BIZAV ECONOMICS

Whose business is it anyway?

A sobering look at the role of company operated aircraft in today's global economy.

By Don Van Dyke
ATP/Helo/CFII. F28, Bell 222


Managing far-flung interests demands flexible mobility. Executives of Fortune 500 company Entergy Corp board the company Dassault Falcon 2000EX at MSY (Intl, New Orleans LA) for business in Washington DC.

In the years after WWI, companies often emblazoned their logos on the fuselages of open-cockpit biplanes to promote business.

Despite its early beginnings, the term "business aviation" remains undefined by the Intl Civil Aviation Organization (ICAO). Intuitively, however, it refers to the use of a GA airplane for a business purpose.

A more comprehensive definition might recognize a global manufacturing, operations and support industry. At the close of 2007, the US fixed-wing business aircraft fleet comprised nearly 34,000 piston, turboprop and turbojet airplanes.

Of these, roughly 2/3 were flown by individual owners, with the remainder flown by professional flightcrews on behalf of corporate owners. The fleet amassed nearly 6 million flight hours supporting commercial objectives.

The vitality of business aviation is tied to the business cycle. However, some people take the opportunity of economic downturns to vilify business aviation as the clearest sign of corporate excess.

For the aircraft, words like "luxury," "unnecessary" and "extravagant" are used, while terms like "overpaid," "greedy" and "indulgent" are reserved for those using them. From the start of the current recession in Dec 2007 through Feb 2009, 4.4 million jobs vanished.

The investment banking collapse in Sep 2008 was a watershed for capitalism, and business aviation stood symbolically as at least part of the problem. Despite aircraft being effective in a number of corporate roles, old prejudices resurfaced among the public and its leaders with unexpected intensity.

Relatively few lay people are aware that aircraft are often-and routinely the sole-means for companies to seize, sustain or improve business. A 1987 report, commissioned jointly by NBAA and GAMA, offered the first organized framework to help stakeholders judge the wisdom of operating corporate aircraft.

Size of the US national business and corporate fleet is relatively constant. Piston-powered aircraft still constitute the mainstay portion.

A 1999 survey found that companies rarely use sophisticated models to calculate the contribution of travel management to company bottom lines and shareholder value. Business leaders themselves are often the least informed.

A 2001 study concluded that few executives understood completely-based on substantial metrics or detailed analysis-how business aircraft generate value for their organization.

Management decisions to use business aviation may be largely intuitive, based on a commonsense but elusive feeling that greater mobility would be good for business.

The recent Congressional castigation of Messrs Mulally, Nardelli and Wagoner has shown just how pervasive this level of aeronautical insight is. It's no surprise then that the public perception of business aviation is so poor.

(Mis)perceptions of business aviation

This is not the first time that uses and benefits of corporate aviation have been questioned. Let's be clear. Preventing abusive use of any corporate asset-including goodwill-is part of prudent risk management.

Common misperceptions of business aviation are specious at best, and unsupported at worst. Regardless, they must be put to rest. A Nov 1987 article in Flight Intl contended that sales of GA aircraft in the 1980s declined, in part, because they lost their "sex appeal."

It concluded that net benefits may be governed by intangibles whose value will be judged subjectively by corporate executives, helped by accountants and aviation consultants, adding that sex appeal may play a large part.

This view suggests that, among users of corporate aircraft, image may displace cost in merit. And yet cost sensitivity is the very driver of models offering alternative access to business aviation-charter, full aircraft ownership, joint ownership, co-ownership, fractional ownership, interchange agreements, leasing and time-sharing.

While image is important, successful users of business aircraft characteristically make decisions on the basis of sound business cases which quantify expected financial returns. Of the roughly 12,000 business and corporate aviation operators, 85% are small to medium-size companies.

Typically, the fleet comprises one 8-place airplane flying relatively short stage lengths. It's easy for the public to view corporate aviation as only for the few and assume that CEOs using corporate aircraft are taking advantage of a company perquisite.

High-profile calls for corporate restraint perpetuate the stereotype that business aviation serves an opulent personal lifestyle, especially in the case of perks written into employment agreements.

During the recession of 2000-03, business flying was scaled back significantly. A modest recovery in activity was seen in 2004-06.

In truth, business aircraft-like any other instrument-are not always used wisely. An example of inappropriate use might be corporate aircraft being available only for the exclusive use of one or a few individuals. While this may occur, business aviation is more usually used to transport key personnel of any rank.

Executives and entrepreneurs often invest their own money in aircraft, knowing of their value in leveraging time and mobility. Many believe that business aviation overlaps and competes with airline service.

In fact, of the 5000 public-use airports in the US, airlines serve only about 500. And, of those, fewer than 70 handle about 3/4 of all traffic. If these were all-inclusive transaction centers, airline service might be adequate for most business travelers.

To some extent, this is true-NBAA reports that its members spend $11 billion annually on airline travel. However, with falling demand, about 100 medium-size communities lost scheduled airline service in the past 18 months. These towns depend on air links to stay in business and preserve the local workforce.

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