Private Aviation Is Ready to Take Off

Amid concerns about safety and delays, more senior business executives are expected to bypass major airlines for corporate jets and charters.

Although still prohibitively expensive for many firms, the use of corporate aircraft and charters has risen steadily in recent years as companies have reacted to airline fare increases and perceived service cutbacks.

The Sept. 11 terrorist attacks involving four hijacked planes are expected to quicken that pace. Several charter and private jet services said they already have seen an increase in business.

“My educated guess is that there will be a noticeable, measurable increase [in the use of private planes] and that it will be able to be linked to this tragedy,” said Kevin Mitchell, chairman of the Business Travel Coalition, a Pennsylvania-based advocacy group.

“There’s always been a security concern with corporations about their senior managers,” he said. “Sept. 11 just pushed that off the chart.”

For costs ranging from millions of dollars for sole ownership of a new jet to $5,000 an hour for a charter, companies can purchase the peace of mind of knowing who’s on board, what’s in the luggage and who’s piloting the aircraft. And, with commercial air travelers now advised to allow at least two hours to board a domestic flight, passengers on private jets are buying time.

Mitchell and others acknowledged that commercial airlines--which were looking at more than $2 billion in losses before the terrorist attacks--will continue to control most business travel.

“To suggest that this is going to have a substantial impact on the airlines, no I don’t think so,” said Betsy O’Rourke, senior vice president of the Travel Industry Assn.

Although the number of defectors may be small, they are expected to come from the class of traveler the airlines covet most--first-class and business-class passengers whose tickets provide airlines with their highest yields.

“The business they are losing is the CEOs, the CFOs, the executive VPs,” Mitchell said. “The fliers with a high impact on the bottom line, that’s who they’re losing. That’s the trend, and it’s strong. And Sept. 11 just made it stronger.”

At Petersen Aviation in Van Nuys, flight standards manager Thomas C. Mangum said charter business has picked up, boosted by new clients and travelers returning home after the suspension of air travel was lifted. He said business is so brisk that the company may need to hire additional crews.

“The industry in general had been in a slump” because of the slowing economy, Mangum said. “Activity was in a downturn on the order of 15%.

“I suspect we’ll gain that back and then some,” he said.

The charter business is one of two areas that experts expect to increase rapidly as a result of the attacks. The other is the fast-growing segment called fractional ownership, in which buyers purchase use of an aircraft for a set number of hours a year. They also pay monthly management fees and an occupied hourly fee. The lure, experts say, is the price point.

Though a new Cessna Citation V Ultra costs about $6.5 million, a one-sixteenth share costs $400,000 at New Jersey-based Executive Jet, the largest of the fractional ownership companies. Owned by billionaire investor Warren Buffett, the company operates 260 aircraft, and has increased its fleet by about 25% a year over the last several years to accommodate growing demand.

Figures from the National Business Aviation Assn. show that the number of owners of fractional aircraft shares nationwide rose to 3,694 last year from 285 in 1995.

United Airlines Inc., concerned about the flow of first-class passengers to business jets, this year became the first major airline to move into the private-jet business.

Analysts are split on whether increased interest in private air travel will translate into more business for aircraft manufacturers, especially market leaders Raytheon Aircraft (which makes the Hawker series) and Cessna Aircraft Co., both based in Kansas; and Montreal-based Bombardier Inc., which makes the Learjet.

Gulfstream Aerospace Corp., which has 60% of the market for large, long-range business aircraft, said it has seen increased interest since the attacks. Executives of Raytheon, Cessna and Bombardier declined to comment.

Still, one analyst said anticipated growth in private air travel could mean enough new orders for manufacturers--especially of larger planes--to forestall a slowdown that had been forecast for the end of the year.

“Activity throughout the industry had been at a high level [a year ago] and was expected to drop, with demand continuing to weaken over the next few months,” said Paul Nisbet of Rhode Island-based JSA Research Inc., which specializes in U.S.-based aerospace.

“This could be a partially off-setting factor,” he said.

But Byron Callan, an aerospace/defense analyst with Merrill Lynch said that, with the economy poised for further slowing, any gains manufacturers would get from new clients could be diminished by current corporate jet owners bailing out to help improve the bottom line.

Some businesspeople definitely will be looking at private air travel, Callan said. “But there will be another set that says ‘How can we afford this plane in the first place.’ ”

Security the Motivation for Using Private Planes

David Ramirez, who heads Perez Electric in Walnut, said a private business plane doesn’t have to be a $10-million beauty.

In July 2000, Ramirez bought a 1973 Cessna twin-engine plane, “because that’s all I could afford.”

It cost him $230,000, and he said it will help him pursue $1.5 million worth of business in Arizona this year.

“For my business, it’s very important,” said Ramirez, who also is the pilot. “We do electrical installations, traffic signals, street lighting. I can’t fly commercial and take my tools.”

That’s a factor more travelers may have to consider because of the increased security on commercial flights.

Before the terrorist attacks, security was a secondary motivation for using a private plane--behind convenience--for some companies. Today, one pilot said, that order is reversed.

“Security, we had almost taken it for granted,” said Bill Sparks, chief pilot for Tulsa, Okla.-based Helmerich & Payne Inc., an oil and gas drilling and production company that spent $9 million on a new mid-size Learjet in July 2000. “Prior to this event, I’d say it was 30% of the equation. The convenience of it weighed a lot more.

“After the World Trade Center, a top manager here might assign a lot more value to security,” he said. “It’s maybe now 70% to 80% of the equation.”

Although the Federal Aviation Administration issued a lengthy list of safety precautions before allowing commercial planes back in the air, general aviation is operating under fewer new restrictions, FAA spokesman William Shumann said.

Even without FAA action, however, officials within the private aviation industry said they’ve taken steps to beef up security, including checking passenger IDs, maintaining detailed passenger lists and tagging all luggage.

Such measures can be touted as additional rationale for businesses to make the switch.

“This tragedy is going to make an even stronger case for personal ownership or fractional ownership,” said Steven Brechter, chief operating officer of Executive Jet.

“We’ve already seen it,” he said. “People who were on the fence have been calling to sign up. At least a dozen. This has really shaken people up.”

As sales of used planes and fractional ownership shares extend beyond “high-net-worth individuals,” the industry could shake the image of the fat-cat business honcho who uses the company plane to go skiing.

“Business jets used to be the dirty little secret,” said Callan of Merrill Lynch. “We’re well past those days. I’ve talked to shareholders and they don’t object,” to their executives’ use of private aircraft.

“If I’m a shareholder, I want my management at work, not enduring horrific delays at an airport,” he said.