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