If you haven’t done so already, please read this excellent opinion piece by Alasdair Whyte on the Corporate Jet Investor website, responding to the recent Financial Times “investigation” into private use of company aircraft (Read Here). As Whyte highlights- this “investigation” amounted to reading the information from public financial disclosures- not exactly Woodward and Bernstein. Maybe we call it Transparency-Gate.
To us, this FT article is a prescient reminder that nobody will ever lose ratings vilifying corporate jets or the fat cats who ride in them, guzzling champagne through rolled up C-notes, making fun of shareholders (poor stooges) and plotting new ways to steal from the middle class (they are a little less equal anyway).
The image we’ve described above feels true to most people. Granted, a lot of progress has been made over the years to legitimize the idea of corporate aircraft. The NBAA’s No Plane No Gain campaign has been certainly sounding the right tone. But the bandwidth surrounding corporate jets is usually either sensationalist or negative. As a result, most companies would prefer to avoid the airplane subject entirely. And that’s understandable- there is zero upside to saying one word about the company jet. Unless you have to.
This perception issue induces drag on our industry. In a zillion little ways, it causes companies to make decisions that are inconsistent with the facts and merits of corporate aviation. And you can’t blame them.
The truth of corporate aviation is, of course, totally different from what is portrayed in the media. First of all, it’s pretty boring. Imagine this: three executives drinking coffee and Evian looking at spreadsheets and PowerPoints, cramming strategy for the meeting that waits upon landing. Or on the phone with headquarters, discussing an emergent client issue. Or on the flying Internet, clearing through the emails they can never get to in the office. Or maybe having a few minutes alone to actually think. Let’s hope somebody from Hollywood is reading this …
What we’ve described above is productivity and that is what our industry sells to people. Time is zero-sum. And no matter how rich, powerful, smart or talented you are, it is the one commodity that is truly the same for everyone. And while we can’t make more of it, we can certainly waste less of it. Avoiding two hours transit time at Covington Airport directly creates two hours you can be doing something (anything) useful.
Now, most of us would probably waste those two hours anyway, doing something else unproductive. But senior executives are senior executives for a reason. Their time really is more valuable than ours. Not because of what they get paid; because of what their direct involvement in a situation can yield to the bottom line. Their influence is highly leveraged, and therefore their time is highly leveraged.
Remember, CEO’s aren’t dealing with trivial matters. They are dealing with the very largest opportunities and concerns of the corporation from the top down. And time only allows them to get so far down the list.
Consider a CEO who travels 400 hours per year on the company jet (this is not unusual), and compare that with airline travel. The jet has privacy, space, and connectivity, becoming a near-seamless extension of the office. Not exactly true for the airline: that 400 hours would be totally wasted.
But there is also a multiplier. When you add lost time dealing with the rest of the fun: check-in, security, connections, etc.; as well as the convenience of leaving exactly when you need to; the total time saved with a corporate jet can easily be 2 to 3 times greater.
Think about that for a minute. If a year contains 48 weeks (minus holidays, etc.), we all start with 8,064 hours. That’s everything- nothing excluded for sleep, weekends or dinner. And corporate aviation offers a solution that can potentially claim 10% of that time back. From a shareholders perspective- you now have 1.1 CEO’s. That’s the equivalent of your team’s best hitter getting another 50-60 at-bats per season.
Ah, but the cost. Can we justify it? Nobody likes to talk about that part after all.
Well, maybe we should because here’s the reality: let’s say your company buys a $20M jet and flies it 400 hours per year for 10 years. The present value of that investment is likely less than $2M per year, on average, after tax (including capital cost, fixed cost, direct cost, etc.). That’s about $4,300 per aircraft flight hour. And if we assign a reasonable 2x multiplier- that’s $2,150 per executive hour saved. And if you are traveling with multiple executives … well, you get the idea.
Now that’s still a ton of money in the real world. But consider the 1000th largest company in the US last year had revenues of approximately $2.1B and net income of $140 million. That isn’t the real world either. And whatever world it is, the aircraft budget would therefore represent 1.5% of net income.
So let’s pose the justification questions this way:
Would you spend 1.5% of your profit to buy 800 hours per year of addition productivity for your highest producers?
Or another way: What is the probability that your CEO can replace $2M in cost if we give him / her an extra 800 hours per year?
Or a third way: if they can’t- do we have an airplane problem or a CEO problem?
An aircraft investment is in dollars but the return is in time. It’s a different unit of measure. And while time is money, coming up with a specific calculation to relate the two is murky at best. In the past, attempts have been made to value executive time based on compensation. That’s inherently problematic, especially considering that executive compensation is the one subject that is even more controversial than the corporate jet. That has the appearance of justifying one excess (drinking too much red wine) with another (it pairs well with my evening steak).
In a perfect world, both should relate back to value for the shareholder. And in this regard, corporate jets are a no-brainer. They create a ton of opportunity for a minimal relative expense. Which brings us back to the FT piece and a final note on personal use. It doesn’t matter if you are going to a meeting or the Bahamas, wasted time at O’Hare is still wasted time. If I am a shareholder, I want the CEO working as much as possible. And if sending the jet to bring her and her family back from vacation gets her working a day earlier, I’ll gladly make that trade. An extra hour of her time examining the paperclip budget,
Which brings us back to the FT piece and a final note on personal use. It doesn’t matter if you are going to a meeting or the Bahamas, wasted time at O’Hare is still wasted time. If I am a shareholder, I want the CEO working as much as possible. And if sending the jet to bring her and her family back from vacation gets her working a day earlier, I’ll gladly make that trade. An extra hour of her time examining the paperclip budget, or literally anything at all, will probably pay for the flight.
So how do we, as an industry, continue to fight the perception battle? We don’t know definitively. But absent a better idea, how about focusing a little more the numbers? The community of aviation professionals, together with NBAA, GAMA, and other advocacy groups, needs to continually innovate new solutions, benchmarks and tools to aid companies in analyzing this question.
Rightly or wrongly, people respond to data. The simple exercise we ran above can be easily replicated by any company based on their individual situation. Determine the overall investment cost, as well as a reasonable estimate of total executive time saved per year. Even if it is difficult to calculate what the CEO’s time is worth to the company, we can, at least, come up with a reasonable cost to buy them another hour of it. And as we just demonstrated, the value speaks for itself.
And here’s an idea for an intrepid reporter out there. How about picking a few companies who don’t utilize corporate aviation and asking them why senior management places such little value on their own time?