Providing Jet for Jetsetters

Newsday
May 8, 2006

In the 1987 movie “Wall Street” an ambitious young stockbroker named Bud Fox cold-calls his way to smartly tailored clothes, a lavish apartment on the Upper East Side and a relationship with a glamorous interior decorator, played by Daryl Hannah. Fox, played by Charlie Sheen, winds up as an executive of Blue Star Airlines before his illegal stock manipulation with a corporate raider lands him in handcuffs. In real life, two stockbrokers from Long Island ride the 1990s tech stock boom to wealth, apartments on the East Side, houses in the Hamptons and private jet trips to Las Vegas. Their brokerage business gets charged by securities regulators, and they shut it down as the market tanks. And they wind up running an aviation business called – what else ? – Blue Star Jets.

The relationship to “Wall Street” is no coincidence, Ricky Sitomer and Todd Rome, both 37, picked the Blue Star name because, Rome says, "it's our generation's favorite movie", and felt it would have instant recognition. There are some differences between the fictional Blue Star and the real Blue Star. The most significant: Blue Star Jets doesn't own any jets. The Manhattan-based company sells people hourly access to 4,000 private jets owned by other people. And it's one of the players in a booming private aviation market that's being driven by a growing number of wealthy people who want to travel without enduring airport security lines and commercial flight delays. The flexibility that you can get from a private jet comes at a steep price - Blue Star says a "heavy jet" that can fly up to 14 passengers from New York to Los Angeles will cost $29,000 one way, with a flight attendant. If you do the math and figure the difference between flying private and booking a seat on a major airline, you realize that private aviation isn’t for the most of us. But in the rarified atmosphere of private jet users, Blue Star’s pitch is that it can offer the experience at a relatively cut-rate price.

The slogan on the company’s telephone hold music is. “Fly like you own it. Pay like you don’t.” Sitomer and Rome took their business model from Wall Street, hiring “jet brokers” on commission to sell clients “SkyCards” in denominations starting at $50,000. When a client wants to travel, a sales rep will find jet owners and charter companies willing to make the trip for hourly charges that start at $2,200 for a “light jet” to $4,500 for a “heavy jet”. The company promises to put you in an aircraft within four hours. They say the business is profitable and growing, selling more than $100 million worth of flight time a year. Of that, Sitomer says, Blue Star gets about 20 percent, and the sales reps get commissions amounting to 30 percent to 40 percent of the company’s share.

In an interview, Sitomer and Rome take turns telling the company’s story and making its sales pitch. Sitomer, tanned from a trip to the Turks & Caicos Islands in the Caribbean, grew up in Dix Hills and studied finance at Emory University. Rome, in a pinstriped suit, is a relentless salesman who grew up in Bellmore and went to the University of Maryland. “We’re the largest air charter broker in the world," Rome says, a claim that is also made by a British company, Air Partner. "We invented it, we created it, we dominate and control it." At one point, he refers to their competitor as "a pimple." Sitomer and Rome have had a lot of experience with selling, starting in 1990 in the securities business with Stratton Oakmont, a brokerage that was shut by regulators for fraud after they left. "We were making about $200 per week, we couldn't even go to lunch with the rest of the fellows," Rome says. "When we met at 11 o'clock at night, still cold-calling, we became friends."

In 1994 they opened their own firm, Millennium Securities. In 2001, the firm settled a case brought by the National Association of Securities Dealers accusing it of making $5 million in illegal profits from a 1996 initial public offering. The firm agreed to give back more than $1 million, while not admitting or denying wrongdoing. Sitomer was the target of 33 complaints from clients, who recouped more than $1.5 million from the firm, and was barred from the securities industry.

In 2003, Newsday reporter Susan Harrington interviewed a Detroit man who said he was a former client of Sitomer and lost $578,000 in unauthorized trades before filing a complaint and getting about $150,000 in a settlement. "These are minor points in what was a very successful career for us," Sitomer says. He adds the settlements were mostly covered by insurance and his company did not admit wrongdoing. When the market bubble collapsed, he says, other companies walked away from complaints. “We made a conscious decision to tie up all loose ends and move forward with our lives so we can essentially go into another business, like we did.”

They began in Rome’s apartment, sitting at a coffee table with 2 phones and cold-calling potential customers, They landed one New York real estate executive quickly but had no clout with charter operators who own many of the private jets. The result: They were netting only $200 on a $50,000 worth of flight time. Now that they claim 6,000 customers and can funnel substantial business to charter operators, Blue Star can get lower rates on aircraft. Some operators have complained that they are under pressure to provide aircraft to charter brokers at unfairly low rates. Sitomer says they aren’t happy because Blue Star finds jets at cheaper prices and saves its clients a lot of money. In addition to lower prices, the company touts its ability to put clients in a wide range of aircraft – from helicopters and turboprops to Boeing 737s. Rome and Sitomer say that gives them an advantage over other ways of getting into private jets. A popular model in the private aviation field is fractional ownership in which buyers put down money for a share of a jet. Rome says that’s costly and ties you to an asset losing value. “We felt that our generation would never buy into fractional ownership,” he says.

That’s the point on which another aviation company agrees. Ken Austin, the 41-year-old executive vice president of Marquis Jet Partners, says, “People of our generation don’t want to make commitments.” Marquis, based in Manhattan, buys fractional shares from NetJets, owned by Warren Buffett’s Berkshire Hathaway, and sells flight time to holders of Marquis jet cards, starting at $155,000. It claims 3,000 card holders and says it is profitable. NetJets hasn’t been as fortunate. In his annual letter to shareholders, Buffett said NetJets’ “U.S. operation dipped far into the red,” despite his promise a year earlier that the business would make money in 2005. Not surprisingly, Austin says Marquis offers advantages you can’t get from charter brokers. “NetJets is founded on safety, service, security,” and manages its own fleet of planes and employs its own pilots, he says. Without commenting on Blue Star, he says, charter brokers “go out and they look for the cheapest plane they could find.” Austin adds, “Half of those planes you don’t want to get on . . . the average age of NetJets is four years, the average age of a charter plane is 16 years.” Sitomer counters that his company provides safety checks by a respected outside firm and that his sales reps give customers choices, at different price points, that include newer as well as older aircraft. The competition in the private jet field is ferocious, but that shouldn’t be much of a surprise to people who worked on Wall Street. As raider Gordon Gekko tells Bud Fox in the movie: “if you need a friend, get a dog.”