In defence of the corporate jet

The optics may be terrible in these tough times, but flying the company plane isn’t always the evil it’s made out to be

by Colin Campbell

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In the corporate jet business, there are three people who are especially unpopular these days: the heads of the Detroit Three automakers. When the trio jumped on their corporate planes and flew to Washington late last year, they turned the business jet from being a nice perk for well-off executives into a symbol of corporate excess. How, people screamed, could these businessmen display such excess when the entire purpose if their trip was to beg for a public bailout? The “delicious irony,” as one congressman said, was too much.

The CEOs elected to drive to Washington on their next trip, but the damage was done. Even today, the outrage over corporate aircraft burns brightly. Last week, U.S. President Barack Obama chastised Citigroup for its plans to buy a new $50 million jet after accepting $45 billion in government bailout money. His administration is now talking about  rules that could force companies that receive federal money to relinquish their private jets. This week, Bank of America Corp. said it will sell a number of its corporate aircraft.

But while there are some ethical dilemmas at play, not all corporate jet travel is bad or unjustified, say ethics and business experts. In some cases, company boards (like the one at General Motors) actually require that their CEOs fly private jets for security reasons. The optics may be terrible in these recessionary times, but flying the corporate jet isn’t always the evil it’s made out to be. “Whether there’s a problem depends on the circumstances,” says Leonard Brooks, a professor of business ethics at the University of Toronto. When jets are used for business purposes and they free up time for executives to work, or improve their state of being when they arrive somewhere to do business, the costs may well be justified, he says. In an interview last month, GM’s vice chairman Bob Lutz was unapologetic, saying that he’d still elect to fly to Washington via private jet, even if it was to ask for tax dollars. (He was not one of the executives who made the now infamous trip in November.) Imagine, he argued, a haggard executive showing up late to a congressional hearing because he’d been bumped off his Northwest Airlines flight.

For a lot of companies, the benefits of the corporate aircraft far outweigh the costs. Wal-Mart, for instance, uses private jets, and is “probably the most penny-pinching, efficient company on the planet,” says Chris MacDonald an ethics expert and visiting professor at the Keck Graduate Institute in Claremont, Cal. Even companies that have taken public money aren’t necessarily engaging in unethical or inappropriate behavior by flying corporate jets, argues MacDonald. “If the decision to have an executive jet was the right decision last year when the company was beholden only to its shareholders, what would make it the case that it’s suddenly an unwise decision?” asks MacDonald. “At a well-governed corporation, those sorts of moves would be carefully thought out and cost-benefit analyses would be done.”

The problem, argues Brooks, is when company jets are co-opted for personal use. That appears to be the case at Nortel. Leading up to its bankruptcy filing, the company’s CEO, Mike Zafirovski, routinely flew in the company jet from Toronto to an airport that’s just a short drive from his home in Chicago, reported the Globe and Mail. Nortel has said the plane has been grounded and is up for sale. Those in the corporate jet business argue that, generally, the planes have become easy scapegoats. “It’s a little bit knee-jerk,” says Adam Keller, the president of Chartright Air Group, a Toronto-based firm that charters private jets to companies. Flying a private jet is expensive, but not nearly as bad as many think. For a company to fly its Challenger jet from Toronto to, say, Atlanta (a four-hour flight), it would cost roughly $7,000 round trip, he says. That voyage on Air Canada, for two people, can cost upwards of $4,000 (coach, not business class). And with security and airport check-ins would take considerably longer. Time is an important consideration. If a CEO makes $10 million a year, that’s $5,000 an hour. Would shareholders really like to see their CEO waste seven hours driving from Detroit to Washington?

Still, in today’s economic climate, the use of jets is shrinking. Business at Chartright is down about 30 per cent, says David Shaver, the company’s director of business development. In an informal poll of Canada’s 60 largest public companies, almost half told Maclean’s they do not have private jets. Thomson Reuters and Teck Cominco don’t have one, nor does Shoppers Drug Mart and Penn West Energy Trust. In fact, many companies boast that their executives fly commercial, just like the rest of us. “Our culture is very cost focused and corporate jets are expensive to fly and maintain,” said Husky Energy spokesman Graham White, in an email. “Occasionally for short flights in Western Canada we will employ local charters, otherwise all Husky employees (including executives) fly commercial.”  Sun Life Financial has never had a company jet, “leased, owned or otherwise,” said spokesperson Kathleen Killen via email. “We have been deliberate about this.  All of our executives, CEO included, fly commercial at all times.”

Biovail has a jet, but the company says it is currently up for sale. Rogers Communications also has one, but says it is no longer in use. TransAlta Corp has a jet, but leases it out when it’s not in use. It says the costs are negligible.

Ultimately, much of the public outrage surrounding private jets is probably misplaced, says MacDonald, the business ethicist. Yes, in some cases, the jets are extravagances, but most are not. The fact that GM executives are in some cases required to fly on the corporate jet for security reasons says a lot, he argues. “Obama flies in style too, for good reason. Nobody expects the president to fly coach. GM security isn’t quite national security, but it’s not a trivial matter.”

With Susan Mohammad and Rachel Mendleson

In defence of the corporate jet

  1. It says a lot for the sad state of commercial aviation these days that it can be cheaper to do it yourself.

    The sad state of journalism these days is also reflected in this article, in particular, the use of the word “largesse” to mean ostentation, when it has historically meant “ostentatious gift-giving.” I am reminded of two earlier Maclean’s articles about the Alberta government fleet of airplanes, both of which referred to the planes as “jets” when they are all turboprops. Not all aircraft are jets. It’s unclear whether the writers are playing fast and loose with the language or with the facts.

  2. The reason that so many people are upset with biz jet folks is that the execs who justify this expense are at the same time are begging for a handout from you and I the American taxpayer. Pointing that coporations like Wal-Mart and Macdonalds use biz jets and saying it is a good thing, is simply not comparing apples to oranges. Wal-Mart and Macdonalds are not begging for Federal financial support. The suits on Wall Street need to catch up with reality. I could care less what they do with their own money, but when it is taxpayers money the need to toe the line!

  3. The writer has a few facts left out. It might cost $4,000 to make the specified trip in fuel, but that does not include the $45 million invested in the jet. Or the maintenance, support staff, and even the high cost of hanger rent here in the Northeast, Then again that’s why companies lease jets-to keep them off the books. Corporate flying is very expensive and too often used as a perk, not a business tool.

  4. The article makes or quotes two assumptions that should be questioned.

    First, the assertion that a “well governed” company’s use of private jets makes financial sense. By definition, companies that are seeking tens of billions of dollars of bailout money from the government are not well governed. Therefore, all of their financial dealings deserve scrutiny. It may be, upon scrutiny, that the use of the corporate aircraft is justified, and in that case it’s perfectly fine to continue to do so.

    The second is pointing out that an executive who makes $5,000 per hour is saving money by saving several hours of travel time. But the question must be asked: is this executive actually worth $5,000 per hour? Again in the cases of the companies that are seeking billions in bailouts, my assertion is that the answer is “no”.

    I am a private pilot, and I have also had the pleasure of traveling by corporate aircraft. I am in no way opposed to their use in general. They do indeed save hours in travel time and make the trip vastly more productive than flying commercial. I’m worried that knee-jerk political grandstanding (by politicians who frequently fly on private aircraft) will do damage to a valuable industry. But, I do also think that any company seeking government assistance deserves special scrutiny to ensure that the public’s money is being well spent.

    • Yes, I agree with this post about the corporate jet. Corporate jets can be a very effective company tool, but when a company is asking for money, the company should get special scrutiny that may very well reveal the need, or not, of using a corporate jet or to consider other options.

  5. It is not that companies own corporate jets for business travel and that they save money for “business travel” that outrages me, but it is the use of the jets by the CEO or executives that outrages me. I know several corporate pilots that tell me of the abuses in the use of the jet as the CEOs and executives use them for personal travel. It is when a jet is sent from New York to California to pick up the executives daughter at college and bring her home every weekend. It is when the wife wants to go shopping in Spain or Italy or the Executive wants to go Island hopping in the Caribbean trying to find the best sun for a tan. And it is the plush, luxurious and expensive interiors that these aircraft often boasts. As long as the company owns these aircraft, the CEO and executives will use them for personal travel and that is what outrages me. I would love to just zip around the world with my family on a whim. Incidentally, the pilots usually get put up in wonderful golf resorts while the boss is basking in the sun in January and February. Every weekend. Do the majority of taxpayers get this luxury? I pay taxes and they could cut this out, but they are experts at hiding it as a business expense. The government is right to regulate this. Fly commercial to the Bahama’s like the rest of us!

    • I’m sorry Paul, but there are some things you have generalized here.
      1. ” …the pilots usually get put up in wonderful golf resorts while the boss is basking in the sun in January and February. ” As a person, (was in charge of ground operations at a small international airport,) I met many corporate pilots, dropping off their passengers for some conference or meeting. Not one of them got treated as you describe. Most of them went to the nearest local restaurant to grab a meal before their passeners returned, as well as getting their aircraft ready for the return flight.
      2. Another point – most corporations lease their aircraft, and a lot of them are participants in joint flight operations such as NetJet, etc., thereby eliminating actual in-house flight and ground operaions personnel.
      I am in agreement with the idea a large number of companies should not even be involved in this type of business, and have no business flying the way they do.
      But there are times when a corporate aircraft is important, and TIME is the critical element here.
      Another point that has been totally ignored in all this is one very deserving organiztion that has received very little coverage: Angel Flight; where corporate aircraft are used to transport very ill children and adults to critically required treatment in far off places.

  6. Hmmm…all seems like a bad case of jet envy. But this is the madness of the stimulus package and the strange moral contortions that will now be required.

    Having thrown themselves on the mercy of the taxpayer, these executives had better make sure they are wearing a hairshirt!

  7. Having flown as a passenger on the airlines, I have no desire to force VIP’s, entertainment world celebrities, or political leaders to fly commercial airlines along with the rest of us. Here is why:

    If a highly recognizable celebrity, high-ranking corporate VIP or government dignitary were to fly on a commercial airline, can you imagine the inconvenience the public will be subjected to, given the need to protect their privacy and physical safety? Chances are a celebrity would have to have a whole section of the plane for themselves, their bodyguards, and their entourage. This would lead to delays, because of all the precautions that would need to be taken so said celebrity won’t be mobbed by autograph seekers or celebrity-obsessed people. Corporate VIP’s also have to worry about their security, given the possibility that a fired former employee might be out there waiting for an opportunity to extract revenge.

    In addition, corporate VIP’s have to be concerned about how much of their valuable time would be wasted by all the security needed to protect them if they have to fly on public airlines. So my suggestion to people who want to get rid of corporate aviation is, perhaps you should be more concerned about the logical, rational best interests of society and focus less on your neurotic intellectual and ego needs.

  8. I haven’t heard anyone ask whether such travel is even necessary nowadays. In case nobody has noticed, we now have technology available that can obviate a lot of trqvel.

    • Yes, but you cannot take an important client out to a nice lunch over a video conference call…;-)

  9. Although I believe that it’s stupid to expect the execs’ being paid $2000/hr to fly commercial (it wastes their valuable time), its just as idiotic to think they MUST have an executive jet the size and expense of a Boeing 737 with gold plated ashtrays etc .

    A King Air or small used Lear will accomplish the exact same thing functionally for as little as 5% of the cost of the late model Gulfstreams (and other similar sized aircraft) the size of which only serves to stroke these failed execs’ over inflated ego.

    That way, all of the speed and functionally is retained and the OBSCENE LUXURY is removed (as it should be).

    Carl Bevan

  10. In countries with the size of Canada and the US, with airlines serving maybe 500 of the 6000 airports, and the airline experience being so time-consuming and invasive, private flying can make a lot sense. This is particularly true when you have more than one person going, have several stops to make at remote locations, need to carry a significant volume of freight or the freight is of a sensitive nature, or the people riding on the aircraft are especially well-paid on a cost-per-hour basis.

    That said, I don’t see how operating a $40M+ intercontinental jet is ever cost effective, on a per-hour basis, when financing costs are included. There are plenty of < $5M used jets that will do the same thing. And, $3M turboprops will do the same thing for trips under 1000 mi. at a fraction of the operating cost. And $500K piston props will do it best on trips under 500 mi.

    The point is this: Responsible organizations need to calculate for EACH TRIP which is the most cost-effective way to travel: the airlines, driving, a company jet, a company turboprop, or chartering. This should be the job of the company’s travel department, so that the use of private jet travel can be justified to the shareholders, the board, and even the darn gubmint.

  11. The Ethics of Business Jets, part 101. In my business ethics courses many students pointed out that:
    1. business jets freed up top level executives to work while traveling.
    2. a 500,000 dollar a year exec, low level, working 250 days a year is worth $2000 a day. As a shareholder, or stake holder in a business, do I want that exec expertise going through the insane security, wasting time and company money. It often takes twice the time or or just going by airline, not to mention the shenanigans getting off and on the airline.
    3. security can be much tighter and better controlled using private aviation. High level company execs are vulnerable.
    4.it’s cost and time effective.
    Oh, one other thing, do you tell the exec what kind of car to drive, and how to get back and forth to work.
    Just the Airport Stress in public airports is extremely high.
    So, think about it, and choose between efficiency and stupidity.

    • The difficulty is that executive compensation ought never have inflated to the point where a half a million dollar employee was a meeting-shuttling stiff, whose time and inconvenience was given this outlandish – frankly fictive – value.

      A proper system of taxes as prevailed during the postwar consensus would have left us with fewer people imagining their time or for that matter work to be worth thousands of dollars an hour, And without a mercenary, professional-athlete-like ethos, inflating paper figures to compete for 8 figure annual compensation. A real progressive tax keeps the senior employees of a company behaving like employees, and their compensation in some sort of relation to their work and success.

  12. The Ethics of Business Jets, part 101. In my business ethics courses many students pointed out that:
    1. business jets freed up top level executives to work while traveling.
    2. a 500,000 dollar a year exec, low level, working 250 days a year is worth $2000 a day. As a shareholder, or stake holder in a business, do I want that exec expertise going through the insane security, wasting time and company money. It often takes twice the time or or just going by airline, not to mention the shenanigans getting off and on the airline.
    3. security can be much tighter and better controlled using private aviation. High level company execs are vulnerable.
    4.it’s cost and time effective.
    Oh, one other thing, do you tell the exec what kind of car to drive, and how to get back and forth to work.
    Just the Airport Stress in public airports is extremely high.
    So, think about it, and choose between efficiency and stupidity.

  13. Part of the problem is that users of business aircraft do a terrible job of marketing/justifying their use, whether to their board, their shareholders, or the world. Rather than hide, they should BRAG about using business aircraft, if they can make the case that the aircraft save them money, help them get new customers, and be more efficient.

    And if they can’t justify using them, then, yes, they should just call aircraft usage an executive perk and add it to the category of “executive compensation.”

    “We never could have done it without these aircraft.” – Sam Walton, who was a pilot and flew himself to visit his stores.

  14. Excellent article.
    1. Debit cash $50,000,000 Credit aircraft $50,000,000 = 0 change in assets
    2. $50,000,000 for one aircraft = paychecks for aircraft designers and assemblers, managers, clerks, caffeteria staff, pilots, dispatchers, mechanics.
    3. Cancel order = debit cash for penalty and send all those people home without paychecks. The largest part of the manufacturing cost is wages. The rest is materials which are processed by people who are getting wages. A large part of the operationg cost is wages.
    4. Flight departments need to be managed efficiently and constantly justified. Closing flight departments or cancelling aircraft orders needs to be managed efficiently and justified.

  15. Mr. Coan’s note is very good. Yes, corporate flight departments need to justify their existence, but to whom?
    The boards know what’s going on, and what do you tell the general public? The GP just sees corporate aircraft as a perc, but this is not the case most of the time. Having been a corporate pilot I can tell you that it’s not life on easy street. Most days I started taking the sales people all over the country, then I would ferry the maintenance people to fix machinery that needed to be repaired immediately. The top brass were also
    going to meetings and supervising the staff.
    It’s not a big deal that the airlines, which are stretched to the limit trying to make a buck, can’t do what private aviation can, it’s always been like that. Would you take a bus when you can drive? What if you’ve got a meeting. These days some people think that business meetings can be conducted via internet, but that isn’t the case. Many managers need to get out in the field and see the operations, touch and feel what’s going on, and make personal connections with customers. That’s what makes a great business, personal relations and trust. Looking at people on at CRT just doesn’t cut the mustard.
    So, general aviation is a great business tool, as is the internet, or Fedex, or the accounting department, or the sales staff, or the guys at the plant that are making the product.
    By the way this is a great site, but can you get the general public to read and respond? I doubt if they are interested at all in general aviation, or any aviation unless they’re taking a trip on an airliner.

  16. I have worked in aviation for more than 40 years and I think I’m qualified to make serious comments on my observations over the years. Many companies own or operate business aircraft for a variety of reasons. One that keeps getting lost in all the emotional outcry is that for many, many companies, those who actually fly on the business planes are NOT the CEO-types. The usual riders are oftentimes the low-level line workers who have no other way to get to and from job sites in remote areas that airlines simply don’t serve. They are delivering critical parts for equipment repairs and to work with clients and customers to deliver them the support of the company. This is not a luxury, but a necessity of running the business.

  17. Have to agree with Ginger Ray – corporate jets have many legitimate uses.

    But in general, when companies that are using them as a managerial benefit, it is a sign of problems.
    (maybe management sees the company as primarily a source of “benefit” rather than a challenge/opportunity, maybe the executive is focused more on managerial compensation than real performance, maybe it is just a sign that the company is otherwise faltering, and needs to offer benefits to attract top-flight C’ level execs)

    here’s an intersting study:

    “This paper studies perquisites of major company CEOs, focusing on personal use of company planes. For firms that have disclosed this managerial benefit, average shareholder returns under perform market benchmarks by more than 4 percent annually, a severe gap far exceeding the costs of resources consumed. Around the date of the initial disclosure, firms stock prices dropby an average of 1.1 percent. Regression analysis finds no significant associations between CEOs perquisites and their compensation or percentage ownership, but variables related to personal CEO characteristics, especially long-distance golf club memberships, have significantexplanatory power for personal aircraft use.”

    Yermack, David,Flights of Fancy: Corporate Jets, CEO Perquisites, and Inferior Shareholder Returns(September 2004). NYU Working Paper No. FIN-04-008.

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1294443

  18. Biggest pile of trash I have seen in years.
    Regardless of how you try to justify it, there is absolutely no defense for this taxpayers waste of money.
    Your statistics are handpicked and highly incomplete. Small snippets were handpicked in an attempt to justify your argument, but completelly leave out the negative factors which show the tremendous wastes and abuses carried on in this day and time by unethical Businesses for corporate luxury.
    Wake up and smell the roses, and help your own business and industry in remaining open for the future, Stop the abuses and keep the educated idiots away from your statistics.

  19. Danny Argee: You’re right: Giving money to the banks to blow has been a huge waste of taxpayer money. I think we should have let them fail. And I still think that.

    But, if you’re saying that ALL private aircraft use is somehow a “tremendous waste and abuse” no matter waht, then it shows you just don’t know what you’re talking about. It’s all about how the particular company uses its aircraft.

    I’ve been a corporate pilot, and I remember taking sales staff out at 5am, we made 12 rural stops, and didn’t get home until 9pm. They closed several deals and the company got a huge benefit. On other trips, I took pieces of tools and technicians to repair factory assembly lines that were halted due to breakdown…at a cost of many thousand for each hour it was disabled. Clearly, once again, the airplane was invaluable in such situations. Most of flights were to locations that simply couldn’t be reached by airline.

    I can’t remember even ONCE taking the CEO in the aircraft by himself…it was always with a team. And they worked and held meetings all the way there. We never went to any resorts, nor did I pick up the CEO’s children or whatever. Do these things occur at some companies? Definitely. And I suggest those companies boards of directors stop such practices as they are not in the interest of shareholders unless included up front in the CEO’s pay package.

    Don’t paint with such a broad brush, please refrain from the abusive language.

  20. “We never could have done it without these airplanes,” – Sam Walton.

    ’nuff said.

  21. People…it wasn’t a corporate aircraft that got us in this mess….look past the trees. As far as a personal use…that’s a company decision, but if they do decide to allow it, the SEC and IRS have laws to impute the value of the flight to the user.

  22. I’d be happy to pay for a Private Jet for a CEO who is actually taking home a reasonable pay and who is performing well – neither of which the CEO of GM is doing!

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