Cos. Strategize For Efficient Use Of Private Planes

Corporations are finding creative ways to justify both the purchase of corporate aircraft and the continued operation of planes they already own.

In the case of some larger companies, one idea is to offset the direct and indirect costs of using the commercial air transportation system by running what is virtually an internal airline and allowing more of the companies' employees to use the corporate aircraft.

But for smaller companies that perhaps bought a plane in the late '80s and then realized how costly it was during the recession in the early '90s, the method is to spread costs around either by sharing aircraft with other companies or getting certified to charter out their planes. These techniques help prevent what is affectionately known as "dead-heading," where an aircraft has to return empty after a one-way trip.

"Air carrier certifications for companies that own their own aircraft is definitely new," said C. Sam Benson, president of Findlay, Ohio-based Aviation Consultants. "Since November, many, many companies have been getting their own certificates and chartering their planes out to offset the costs of ownership of big heavy jets."

Although the increasing use of corporate aircraft by company employees is being driven by many of the same trends as the use of charters (see story, above), the decision to buy a jet is sometimes more out of convenience for corporate executives rather than actual business need, Benson said.

"You still have your 'royal barges,' " he said . "I would say that over the last 10 years, there has been more recognition of how to better utilize the resources one has."

But in general, said National Business Aircraft Association president John Olcott, "more companies are providing business transportation to a broader spectrum of employees within the company. Today, as opposed to 10 years ago, top executives are representing significantly less than the majority of corporate aircraft users--it's seen as another business tool."

As such, Olcott said, the management of such operations is moving closer to the travel department. The NBAA said that 15 percent of member firms manage fleet and travel in the same department. Fifteen percent more have the travel and flight departments linked under the same umbrella.

One company that is making the most of its chartering is Cessna Aircraft Co. Cessna--in a unique position as an air travel buyer relative to what its core business is--has a charter certificate and leases its internal planes when they're not in use. According to travel manager Mark Johnson, who is also vice president and treasurer of the National Business Travel Association, "we promote that service to certain corporations, but you don't have to be a buyer of our aircraft to charter from us."

From a management standpoint, chartering out does take some management, considering pilot duty times and other regulations, Johnson said. But in most equations, that's a better option than leaving the plane in a hangar. Companies also can attach their aircraft to the certificate held by a charter company

The concept of fractional ownership, or one-quarter ownership, also has been popular over the past few years.

"A good rule of thumb when considering fractional ownership or outright ownership is whether your company's need for a plane is 400 hours a year or more like 150," Benson said. "In the latter case, fractional ownership or chartering would be the best bet."

Hundreds of companies have begun fractional ownership programs, starting with Montvale, N.J.-based Executive Jet's NetJets program. For years, the idea didn't catch on, but since the early 1990s, enough companies have signed on to lure new entrants such as Business Jet Solutions, a company that in itself has shared ownership with Canada's Bombardier Aerospace and AMR Combs--a unit of Dallas-based AMR.

Generally, a partial investment of a few hundred thousand dollars gets the customer 24-hour access to a small jet on a few hours notice. Customers pay monthly management and hourly usage fees, while aircraft insurance, hangars, fuel, flight crews and maintenance are managed by the supplier.

While the shared-ownership concept has received a lot of publicity and many customers are satisfied, it is certainly not for everybody.

"We looked at it and it wasn't much of a savings," said Peter Buchheit, chairman of the NBTA's airline committee and director of travel and meeting services for the Black & Decker Corp. "If the real purpose is to save money, I don't think this is the way to go. In terms of convenience, there are plenty of ways to be productive on the airlines and in terms of delays, if the weather's bad for the airlines, it's bad for our own jet too."

Cincinnati-based publishing company Scripps Howard signed with NetJets for a fractional share last year, but ended the arrangement after realizing "the costs just didn't work for us," said corporate treasurer John Wolfzorn. "We do business with a couple of charter companies when we really need that kind of service."

Another thing that is certainly not for every company is the outright purchase of several aircraft. Larger companies, however, tend to find some use for them.

The Xerox Corp. owns three jets, one of which is dedicated to the White Plains-Rochester, N.Y. route, one of the company's top city pairs. "For some companies, this is an opportunity to get better prices in certain city pairs," said travel services consultant Brad Seitz. "I know people who have taken corporate jets and put them on city pairs where there is monopoly service and the cost per mile is over a buck."

Xerox's White Plains-Rochester plane is a 30-seater that fills up as employees book that route through the travel agent. Seitz wouldn't say how much, if anything, Xerox is saving by using the aircraft. "I don't know if it's cheaper; it's there for employee satisfaction," he said. "Our other two aircraft--12-seaters--are dedicated to senior staff and there's a pecking order of about 50 managers who have the right to use them."

Richard Baich, manager of corporate travel and fleet for Pittsburgh-based Mellon Bank, isn't sure how much his 19-seat first-class shuttle between Pittsburgh and Philadelphia is saving, but he did say it's a hit with employees.

"It's run like an internal airline with a set schedule of two round trips a day, food service, etc.," Baich said. "Early on, we had to run a six-month test trying out different aircraft types, airports and flight schedules. We've been operating since 1993 and now it's running very smoothly."

Some benefits of such an operation, he said, are the convenience of a van pickup at the aircraft, the security and privacy of conducting business in-flight and the reduction in delays.

Although the company has considered other routes, none have enough demand to justify the implementation of a corporate shuttle, Baich said.

Mellon has two jets dedicated to executive use, although, Baich said "we have a very strict policy on these. The reasons have to be justifiable."

Companies with even larger travel volumes than these, such as Eastman Kodak, General Motors, Hewlett-Packard and Proctor and Gamble, to name a few, run even larger shuttle operations, often to remote locations to enable direct service.