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Taking flight: when and why you should buy a corporate jet

Chief Executive, The, August-Sept, 2004 by Scott Henjum

Mark Nylen, the CEO of Mobren Biological, a pharmaceutical ingredient supplier, picked up the phone at his office in Sioux City, lowa, one morning last spring and heard troubling news. There was a problem at a vendor's plant in Sandusky, Ohio, that threatened several batches of expensive raw materials. He needed to get there as soon as possible.

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Wasting little time, Nylen made a five-minute drive to Sioux City Gateway Airport and boarded his company's new jet for the 1-hour-and-40-minute flight to Ohio. "I couldn't have gotten to the plant in time on a commercial flight," Nylen says. "The plane allowed me to resolve the product-quality problem in person and get back home the same day. I got to have dinner with my family, attend an event at my son and daughter's school and sleep in my own bed. I was back at my desk first thing the next morning, rested and ready for work."

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Mobren Biological is one of more than 14,000 companies in the United States that use a fleet of 23,000-plus corporate airplanes and helicopters. Large corporations are the heaviest users of private aircraft, with more than 75 percent of the 500 largest public companies in the U.S. owning and operating their own planes, according to the National Business Aviation Association, a Washington-based trade group. Small and midsize companies, too, invest in business jets and propeller planes to try to stay ahead of their competition.

Although viewed by critics, in some cases rightfully, as symbols of corporate excess, business aircraft offer obvious benefits. They enable time-pressed CEOs to make direct flights to far-flung offices or operations that would take many hours longer to reach via commercial airlines. Even on routes well served by the major carriers, the frequent delays at commercial airports and the chance of a security breach, however small, make the option of owning a corporate plane, or a fleet of them, all the more attractive.

The uses of corporate aviation run the gamut. In addition to transporting their chief executives, companies use their planes to shuttle key customers to corporate headquarters, deliver engineers to manufacturing sites and to help sales and marketing teams spend more time in emerging markets.

Automakers, for example, have relied on business aviation for decades. Ford Motor has been doing so since 1928, when the company introduced its influential Tri-motor plane, which helped sell the concept of aviation to the American public. More recently, Ford has operated two 48-seat commercial-grade Fokker 70s for the past decade to transport engineers and managers between its North American manufacturing plants and its headquarters in Dearborn, Mich. The company also maintains a small fleet of mid- to long-range jets used to shuttle senior executives, as well as a fleet in Europe, where short commercial flights are expensive and many destinations are hard to reach.

After a slowdown during the recent economic downturn, improved corporate earnings over the past two years have renewed interest in business planes, analysts say. One factor fueling sales is what's known as a bonus depreciation clause included in last year's tax bill. The provision allows companies to depreciate half of the value of new planes in the first year of ownership. The tax benefit is set to expire in January 2005, although the aircraft lobby is trying to extend it.

The bonus depreciation benefit was the key reason that Mobren Biological bought its $5.4 million eight-seat jet, a Cessna Citation CJ2 late last year. In the past, Nylen and his senior management team would charter aircraft between 50 and 100 hours a year, at an annual cost of $120,000 to $150,000. Now, the company, which produces a raw form of an anticoagulant called heparin for leading pharmaceutical companies around the world, uses its jet about once a week. Its senior managers take it to visit 35 vendor and customer plants throughout the U.S. and Canada, most of them located in rural areas that are poorly served by commercial airlines. In all, says Nylen, the company expects to use its jet up to 300 hours this year. Although it was a large up-front purchase, the CEO says he's confident the jet ultimately will pay for itself.

Weigh the Variables

With the current optimism in the marketplace and lower prices on both new and used planes, many CEOs will face the inevitable, and difficult, question: When is the right time to buy a corporate plane?

There is a range of sophistication levels among chief executives when it comes to buying a plane, says David Almy, a vice president of the National Business Aviation Association. "CEOs are experts at many things, especially making widgets," he says, "but they are not necessarily experts at weighing the variables associated with buying a plane." Almy speaks from years of experience; he has spent time in the executive suite with more than 45 CEOs to determine why they bought business aircraft. "Some CEOs can articulate their rationales immediately, others can't until the second hour of the conversation, and some explain them during the second day," Almy says.

Business Services Industry

Taking flight: when and why you should buy a corporate jet

Chief Executive, The, August-Sept, 2004 by Scott Henjum

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