Normally, of course, when a company employee flies from the US to a distant production facility in China or to sign a major contract in the Middle East, it makes economic sense to just buy an airline ticket – even if he or she is flying business class, where fares can be upwards of $10,000 or so.
That’s more effective…until it isn’t.
If that single executive morphs into a marketing team of six individuals traveling together, the cost of the tickets balloons to $60,000, assuming the executives don’t want to spend as much as 20 hours in the back of the airplane. Then add in the benefits of a corporate jet – the increased comfort, the efficiencies that comes from keeping the team together, an in-flight office where work can get done and confidential matters can be discussed – and the advantages of a corporate aircraft begin to make sense.
Perhaps most productive of all, the team can escape the tyranny of airline schedules, able to access multiple destinations in a limited period of time without having to juggle airline departure times and undergo the hassles of just getting through airport security. They arrive at the aircraft’s Fixed Based Operation (FBO) home, walk through the lobby, put their luggage on a cart that follows them to the aircraft, and within 30 minutes of arriving, they are in the air and on their way.
And while we tend to use the term “executive jet,” that is very much a misnomer. A 2009 study commissioned by National Business Aviation Association (NBAA) and the General Aviation Manufacturers Association (GAMA) indicated that only 22 percent of passengers on business aircraft are top management such as chairman, CEO, COO, president or board members. Another 50 percent range from vice presidents to general managers and directors, and 20 percent are technical, sales or service staff.
There is also a tendency to think that most corporate aircraft today are operated by large corporations. In fact, 85 percent of the business aircraft being used today are flown by medium to small sized companies, according to Ed Bolen, NBAA president and CEO. Nearly two-thirds (59 percent) of the companies that use these aircraft have under 500 employees and 70 percent have fewer than 1,000 employees.
The aircraft involved range “from small four-seat piston engine aircraft to intercontinental business jets that can fly half way around the world,” he says.
“What we’ve seen is that great companies make decisions based on what tools to use based on the mission they are trying to accomplish. For some missions, business aviation may be the best tool. And for others, business aviation may be the only tool.”
Net Benefits
The use of corporate aircraft is also indicative of well-managed global companies, according to a 2013 report prepared by NEXA Advisors and NBAA. The report showed that 88 percent of the top 50 leading companies used business aircraft. Among the world’s “Most Admired Companies,” 98 percent of the top 50 use corporate aircraft. The report also stated that among the Global 2000 top 20 companies by category, corporate aircraft were used by 85 percent of the pharmaceutical companies, 100 percent of the oil and gas companies and 100 percent of the aerospace and defense companies.
While the bottom line is obviously always a major consideration, it’s really an equation of “cost vs. value.” And understanding the net benefits – the incremental benefits offset by incremental costs – should be a major contributor in a company’s decision to use business aviation. (See UBE Chart)
According to a European Business Aviation Association survey, 88 percent of respondents reported time saved as a reason they use corporate aircraft. It simply allows business to be transacted more quickly. This was followed by the ability to use airports not served by the airlines, more comfortable flights, privacy, ability to work en route and security.
As for the ability to use airports not served by the airlines, the 2009 report showed that corporate aircraft were flown into airports with no, or infrequent, airline service 47 percent of the time. Another 33 percent went into secondary airports. Only 19 percent went into large commercial airports.
Getting On Board
So, the question for many companies becomes not so much whether to use corporate aircraft, but how to go about it.
There are generally four methods for adding an aircraft to the company tool box — outright ownership either through purchase or lease, charter, fractional ownership and the Jet Card. Fractional ownership is when several companies, or even individuals, pool their resources to share the costs of the aircraft, with the percentage of time each company can use the aircraft equal to the percentage of the cost each pays. Jet Cards are like debit cards, with a specific number of hours used as needed.
Bolen noted that there are actually a wide variety of ways to obtain flight time, such as buying a block of time from a charter operator. “Travel managers just need to be creative in getting access to aircraft,” he concludes.
The decision on how to acquire the aircraft depends on variable factors —how often the company will need an aircraft, how many people on the average will be traveling, typical destinations (national, international, Europe, Asia, etc.) and how many hours will be put on the aircraft per year.
Companies that will only use a corporate plane two or three times a year probably should charter the aircraft on an ad hoc basis, Bolen says. If the aircraft will be used 25 to 30 hours a year, the Jet Card may be best. For those companies who use an aircraft up to about 200 hours a year, fractional ownership might be most cost effective, “and if they are going to be flying 300 or 400 hours a year, it kind of makes sense to have their own aircraft and flight department.”
Jens Henning, VP of operations for GAMA, notes that sales for small to medium sized corporate aircraft have plummeted since 2008 when 371 planes were sold, to sales of only 77 aircraft in 2013. But now companies that are buying aircraft for charter or Jet Cards are now starting to resurrect their fleets.
The drop in sales generally was caused by a lack in financing, Henning says. “Customers’ balance sheets may not be looking as good as they should, so their ability to access financing was a little bit tough.” The good news for the small and medium corporate market is that with the recession starting to go away, “we know there is a pent up demand that bodes well for the future.”
As for large corporate aircraft, orders went from 194 in 2008 to 249 last year. These purchases came not just from the more mature corporate aviation markets in the US and Europe, but also from throughout the world. “We understand that those customers are all from large multinational corporations that did not have to go out and get third party financing during the recession.”
Here Be Dragons
The EBAA report shows that 29 percent of people surveyed said security is a factor in their decisions to fly in corporate aircraft. It should be higher.
More and more markets are opening in areas of the world not known for their political and societal stability. And even for areas that might be considered stable, executive travelers by nature tend to be highly experienced in meeting clients, but naïve about geo-politics, according to John Rose, COO of iJET International, an Annapolis, MD-based operational risk management company. They are thus inclined to believe that last year’s peaceful, bucolic destination will be the same idyllic place this year.
Unfortunately, things change rapidly and the world is becoming an increasingly volatile and scary place. Last year’s quiet tree-lined boulevard is this year’s arena for violent demonstrations and rioting. It is therefore incumbent upon the corporate travel office to provide risk assessment briefings on the areas into which business travelers are being sent, whether it involves possible violence or simply a monumental waste of time.
With the growing suspicion of terrorist activity in the skies over certain regions of the world, most recently in Southeast Asia, there could easily be a massive increase in security efforts at airports in some regions, resulting in literally hours required to get clearance through repetitive security check points.
However, if the travel management office has been appropriately briefed, a corporate aircraft can be chartered, allowing the company’s executives to show up at the FBO, climb on board and be in the air within half an hour of arriving at the airport. But it takes planning.
There are basically three pillars of security management, Rose says. “Prepare, Monitor and Respond.”
The “Prepare” stage actually drives the other two. The middle of an emergency is not the time to start trying to figure out what to do.
Companies such as iJET provide detailed, actionable intelligence on upcoming destinations, whether it’s airport problems, potential terrorist activities, labor strikes that will disrupt travel, or changing visa requirements that would prevent travelers from entering the country once they arrive. This allows the travel manager to assess the situation and advise the corporate traveler.
The second phase is to monitor the traveler, watching for the first signs of trouble. One recent situation occurred last February when an Egyptian militant group called on all tourists to leave the country. If danger does arise, the response phase kicks in.
“This means being prepared to respond when something goes wrong,” Rose says. “What is the plan? Who does the employee call? Who does the company call? What is our response protocol?”
This might be as simple as advising the employee when to drive through a city. Driving from the Cairo Hilton in the center of town to the airport early in the morning when the city is asleep is better than at high noon when demonstrations are likely to break out on any street corner, threatening danger.
However, that can also put the executives at the airport hours away from a scheduled airline flight – a dead waste of valuable executive time. Having a corporate aircraft waiting at the FBO at 5:00 AM puts the company’s employees immediately in the air and on their way to their next destination.
Operational risk management companies can also provide hands-on evacuation operations when a situation deteriorates to the point of putting travelers in harm’s way. Rose notes that iJET has a team of specialists trained to respond to that sort of situation. These are former military personnel from elite units such as Navy SEALS or Marine Force Recon, he says.
Last December, iJET responded to rising tensions in South Sudan by sending in a rescue team to evacuate clients caught in a truly potentially dangerous situation. Using light aircraft, the response team was able to evacuate the clients, making them among the first groups out following the re-opening of the airport.
Rose says that basic services cost the same whether a briefing concerns how to stay alive in Pakistan or how to avoid pickpockets in Paris. However, customized services are additional, such as GPS monitoring of executives, or special briefings for women going into Muslim countries or first time travelers going anywhere.
Despite the age old, and totally erroneous, perception of the corporate jet as basically a toy for a company’s top executives — a means of getting to the ski slopes, a golf tournament or the Super Bowl — today’s executive aircraft are increasingly recognized for exactly what they are: An effective transportation tool used to increase the value, productivity and security of the company’s travel requirements.
