BIZAV ECONOMICS

Whose business is it anyway?

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


Business aviation and the company

UBS data suggests a close link between the dire state of the eco_nomy and a pronounced upsurge in bizjets available for sale.

The core benefit of business aviation is mobility, which can make a substantial difference in how a company performs its mission and achieves its vision.

Three keys to global markets are speed to market, rapid innovation and collaboration. Users of corporate aircraft know the importance of "being there" promptly to meet the needs of a customer, deal with an unexpected problem or close a sale.

Used wisely and aggressively, business aircraft can alter a company's business practices and performance for the better.

Benefits for shareholders

Two primary drivers of shareholder value are the ratio of a company's market value to its book value and return on equity (ROE), whose increase is consistent with increasing stock price.

There is a strong correlation between business aircraft benefits and shareholder value creation. The organizational agility offered by business aviation can generate significant gains in the drivers of shareholder value.

Airplanes are assets whose productivity drives economic value added (EVA), which is what markets use to determine shareholder value. The majority (75%) of surveyed CFOs believe that disposing of their business aircraft could potentially harm their company's value.

An indirect method of calculating the financial benefits of business aviation compares peers of S&P 500 companies, distinguished by their use or non-use of business aircraft.

Reportedly, aircraft operators earn 146% more than non-operators, yielding more than twice the operating margin and cumulative sales growth, and adding 32% greater shareholder return in the process.

Whose business is it?

The benefits of operating business aircraft are not always understood or presented in a way that makes sense to both the board of directors and shareholders. Aircraft are often first identified as an excess on a suffering balance sheet.

US-registered Cessna Citation X at GVA (Geneva, Switzerland). Inter_national reach may be a primary business aviation requirement.

Business aviation has been in freefall. Swiss bank UBS reports that the number of used business jets available for worldwide sale reached an all-time high at the end of Nov 2008-up by 62% in just 12 months.

With orders for corporate jets slowed sharply and cancellations increasing as global cost-trimming quickens, a massive industry shakeout is possible.

The risk is that job losses could lead to a severely depleted, de-skilled labor force from which the only possible recovery is long-term. Foreign manufacturers who in the past might have been expected to simply give up in the face of superior US ingenuity could re-emerge as effective competitors, mimicking the current plight of the US auto industry.

To discourage the use of corporate aircraft is somewhat akin to telling a doctor to switch off the lights during surgery. Both are false economy. It's relatively easy to quantify the costs associated with a corporate aircraft-much less so the benefits.

Most analysts rely on intuitive justification. A common excuse is that there is a scarcity of sufficiently reliable and detailed information to estimate business aviation's contribution with confidence.

This is where more work is needed. In business, time is everything and aircraft are effective time machines. If we communicate convincingly that maintaining the health and vitality of business aviation is in our national interest, the public will share its cause and join in its defense.

Don Van Dyke is an 18,000-hr TT pilot and instructor with extensive experience in charter, business and airline operations. A former IATA ops director, he has served on several ICAO expert panels and is a Fellow of the Royal Aeronautical Society.

 

3


1 | 2| 3 |