Is this what flight attendants mean by de-planing?
Recently, Granada, the $8 billion media giant, revealed that a $90 million cost-cutting drive would include the sale of its BAe 125 jet. Meanwhile, management at BAT, the $36 billion-in-revenues tobacco giant, put the company’s eight-seater Hawker Siddeley up for sale in the autumn, having earlier got rid of the Cessna Citation Ultra it inherited from the acquisition of Rothmans in 1999. Tomkins, the $6 billion engineering conglomerate, sold its fleet of four planes in early 2001; months earlier the company’s CEO, Greg Hutchings, had been forced to resign amid allegations of misuse of the company fleet.
Some observers have been predicting the end of the corporate jet for some time. They argue that private planes are simply too expensive to own and maintain — particularly in an era of downsizing and cost-cutting. The argument has some merit, too. Certainly, after laying off thousands of employees, it doesn’t look real good for corporate managers to announce they’ve just purchased a $30 million luxury flying machine.
But despite the public relations risk, some executives still travel by private plane. Managers at companies as diverse as JCB, the U.K. maker of heavy construction equipment, and Lego, the Danish toy maker, own executive jets. Other European private fliers include Philips, Kwik-Fit Holdings, DaimlerChrysler, Volkswagen, Sony Europe, Shell, Saab, Michelin, and Louis Vuitton.
Indeed, in the wake of September’s terrorist attacks in the U.S., you may see more frequent corporate fliers, not less. “Setting aside the time savings and the cost benefits, the ability to control who you travel with is now a compelling consideration for boards,” pitches Mike Hamlin, CEO of Hamlin Jet, a U.K.-based executive jet management company.
Not surprisingly, operators of jet charter services don’t see it that way. “For public companies, owning a jet is very much a no-no,” asserts Nick Probett, managing director of Chauffair, a U.K.-based business jet charter company. “At times like these, when companies are announcing reductions in staff, pay cuts, the closure of factories and so on, it’s just not on to have a private jet.”
Private plane’s don’t come cheap, that’s for sure. Even “green” aircraft — planes that have yet to be fitted out — cost upward of $20 million. Finishing out the interior, from galleys and showers to the latest in electronic office equipment and satellite-based communications systems, will likely add $5 million to the bill. After purchase, a company must also pay to maintain the plane and keep a flight crew on call. Once in the air, experts say it costs around $2,000 an hour to operate a corporate jet.
To lower the price tag, some companies buy a share in a plane. NetJets, the European subsidiary of U.S.-based Executive Jet, charges around $6 million for a one-quarter share in a twin-engine Falcon 2000. NetJets also charges a monthly management fee of around $37,000. In return, customers receive on-demand usage of the aircraft for 220 hours a year.
Some corporate managers don’t want the burden of owning a jet, fractional or otherwise. This is where charter services come in. “Chartering an aircraft is like hiring a cab,” explains David Savile, managing director of Air Partner, a charter broker based in the U.K. “There’s no commitment to buy the cab, to take a share in it or to maintain it — and it doesn’t show up on your balance sheet.”
Savile cites a company that wants to send eight executives on a series of one-hour presentations in six major European cities. That company could pay $24,000 to charter an eight-seater jet and complete the road show in a day and a half. If the company used scheduled air services, Savile calculates that it would need three-and-a-half days to do the roadshow, with airline tickets, hotel rooms and other expenses totaling around $3,000 per person — the same price as the charter.
Such savings aren’t likely to reduce the uneasiness that CFOs feel when they have to talk publicly about their use of private jets. In fact, some regular users of chartered services go so far as to make their brokers sign confidentiality agreements.
But Savile of Air Partners says shareholders shouldn’t grumble about the cost of executive jets. “It’s only right that [executives] maximize the time they have at their disposal,” he notes. “Consider the benefits — if we can save even three hours a day for a couple of people, then that’s an awful lot of money.”