations, and so forth).

Unsatisfactory performance merits only one of two remedies: Dismissal, or

placement on a limited probationary regime to determine if problems can beremedied and the employee brought up to standard within a given time limit.Otherwise, there is no room, and no cause, for protracted anxiety on the partof the satisfactory employee concerning such issues as pay raises and related

issues. The only other issue is the possibility of promotion to a higherposition within the organization, and the airline will endeavor to promote itsbest from within whenever possible.

One other issue worth considering, though it is not included in the current

plan, is the possibility of offering a bonus to all employees, as a specificpercentage of their pay, when the airline shows a particularly profitable year

to encourage additional "pride of ownership" and esprit de corps.

A summary Personnel Plan for the first three years of operations follows in

the table below, and a detailed monthly plan for the initial year is provided inthe appendix.


32/71





Personnel PlanFY 2007 FY 2008 FY 2009

Captains (3 per aircraft) $585,000 $1,018,500 $1,448,175First Officers (3 per aircraft) $468,000 $814,800 $1,158,540Flight Attendants (9 per aircraft) $526,500 $916,650 $1,303,360Other $59,062 $557,794 $856,370Other $0 $0 $0Director of Sales & Marketing $60,000 $66,000 $69,300Regional Sales & Marketing Mgrs (3) $132,000 $157,200 $165,720Special Sales & Marketing Manager $40,000 $52,400 $55,240Air Cargo Sales & Marketing Manager $40,000 $52,400 $55,240Sales & Marketing Assistants (6) $97,500 $117,600 $124,515Cust. Service/Reservations Assts (12) $108,000 $141,000 $149,700Other $0 $0 $0President & CEO $180,000 $198,000 $207,900Vice President & General Manager $144,000 $158,400 $166,320Vice President Commercial $126,000 $115,500 $121,275Vice President Finance $126,000 $115,500 $121,275Vice President Operations $126,000 $115,500 $121,275Other $0 $0 $0Director of Communications $54,000 $59,400 $62,370Director of Human Resources $54,000 $59,400 $62,370Director of Flight Safety $54,000 $59,400 $62,370Director of Flight Maintenance $54,000 $59,400 $62,370Director of Ground Operations $54,000 $59,400 $62,370Director of Information Systems $54,000 $59,400 $62,370Station Managers (1 per major station) $140,000 $374,000 $404,200Ground Service Pers (3 per maj station) $315,000 $837,925 $909,450Maintenance Engineers (8) $200,000 $260,000 $275,200

Bookkeeping & Finance Personnel (3) $64,000 $78,400 $81,920Information Systems Personnel (5) $120,000 $132,000 $138,600Professional Support Personnel (3) $68,000 $78,800 $82,960Secretarial/Admin Asst Personnel (3) $51,000 $59,100 $62,220Customer Relations Personnel (2) $40,000 $52,000 $55,040Other $0 $0 $0Total People 30 50 70

Total Payroll $4,140,062 $6,825,869 $8,508,015

7. Financial Plan


33/71


34/71





premises on which the financials are based. It also should be noted that theaircraft costing section is based on a segment approach, with aircraft acquisition,

operating and crew costs, and some direct sales costs, as well as revenues,apportioned on a "segment" basis. Note that some elements that go into the

segment costing are based on hourly costs, extrapolated to the segment length,and others are strictly on a "per segment" basis. The number of aircraft

employed are stated at the top, on a "full-time equivalent" (FTE) basis, allowing

for variance in fleet size during the year as new aircraft are brought into the

fleet.

7.1. Important Assumptions

In addition to the general financial and business assumptions presented inthe following table, the key parameters presented on the next page also

were included as Operating Assumptions in formulating the financial portions

of this business plan.

Every effort was made to be realistic in these Assumptions, and if anything

they were formulated conservatively, particularly in calculating initial loadfactors and revenue yields which, in practice, should be considerably higherthan offered here. Additionally, passenger and cargo fares were considered

to be flat over the entire period covered by this plan to compensate for thepossibility that additional competition could force fares to remain relatively

constant over the period. However, the objective of this exercise was to showthat the proposed operation will be profitable even with much lower revenuesthan would normally be expected, and the numbers do in fact confirm a

profitable outcome.

Additionally, expected net revenues from offering peak-demand specialflights also are calculated. They are set apart separately from the scheduled-service revenues to show that both types of service - and particularly the

more important scheduled service - are viable and the airline will beprofitable even without these additional revenues.

The assumptions utilized here are based on dry leasing new Avro RJ100s at a

high level of outfitting and with necessary spares included. A separate set offigures is provided following the Operating Assumptions section which gives a

cost comparison should the decision be made to purchase the aircraft new,utilizing ECGD export financing for 85 percent of the purchase price of theaircraft.

OperatingFY 2003 FY 2004 FY 2005


35/71





Assumptions

Aircraft in

service (FTE)2.83 5.33 7.33

Aircraft in

service at end

of FY

5 7 9

Cost per

aircraft if

purchased

$26,000,00

0

$26,000,00

0

$26,000,000

Annual leasingcost per aircraft

$3,120,000 $3,120,000 $3,120,000

Insurance rate

% of aircraft

cost

1.5% 1.5% 1.5%

Annual

insurance cost

per aircraft

$390,000 $390,000 $390,000

Captain's

Annual Salary$60,000 $66,000 $69,300

First Officer'sSalary % of

Captain

80% 80% 80%

Flight

Attendant'sSalary % ofCapt

30% 30% 30%

Salary Burdenas percent of

20% 20% 20%


36/71





Salary

Crew membersper flight

Flght-2/Cab-3

Flght-2/Cab-3

Flght-2/Cab-3

Crewcontingents per

aircraft

3 3 3

Total crew per

aircraft (min.)

Flght-

6/Cab-9

Flght-

6/Cab-9

Flght-6/Cab-

9

FlightHours/Month

for Crew

80 80 80

Average TotalSalary

Cost/Hour

$202.50 $222.75 $233.89

Total aircraft

maint.cost/hour

$800 $800 $800

Fuel burn

kg/hour2,100 2,100 2,100

Fuel cost per kg $.35 $.35 $.35

Handling

cost/segment(ave.)

$360 $400 $440

ATCcost/segment(ave.)

$120 $130 $140


37/71





Land/depart

charge per seg.(ave.)

$150 $180 $210

Parking

fee/aircraft/night

$150 $170 $190

In-flight

items/pax --Value

$6 $7 $8

In-flightitems/pax --Premium

$8 $9 $10

Percent/revenu

escommissionable

40% 35% 30%

Commissionpayable

9% 9% 9%

Ave.

reservationscost/pax/seg

$2 $2 $2

Averagesegment

(hours)

1.25 1.30 1.35

Annualsegments

6,520 11,808 15,638

Ave. total

capacity/segment (pax)

99 99 99


38/71





Ave. Annual

Load Factor(%)

50% 65% 75%

Ave. split

Value/Premier79/20 79/20 79/20

Average fareper Value

pax/seg.

$110 $110 $110

Average fare

per Premierpax/seg.

$143 $143 $143

Cargo per

segment (kgs)700 700 700

Ave. cargo

tariff per

segment/kg.

$.50 $.50 $.50

Ave. cargo

tariff per

segment

$350 $350 $350

Average paxrevenues/segment

$5,775 $7,507 $8,933

Average cargo

revenues/seg.$350 $350 $350

Total ave.revenues/segm

ent

$6,125 $7,857 $9,283


39/71





Total ave.

costs/segment

$4,972 $5,449 $5,741

Total ave. netyield/segment

$1,153 $2,408 $3,542

Totalrevenues/year

$39,935,000

$92,775,456

$145,167,550

Total operating

costs/year

$32,417,44

0

$64,341,79

2 $89,777,758

Total net oper.

revenues/year$7,517,560

$28,433,66

4$55,389,792

Peak-demand special flights on key regional/seasonal/intermittentroutes

The figures provided in this section represent a "best estimate" calculation of

the costs and revenues expected to be derived from special peak-demandflights on key regional, seasonal, and intermittent routes. These figures,

which also were approached conservatively, though realistically, supplementthe figures derived from the assumptions concerning regular scheduledservice.

The following assumptions were applied for these special flights:

FY 2003 FY 2004 FY 2005

Flight Segments 48 60 100

Average length

of segment (hrs)4.0 4.0 4.0

Ave. wet-leasing

cost ofaircraft/hr.

$4,000 $4,000 $4,000


40/71





Ave. cost per

flight segment

$16,000 $16,000 $16,000

Handlingcost/segment

(ave.)

$360 $400 $440

ATCcost/segment

(ave.)

$120 $130 $140

Land/depart

charge per seg.(ave.)

$150 $180 $210

Parking

fee/aircraft/night$150 $170 $190

In-flight

items/pax --

Value

$12 $14 $16

In-flight

items/pax --

Premium

$16 $18 $20

Percent/revenuescommissionable

50% 45% 40%

Commission

payable10% 10% 10%

Ave. reservationscost/pax/seg

$2 $2 $2

Ave. totalcapacity/segmen

160 160 160


41/71





t (pax)

Ave. annual loadfactor (%)

75% 80% 85%

Ave. splitValue/Premier

90/10 90/10 90/10

Average fare perValue pax/seg

$250 $250 $250

Average fare perPremier pax/seg

$325 $325 $325

Cargo per

segment (kgs)600 600 600

Ave. cargo tariff

per segment/kg.$1.20 $1.20 $1.20

Ave. cargo tariffper segment

$720 $720 $720

Average paxrevenues/segme

nt

$30,900 $33,560 $35,020

Average cargo

revenues/segm.

$720 $720 $720

Total ave.

revenues/segment

$31,620 $34,280 $35,740

Total ave.costs/segment

$20,053 $20,462 $20,883


42/71





Total ave. net

yield/segment

$11,567 $13,818 $14,857

Totalrevenues/year

$1,517,760

$2,056,800

$3,574,000

Total costs/year $962,544$1,227,720

$2,088,300

Total net

revenues/year $555,216 $829,080

$1,485,70

0

Aircraft cost on a purchase basis

If a decision is made to purchase the aircraft for the new airline rather than

dry leasing them, then a considerably larger cash outlay will be required,

even with export financing guarantees from the ECGD. For instance, here is anotional cost projection based on five new Avro RJ100s, well fitted with

passenger amenities as well as the most up-to-date communication andnavigation gear:

Cost per aircraft $26,000,000

Total cost, five aircraft $130,000,000

Financing to be provided byExport Credit Guarantee

Department of the UK

85%

Interest rate 7.5%

Insurance1.5% on value of

the aircraft

Cash outlay required for

down payment

15%, or

$19,500,000


43/71


44/71





Based on these figures, comparative per-segment costs in the followingyears are shown:

FY 2003 FY 2004 FY 2005

Aircraft inservice

(FTE)

5 5 5

Segments

per year per

aircraft

2,303 2,215 2,133

Total

segments11,519 11,076 10,665

Total cost

for downpayment

$19,500,00 $0 $0

Total costfor

insuranceper year

$1,950,000 $1,950,000 $1,950,000

Total cost

forpayments/year

$12,000,000 $12,000,000 $12,000,000

Total rawcost peryear

$33,450,000 $13,950,000 $13,950,000

Total rawcost per

segment

$2,904 $1,259 $1,308


45/71





Cost per

segment w/depreciation

$4,032 $2,433 $2,527

Cost/seg/yr

w/ depr &recov value

$3,416 $1,846 $1,917

Comparative

cost for fiveaircraft dry

leased w/insurance/year

$17,550,000 $17,550,000 $17,550,000

Cost persegment asabove fordry-leased

aircraft

$1,524 $1,585 $1,646

This comparison obviously does not examine the possible tax consequencesand other factors in considering the comparative cost of dry leasing versus

purchasing, but it does demonstrate that lower short-range acquisition costs

result in an immediate lower segment cost for the aircraft as well as lowerup-front cash requirements.

General AssumptionsFY 2007 FY 2008 FY 2009

Plan Month 1 2 3Current Interest Rate 9.00% 9.00% 9.00%Long-term Interest Rate 7.50% 7.50% 7.50%

Tax Rate 34.58% 35.00% 34.58%Other 0 0 0


46/71





7.2. Break-even Analysis

As the accompanying chart demonstrates, the break-even point comes at arelatively modest monthly passenger load, under 22,000 passengers permonth, which represents an average passenger load factor of only about 40

percent with a fleet of three RJ100s operating about six segments each per

day. It is anticipated that this load will be reached fairly early in the newairline's life and, in practice, much higher loads - into the 65 - 75 percent

range during the first year of operations - can be anticipated based on the

overall business and marketing plans for the airline.

Break-even Analysis

7.3. Projected Profit and Loss

As the accompanying Profit and Loss chart clearly demonstrates, theproposed airline has the potential to achieve profitability, on a month-by-

Break-even Analysis

Monthly Revenue Break-even $506,878

Assumptions:Average Percent Variable Cost 5%Estimated Monthly Fixed Cost $481,097


47/71





month basis, by as early as the third month of operations, and to end thefirst year comfortably in the black - an indication of the strength of the

market and the marketing plan for the venture, given the conservativenature with which the numbers were calculated.

All cost items are covered in this Profit and Loss chart and, while the

organization and salary and cost items presented are not lavish, they bothcover the needed functions adequately and also allow some margin formovement. Given the business plan's stress on utilizing technology to control

staffing and related support and marketing costs - big problems for manyairlines - the plan presented here should enable this airline to accomplish farmore with less, and simultaneously to present less of a "command-and-

control" problem to the management team.

All flight and cabin crew salaries are included in the line designated

"Operational" in the top section of the chart, with all non-salary aircraftoperational costs included in the same section. All revenues, which derive

almost entirely from airline operations (both scheduled and special flights)

are also provided in the top area, along with a deduction for the direct cost ofsales, such as reservations fees and commissions (an area that hopefully can

be reduced even further through e-reservations and e-ticketing, though it

probably cannot be eliminated altogether. Clearly the affect of these chargeson the bottom line can be seen in this chart, even figuring that 60 percent

and more of airline clients will utilize electronic means for ticketing). The rest

of the chart is broken down by functional area, outside of direct flightoperations (which also include aircraft acquisition costs).

Finally, it is worth noting that a net operating profit of more than 2 millionUSD (on an equity investment of under 11 million USD) is projected for the

first year, with a net profit of more than 3 percent. Profits in the second and

third years show substantial growth, with a combined net profit in excess of40 million USD projected for the third and fourth years, even given the

limited size of the fleet (up to nine mid-sized jets by the end of the third yearof operations) projected for the airline.


48/71





Pro Forma Profit and LossFY 2007 FY 2008 FY 2009

Total Income $41,531,760 $95,422,256 $149,856,550Cost of Goods Sold $2,112,400 $4,702,260 $6,628,654

Gross Profit $39,419,360 $90,719,996 $143,227,896Gross Profit % 94.91% 95.07% 95.58%

ExpensesPayroll $4,140,062 $6,825,869 $8,508,015Sales and Marketing and Other Expenses $39,793 $45,000 $50,000Depreciation $71,757 $110,000 $120,000Leased Equipment $24,000 $30,000 $36,000Telephone $32,600 $48,900 $73,350Utilities $15,300 $18,000 $22,000Insurance (Non-Aviation) $10,000 $30,000 $35,000Headquarters Office Rent $220,000 $220,000 $242,000Field Office Rental $98,000 $180,000 $198,000Vehicle Operating Expenses $8,640 $8,640 $9,500Computer Hardware/Software Devlpmnt $56,000 $80,000 $120,000Cockpit/Cabin Crew Training/Simulator $185,000 $150,000 $165,000Crew/Staff Uniforms & Grooming $44,000 $88,000 $95,000Payroll Taxes $828,012 $1,365,174 $1,701,603Other General and Administrative Expenses $0 $0 $0

------------ ------------ ------------Total Expense $5,773,164 $9,199,583 $11,375,468

Gross Profit $33,646,196 $81,520,413 $131,852,428

Other IncomeInterest Income $13,264 $15,000 $20,000Extraordinary Items $20,000 $25,000 $30,000Total Other Income $33,264 $40,000 $50,000

Other ExpenseAccount Name $30,000 $33,000 $37,000Extraordinary Items $10,000 $16,000 $20,000Total Other Expense $40,000 $49,000 $57,000

Net Other Income ($6,736) ($9,000) ($7,000)Net Profit $33,639,460 $81,409,788 $131,705,178

Net Profit/Sales 81.00% 85.32% 87.89%

7.4. Projected Cash Flow


49/71





Cash flow is probably the factor that makes or breaks more businesses thanany other, and it is even more critical to consider in a venture as capital-

intensive as is an airline.

As the accompanying chart and table readily show, with careful planning andcontrol of resources and expenses, cash flow crises should not pose a threat

to the new airline. Even allowing for a 2 million USD up front deposit onaircraft leases (which would be charged against operational expenses as theairline begins flying) and other significant up-front costs, as shown in the

accompanying illustrations, at no time does cash on-hand become a majorissue during the first year, and even less so in the follow-on years.

While an investment of about 11 million USD is modest by regional airlinestandards, the financial and business planning done here should indicate thatthe venture is quite feasible in the market. Nevertheless, it would offer an

extra cushion of safety to arrange for availability of additional credit facilitiesor cash reserves, or equity investment, to be called up only as needed in the

short-run should cash demands out strap expectations, immediate revenues,

and on-hand cash on a temporary basis.

It should be noted that a 30-day accounts payable repayment schedule is

included in the planning for the financials. However, a majority of theairline's revenues will come from online sales, with payment by credit cardsand generally rapid settlement, and also from ticket sales from travel

agencies that are required to make payments usually in half the accountspayable schedule used in the assumptions for this plan. Given the largefluxes of cash, even these payment methods allow for significant amounts of

funds to be receivable at any given time but, again, the financial calculationsindicate that this should pose no significant problem to the airline's financial

management or cash liquidity.


50/71





Cash


51/71





Pro Forma Cash FlowFY 2007 FY 2008 FY 2009

Cash Received

Cash from OperationsCash Sales $41,531,760 $95,422,256 $149,856,550Subtotal Cash from Operations $41,531,760 $95,422,256 $149,856,550

Additional Cash ReceivedNon Operating (Other) Income $33,264 $40,000 $50,000Sales Tax, VAT, HST/GST Received $0 $0 $0New Current Borrowing $250,000 $300,000 $350,000New Other Liabilities (interest-free) $200,000 $250,000 $300,000New Long-term Liabilities $500,000 $600,000 $800,000Sales of Other Current Assets $150,000 $200,000 $250,000Sales of Long-term Assets $150,000 $200,000 $250,000New Investment Received $5,000,000 $8,000,000 $10,000,000Subtotal Cash Received $47,815,024 $105,012,256 $161,856,550

Expenditures FY 2007 FY 2008 FY 2009

Expenditures from OperationsCash spending $4,140,062 $6,825,869 $8,508,015Bill Payments $3,806,479 $4,332,820 $10,714,786Subtotal Spent on Operations $7,946,541 $11,158,689 $19,222,801

Additional Cash SpentNon Operating (Other) Expense $40,000 $49,000 $57,000Sales Tax, VAT, HST/GST Paid Out $265,285 $335,865 $456,789

Principal Repayment of Current Borrowing $188,100 $205,200 $205,200Other Liabilities Principal Repayment $142,000 $220,000 $310,000Long-term Liabilities Principal Repayment $120,000 $150,000 $220,000Purchase Other Current Assets $40,000 $60,000 $80,000Purchase Long-term Assets $500,000 $650,000 $750,000Dividends $650,000 $1,000,000 $1,500,000Subtotal Cash Spent $9,891,926 $13,828,754 $22,801,790

Net Cash Flow $37,923,098 $91,183,502 $139,054,760Cash Balance $52,203,098 $143,386,599 $282,441,360

7.5. Projected Balance Sheet


52/71





As the accompanying Balance Sheet indicates, the proposed venture willmaintain a healthy position, even with limited hard assets other than cash

and leased aircraft, and the company's net worth is projected to growbeginning from the end of the first year from about 11 million USD to 25

million USD by the end of the second year, and to more than 55 millionUSD by the end of the third year, with continued growth at about the same

remarkable rate beyond that.


53/71





Pro Forma Balance SheetFY 2007 FY 2008 FY 2009

Assets

Current AssetsCash $52,203,098 $143,386,599 $282,441,360Inventory $364,453 $811,283 $1,143,644Other Current Assets ($60,000) ($200,000) ($370,000)Total Current Assets $52,507,551 $143,997,882 $283,215,004

Long-term AssetsLong-term Assets $650,000 $1,100,000 $1,600,000Accumulated Depreciation $71,757 $181,757 $301,757Total Long-term Assets $578,243 $918,243 $1,298,243Total Assets $53,085,794 $144,916,125 $284,513,247

Liabilities and Capital FY 2007 FY 2008 FY 2009

Current LiabilitiesAccounts Payable $471,719 $3,653,327 $2,787,260Current Borrowing $361,900 $456,700 $601,500Other Current Liabilities ($177,285) ($483,150) ($949,939)Subtotal Current Liabilities $656,334 $3,626,877 $2,438,820

Long-term Liabilities $1,130,000 $1,580,000 $2,160,000Total Liabilities $1,786,334 $5,206,877 $4,598,820

Paid-in Capital $19,300,000 $27,300,000 $37,300,000Retained Earnings ($1,640,000) $30,999,460 $110,909,248

Earnings $33,639,460 $81,409,788 $131,705,178Total Capital $51,299,460 $139,709,248 $279,914,426Total Liabilities and Capital $53,085,794 $144,916,125 $284,513,247

Net Worth $51,299,460 $139,709,248 $279,914,426

7.6. Business Ratios


54/71





The accompanying table offers key business ratios, based on the financialplan for the proposed airline. It is worth noting that even in the first year of

operations, and with conservative planning, a profit, albeit relatively modest,is feasible - something unusual in the airline business. Even in the first year,

the investor can expect a return on equity about 11 percent, and thensignificant cash growth going into the second and third years, with ROE

figures upwards of 50 percent on a cumulative basis.

Care must be taken to control costs, to plan routes, schedules, and capacities

carefully, and to take on high-cost items with caution and with an eye totiming. But the basic elements for a solid business are evident in this plan'sfinancials. Prudent, experienced management will regard these caveats

carefully and, in so doing, will see the airline through its initial challenginglaunch into a period where growth will be both solid and sustained. A long-

term (five-year) financial plan is included among the appendix.


55/71





Ratio AnalysisFY 2007 FY 2008 FY 2009 Industry Profile

Sales Growth 0.00% 129.76% 57.05% 3.64%

Percent of Total AssetsInventory 0.69% 0.56% 0.40% 3.02%Other Current Assets -0.11% -0.14% -0.13% 37.42%Total Current Assets 98.91% 99.37% 99.54% 64.74%Long-term Assets 1.09% 0.63% 0.46% 35.26%Total Assets 100.00% 100.00% 100.00% 100.00%

Current Liabilities 1.24% 2.50% 0.86% 26.76%Long-term Liabilities 2.13% 1.09% 0.76% 18.20%Total Liabilities 3.36% 3.59% 1.62% 44.96%Net Worth 96.64% 96.41% 98.38% 55.04%

Percent of SalesSales 100.00% 100.00% 100.00% 100.00%Gross Margin 94.91% 95.07% 95.58% 53.83%Selling, General &Administrative Expenses

15.98% 16.38% 17.88% 35.22%

Advertising Expenses 3.61% 2.10% 2.01% 0.41%Profit Before Interest and Taxes 81.01% 85.43% 87.99% 0.83%

Main RatiosCurrent 80.00 39.70 116.13 2.06Quick 79.45 39.48 115.66 1.36Total Debt to Total Assets 3.36% 3.59% 1.62% 54.76%Pre-tax Return on Net Worth 65.59% 58.28% 47.05% 1.19%

Pre-tax Return on Assets 63.38% 56.18% 46.29% 2.64%

Additional Ratios FY 2007 FY 2008 FY 2009Net Profit Margin 81.00% 85.32% 87.89% n.aReturn on Equity 65.57% 58.27% 47.05% n.a

Activity RatiosInventory Turnover 9.02 8.00 6.78 n.aAccounts Payable Turnover 8.24 2.06 3.53 n.aPayment Days 30 100 119 n.aTotal Asset Turnover 0.78 0.66 0.53 n.a

Debt Ratios

Debt to Net Worth 0.03 0.04 0.02 n.aCurrent Liab. to Liab. 0.37 0.70 0.53 n.aLiquidity RatiosNet Working Capital $51,851,217 $140,371,005 $280,776,183 n.aInterest Coverage 0.00 802.17 940.12 n.a

Additional RatiosAssets to Sales 1.28 1.52 1.90 n.aCurrent Debt/Total Assets 1% 3% 1% n.aAcid Test 79.45 39.48 115.66 n.aSales/Net Worth 0.81 0.68 0.54 n.aDividend Payout 0.02 0.01 0.01 n.a


56/71






57/71





ummah airways - business plan

Documents