Corporate Jets Adding Mileage to Bottom Line
The private jet is no longer the exclusive status symbol of the most privileged class.
Just ask Jere Hess, director of public relations for Peavey Electronics in Meridian, Miss. The company’s 14-passenger jet whisks employee teams weekly to conventions and joint venture projects across the nation and the world.
“We couldn’t do business without it,” Hess said. “It’s as simple as that.”
One study found that 70% of all travelers aboard private business aircraft are members of middle management, technicians or worker bees.
“People who were riding the airlines just three years ago are now buying their own planes,” said Clay Lacy, a veteran operator of private aviation services at Van Nuys Airport.
The seemingly sybaritic outbreak had an unlikely origin: the last recession.
As the economy soured at the beginning of the ‘90s, businesses looked for ways to turn the screws, scrabbling for any way to sharpen the competitive edge, slash costs and increase efficiency.
Their counterintuitive discovery: private jets.
Far from being merely the ultimate indulgence for coddled big shots--although they certainly are that too--many businesses found that private jets actually contributed to the bottom line, paying for themselves many times over.
So when the current economic golden age took off, business took wing.
As one chief executive put it: “If you think you’ll make money and then buy an airplane, you just don’t get it. You buy an airplane to make money.”
Indeed, even multibillionaire investment guru Warren Buffett, who once carped about the sins of the corporate jet, not only now owns his own plane, but last year acquired Executive Jet, the leader in the latest jet fad: time-share ownership.
Buffett drew gasps last fall at the annual convention of the National Business Aviation Assn. by ordering more than $3 billion in new aircraft for the Executive Jet operation.
“The steady expansion of business flying has been dramatic,” said David M. North, editor-in-chief of Aviation Week and Space Technology, who also credits Buffett’s turnabout as having a major impact on the business flying industry.
The Federal Aviation Administration believes business jet travel is steadily rising, spokesman Hal Price said, though the agency does not track the number of private flights for business purposes.
But numbers compiled by industry groups, including the National Business Aviation Assn. and the General Aviation Manufacturers Assn., show a rise in both the number of business aircraft orders and the number of companies operating jets.
Aircraft makers announced orders for $5.9 billion in business aircraft in 1998--an all-time annual record and a 25.7% increase over the previous year, according to the General Aviation Manufacturers Assn.
Allied Signal Aerospace of Phoenix, which provides annual forecasts on demands for new business jets, predicts orders will remain at near-record levels during the next 10 years, approaching 6,500 aircraft valued at nearly $78 billion.
Perhaps most tellingly, the number of U.S. businesses operating aircraft rose from 6,584 in 1991 to 8,236 last year, according to AvData Inc. of Wichita, Kan., which monitors business aviation.
Who is flying these planes? Two-thirds of Fortune 500 companies own and operate aircraft, but the “vast majority” of companies that own jet or turboprop planes are small or medium in size, according to a 1997 Lou Harris & Associates study funded by the National Business Aviation Assn. Most own a single plane, not a fleet.
The study also said 49% of private business plane passengers were in middle management and 19% were members of technical or support staffs; 19% were among the ranks of top management.
The idea that business jets are ferrying shirt-sleeved workers--and not corporate bigwigs--is met with skepticism by William Yost, a professor of operations and technology management at UCLA’s Anderson School.
“The boss--the big man or woman--doesn’t go alone. They take an entourage, all the folks who carry the bags. The percentages are going to be skewed,” Yost said.
He was also unconvinced that the higher cost of private jet travel--$1,200 an hour and up to charter, at least $10 million to buy--could be justified.
“It’s not easy to say it’s cost-effective. It’s not at all clear,” he said.
Advocates of private jets say the actual cost has to be weighed against other factors. The climate aboard commercial airliners is often counterproductive, even hostile, they say. Conversations can be monitored by competitors; delays and transfers are common; disruptions prevent work.
Two to three decades ago, fliers aboard airlines typically wore suits, noted Drew Steketee, a senior vice president of the 340,000-member Aircraft Owners and Pilots Assn., the nation’s largest representative of general aviation.
“Now we have people in shorts, screaming kids, knapsacks, bowling balls in the luggage compartment overhead. You’re not going to get any work done on the plane.
“First-class fills up because nobody wants to sit in coach,” he added. “Business travelers are not only worn out from being on the road so much, but they are frustrated.”
As airlines increasingly adopted hub airport systems, the speed of travelers destined anywhere outside the 22 major U.S. airports actually slowed down, Steketee said.
Such annoyances and inconveniences have driven more and more business travelers into their own jets, which, because they can go to airports without scheduled passenger service such as Van Nuys or Santa Monica, can reach 10 times the number of airports that scheduled airlines do and 100 times the locations served by frequent airline service, industry experts say.
“What we are seeing is a communications revolution,” said John W. Olcott, president of the National Business Aviation Assn. “The pace has quickened. The need to get face to face with customers is more important than ever. And they have to get there before the competition.
“Companies . . . can control virtually all aspects of their travel plans,” Olcott said. “Itineraries can be changed instantly, and business aircraft can be flown to thousands of more destinations than are served by the airlines.”
Company representatives can travel in “tiger teams” to two, three or more cities in a day, and still return to their families in the evening--not only saving hotel bills but also boosting employee morale, industry leaders say.
National membership in the NBAA, the voice of business aviation across the nation, has nearly doubled since the beginning of the decade. The trend marks a sharp turnaround from the era beginning 15 years ago when stockholders took a dim view of corporate aviation.
“California sets the trend,” said Daniel Burkhardt of the NBAA, whose California membership has soared by 24% in five years. “It sort of flies east from here.”
For the most part, however, companies and others flying in private jets want to remain anonymous.
In contrast to a decade or so ago, when airplane ownership was a status symbol to be flaunted--Barry Manilow had his silhouette outlined in blue paint on his plane’s tail--operators now go to great lengths to protect their identity.
Most corporations, for example, use code names for their aviation divisions.
Businesses nationally are working feverishly to persuade Congress to outlaw Internet services, only recently offered, that track and sell information on the whereabouts of private aircraft. The information is believed to be used by companies that want to spy on their competitors. As a result of such tracking, many private jet operators now routinely file misleading flight plans, keeping their destination secret until moments before they arrive, then amending the plan by radio en route.
All of this activity in the sky has led to a predictable outcome: growing complaints about noise and anti-aviation movements.
Complaints and operation restrictions “are more of a problem in California, and especially in Southern California, than anywhere else in the nation,” said E.H. Haupt, NBAA director of airport and ground infrastructure. “The more affluent the community, the more difficult it is to fly around the area.”
The newest jets and airliners are designed to fly more quietly, but airport neighbors say the replacement of older aircraft isn’t happening fast enough. Instead, a game of musical chairs is being played around the country: As one community bans noisy jets, the aircraft invariably move to another field.
Whatever the opposition, business users are unlikely to give up their planes as long as they bring in the profits.
William C.W. Mow, chairman of Bugle Boy Industries Inc. of Simi Valley, credits the Gulfstream IV he bought in 1992 with salvaging his faltering business. He was able to expand into 40 countries, he said, by undertaking a series of grueling trips, such as visits to 10 countries in 12 days.
“That’s what it took to sustain the business and to expand and retain customers,” said Mow, who travels with his company president wife, Rosa, three pilots and an attendant.
“The plane is not an entertainment tool,” he emphasized. “We are very business oriented. It’s a matter of getting there. Commercial travel would not have done the job.”
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Business Class
The number of U.S. firms operating aircraft was on the decline until 1991, but has been climbing since. Number of U.S. businesses that own corporate planes, in thousands:
1998: 8,236 last year.
Source: AV Data
