Corporate Aircraft: Tools For Competitive Advantage, Not Toys

It’s the kind of trip any busy CEO dreads—a “quick” round trip from HQ in Denver to a key client at a remote facility in Montana without a major commercial airport nearby, then a visit to another client in the region before heading back home. Rob Holland, CEO of Denver-based Flagship Foods, figures that when you throw in ground transportation, travel would be 30 hours over five days.

He had a better plan: His company’s Eclipse 550 jet. “That’s six-and-a-half hours of travel as opposed to 30-plus hours over five days, and I’ve seen twice the number of customers in one-fifth the time,” he says. In addition to the productivity boost, the actual costs, factoring hotels, rental cars, meals and other expenses, come out in business aviation’s favor. “It’s real easy [to justify], whether it’s for the CFO or the IRS,” Holland, a former investment banker, says. “We do this [cost analysis] for every flight.”

Corporate jets routinely come under fire as playthings for the rich and powerful rather than an efficient use of capital. Yet a new study suggests that Holland is not alone—the use of business aircraft plays a significant role in enhancing an enterprise’s value. A report by investment research firm Nexa Advisors, Business Aviation and Top Performing Companies 2017, caps two decades of studies that consistently find “companies that have business aircraft at their disposal outperform those that don’t,” says lead author and economist Michael Dyment, the firm’s founder.

Released October of 2017 at the National Business Aviation Association’s (NBAA’s) annual convention, the study found that S&P 500 companies who use business aviation outperform their non-business aviation-using peers by about 70 percent over the past five years. “When you segment the S&P 500 into users versus nonusers, the improvement in what we call ‘enterprise value’ is more than 70 percent greater for users over that five-year period,” says Dyment. “Without doubt it has become a very powerful tool for the best-managed companies in America.”

Covering Ground
Advocates say the advantages provided are as varied as the way companies use business aviation but often boil down to saving time and/or money, improving efficiency and creating opportunities where none would otherwise exist.

The Nexa studies had their genesis in the late 1990s when NBAA asked accounting firm Arthur Andersen, where Dyment then worked, a hypothetical C-Suite question: “If I buy a business jet, will my stock price go up?” Dyment and colleagues had difficulty establishing that link between aircraft purchases and stock performance, because the evidence was “all circumstantial,” he says. “But we could analyze the S&P to see how business aviation might impact the drivers of shareholder value.”

The researchers developed a unique “utilization yields benefits that yield enterprise value” (dubbed UBV) methodology linking business aircraft use—whether through ownership, charter or other access model—to fundamental drivers of long-term value creation, including revenue growth, profit growth and asset efficiency.

Nexa applied the same rigorous analytics in comparative studies of S&P 500 companies before, during and after the Great Recession and in complementary studies of the S&P Small Cap 600 and international companies. All of the metrics produced similar results. “It’s truly a tool for top-performing companies,” asserts Dyment.

A number of corporate leaders have gone public to proclaim their support for business aviation—Andrew Taylor of Enterprise Holdings, Thomas Frist of HCA, Jimmy Hayes of Cox Enterprises and Berkshire Hathaway’s Warren Buffet among them—although many public company CEOs opt to remain mum on their use of business aviation. However, leaders of privately held companies seem less reticent, especially those who serve double duty as corporate pilots of the small aircraft they say propel them to success.

“I think of my airplane just like a forklift in a warehouse,” says Brad Pierce, president of Restaurant Equipment World in Orlando, Florida, who used his single-engine Cirrus SR-22 to grow a business started by his father into a national company with 100,000 accounts. “I don’t think twice when I need to spend on a forklift, but people think [buying] airplanes is way, way out there.”

Flying By the Competition
Restaurant Equipment World also pulls “real-world airline ticket data for every flight,” Pierce notes. “That’s not only to prove to the CFO and the IRS, but for comparison to what it would have cost in time and money to go commercially.” (The comparisons have proven favorable.)

Given the time that some commercial airline trips entail, many companies without access to business aviation simply curtail travel, hoping that video conferencing through Skype and other services will suffice. However, CEOs like Rod McDermott, co-founder and managing director of executive search firm McDermott & Bull, find that that on-site face-time opportunities provide a competitive edge. The California-based CEO says he used his Eclipse jet to build his company’s financial services recruitment business by personally visiting community banks “two to four hours from big cities” throughout the West Coast area.

“My plane was the perfect business tool,” he says. “My competitors just wouldn’t visit.” Now McDermott heads his firm’s burgeoning aerospace executive search business, and the jet remains invaluable, making multi-city cross country trips in a day or two. “In our field especially, having an aircraft makes so much sense,” he says.

Research backs up his assertion. Nexa developed a “mobility framework” to measure the value of various forms of communication for a variety of interactions.

High-value interactions, like competitive negotiations, “are so strategic, you can’t use a phone call,” says Dyment. “You really have to go face to face.” That gives those with the most transportation options the edge. What’s more, beyond bolstering the bottom line, having private transportation options also delivers intangible benefits that companies now have “a richer understanding” of, says Dyment, such as enabling employees to spend more nights at home.

Paradoxically, the tighter scrutiny these assets are under due to corporate accounting transparency mandated by the 2002 Sarbanes-Oxley Act is making bizav-using companies “a little less shy now about aggressively using their business aircraft,” says Dyment. Operators are less concerned about appearances now that business aviation use is given more scrutiny and there’s more oversight of usage.

In fact, we may see expanded adoption of business aviation going forward, thanks to metrics that quantify its business value. “If you go back to the late ’90s, CFOs were very skeptical of its value,” says Dyment, who says the past two years have changed the perception that business aviation is a luxury. CFOs “have morphed into becoming strong advocates of business aircraft. I wouldn’t call them evangelicals, not yet, but they understand. They see the impact of being able to move a deal team around and collaborate on the airplane, and the better thinking and analysis you get.”

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