Corp. Jet Orders Rise Despite Lingering Stigma Of Excess
Business jets—whether owned, fractionally held or chartered—continue to gain usage among U.S.-based corporations, according to manufacturers and operators, despite the federal Sarbanes-Oxley law's continual chokehold on corporate malfeasance and lingering perceptions of jet usage as corporate excess.
The 2002 law continues to shake up how public companies based in the United States monitor and document business processes, but companies have been able to create—and document—strong business cases for use of jets.
"Sarbanes-Oxley doesn't say you can't do something," said John Ohaver, vice president of corporate travel consulting firm Management Alternatives. "It just says, make a business case for what you're doing and document it. Before, it was those in the executive suite that just wanted to have it. Now, we actually have the auditors, the risk managers and the travel managers agree to it and say, 'Yes, it makes sense, we're documenting and that's fine.' "
In a report released more than 10 years ago, the National Business Aviation Association highlighted the benefits of using corporate jets and still stands by its assessments. According to that report, owning business aircraft makes economic sense, garnering "time savings, improved schedule reliability and flexibility, enhanced mental alertness and stamina, improved en-route work environment, value of employee time, reduction of overnight stays and corporate flexibility."
"Those who wanted corporate jets say it does make sense, whether it's because of security reasons—which is a really strong reason to use business jets—or because of the time concern. I can pop somebody in and out faster than they can get on commercial aircraft," Ohaver said. "Whether it's senior executives or a team, time is money and it can actually be cheaper to use these. Companies can make the business case to do it."
"For the corporate people we deal with—we're talking presidents, the three Cs, senior executives—economics typically is not the first key," said Wayne Rizzi, president and CEO of air charter broker Air Royale International, who estimated that 85 percent of the company's business comes from the corporate market. "It's their worth. To leave at a time that's designated to get straight down to Australia from the West Coast and talk sensitive business—they're not going to do on a commercial airline. When you talk about a small to midsize company, there's more economics going on. I've got five gentlemen; they're all partners in a new venture. Because they have several outlet stores in a three-state area here in the Southwest, it's virtually impossible via commercial air carrier to do it."
Business jets in 2005 recorded among the highest growth of all types of aircraft, with the shipment of 750 jets, compared with 591 in 2004, according to the General Aviation Manufacturers Association. Jet manufacturer Embraer said it is relying less on regional jet orders from major airlines and focusing more on business jets—sales of which grew 27 percent last year.
Bombardier, another large manufacturer of business jets, last month said that it delivered 186 units in 2005, compared with 128 in 2004. Like Embraer, 2005 saw less activity for Bombardier regional jet sales to airlines—deliveries totaled 149 as opposed to the 200 sold the previous year.
As manufacturers see steady growth for business-use aircraft, fractional owners and charter brokers also are seeing a boost in business.
"We see a lot of growth and continue to exceed over previous years the hours flown each year. Our revenue flight hours for 2005 were up 39 percent over 2004. Our aircraft are constantly flying and our membership program continues to grow," said a spokesperson for Delta AirElite, the only business jet provider operated by a major airline. "We're seeing that a lot of airlines struggling to regain profitability and eliminating some less-profitable routes. Usually, those are not served by airlines and so much of American business is not centered in corporate centers; it's out in the hinterlands. If I'm in Des Moines and need to get to Pocatello, Idaho, I probably have to make three stops on an airline to get there."
The industry still faces perception problems, though, primarily the view that corporate jets are a symbol of corporate excess. However, those in the industry are trying to quell such perceptions. During NBAA's Schedulers & Dispatchers Conference in San Antonio in late January, NBAA president and CEO Ed Bolen derided the perception of corporate aviation as wasteful, while encouraging more than 2,000 attendees from the industry to "get engaged" in government action. "Business aviation is a large, important and diverse part our economy, but we've never made our size felt," he said.
In fact, many of the same instances of corporate corruption that inspired Sarbanes-Oxley also dragged on the image of business jets.
In addition to new proposals to change Federal Aviation Administration fees regarding air traffic control funding (see story, below), "there are a lot of other issues, primarily tax issues, that are related to what a lot of people perceived as the CEO scandals of the past couple of years," Bolen said. "Business aviation unfortunately got tainted with the brush of being a luxury, an entertainment vehicle, a personal toy. So, tax laws have changed related to the entertainment use and personal use of business aircraft."
However, if corporations still fear running afoul of corporate governance rules, just take a look at Rep. Michael Oxley (R-Ohio), half of the corporate governance law's namesake. Published reports of Federal Election Commission disclosures last year showed the congressman was the most frequent flyer on corporate jets among the entire House of Representatives.