Private Jets: One of the Least Understood Tools in Corporate America’s Arsenal

“Business aviation, when used appropriately, is a vital tool and clearly contributes to a business’ success,” asserts Bob Knebel, vice president of sales for Flexjet. NEXA Advisors’ recent study for the National Business Aviation Association (NBAA), Business Aviation An Enterprise Value Perspective, backs up the assertion. According to the study, S&P 500 companies that used business aviation outperformed nonusers between 2003 and 2007 across a number of key financial metrics, including average annual revenue growth on a market cap-weighted basis, average earnings growth, EBIT, EBITDA and market capitalization, among many others.

Smaller firms, too, benefit from business jet use, notes Knebel. “Many companies can’t remain competitive or manage without it because business isn’t limited to the concentration of 500 cities that commercial aviation serves,” he says. “Business is everywhere, and we serve all of it by flying to and from the 5,000 airports that commercial providers don’t serve. Business leaders simply can’t get their jobs done without it.”

Let’s Make a Deal
The business aviation industry, like the economy it mirrors, is currently experiencing one of the most difficult down cycles in its entire history which means it’s a great time to explore the entire spectrum of business travel solutions, from full and fractional ownership to jet card programs or chartered services. According to the NBAA, the current inventory of used airplanes available for sale has reached an all time high while prices for those planes have declined by as much as 40 percent. At the same time, general business aviation flight activity over the last 12 months has dropped nearly 18.5 percent compared with the previous 12months (according to a recent study by the Aviation Research Group/U.S.), stirring up a perfect storm for the business aviation market.

“Many of our competitors have been forced to significantly downsize both in fleet and employees,” says Steve Santo, founder and CEO of Avantair. “It’s very difficult to operate multiple aircraft flying multiple missions efficiently. We’ve seen this in the [commercial] airlines where industry giants like Delta and United Airlines have suffered while the airlines focusing on one aircraft such as Southwest and Jet Blue have thrived. Private travel programs will need to evaluate their strengths and weaknesses while streamlining their operation in order to survive. I believe we will see fewer providers with more focused solutions in the future.”

The market is already so competitive that the spread between the cost of fractional ownership (where you purchase or lease a share for a minimum amount of time on a plane) and charter service (where you buy one-way time on a plane a la carte) has narrowed to 10–15 percent, reports Riegel. “Fractional ownership traditionally has a much higher cost basis because of the newness of available planes and the higher pay afforded more experienced flight crews,” he says. “The pricing has come down close to chartered services, and you can even ask a fractional provider for a walk away lease—something you couldn’t do two years ago.”