Private Jets Rise Again: Annoying Executive Perk or a Sign of Economic Recovery?
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Car Execs Paint Targets on Business Aviation
It isn't hard to see why business aviation got a bad name back in 2008. As the economy went into free-fall, tales of multimillion-dollar office renovations, insanely expensive business retreats, and billions of dollars in bonuses for the people who had demolished the economy helped transform an already-angry populace into a furious mob, baying for Wall Street blood. In a time when restraint was an inestimable virtue, the leaders of Detroit's "Big Three" threw caution to the winds, flying private jets to Washington D.C., where they begged Congress for bailout funds to save their ailing companies.
Compared to the billions of dollars that their companies had misused, the thousands that Detroit's top execs blew for the trip were chicken feed. However, as U.S. Rep. Gary Ackerman (D-N.Y.) put it at the time, "There is a delicious irony in seeing private luxury jets flying into Washington, D.C., and people coming off of them with tin cups in their hands, saying that they're going to be trimming down and streamlining their businesses ... It's almost like seeing a guy show up at the soup kitchen in high hat and tuxedo. It kind of makes you a little bit suspicious."
Eager for big business villains, Congress and the media jumped on the anti-jet bandwagon, noting the high cost of private planes, the comparative cheapness of commercial flights, and the outrageous sums that Detroit was demanding. For example, General Motors' (GM) CEO Rick Wagoner's company-owned Gulfstream (GIGIQ) jet cost roughly $36 million, and the price tag for his Washington jaunt topped $20,000. Next to the $10 billion to $12 billion that he was requesting from Congress, these numbers seem to be barely worth mentioning, but when compared to a $288 coach ticket from Detroit to D.C., his private flight was outrageous, and he was pilloried in the press.
A Leading (Or Flying?) Indicator
While Detroit's shortsightedness was devastating, it was hardly the only problem facing private business aviation. In the early days of the recession, as consumption went down and unemployment went up, American businesses started making fewer and fewer deals -- and using fewer and fewer private planes to travel to meetings.
"In 2007, the industry hit an all time high," he notes, "but in 2008, it started to go into decline. Late in the year, it went into a steep decline." For private jet manufacturers, this was particularly devastating: As The New York Times reported, sales across the board dropped by 28% between 2008 and 2010. The lower end of the industry took a particularly large hit, as sales of jets that cost between $4 million and $26 million plummeted by more than 57%.
By February 2009, the tumbling fortunes of private business aviation had begun to stabilize, but sustained recovery wouldn't arrive for another year. According to Kleros, business jet activity increased by 11% between 2010 and 2011, and has had an amazing 15% increase over its lowest point in 2009. Not surprisingly, much of this travel has been to India and China, but there has also been impressive growth in other areas, including Singapore, Brazil and the Middle East.
International Travel and International Business
Kleros emphasizes that the private aviation explosion has largely been due to a resurgence in business aviation, not personal aviation, and suggests that the increase in flights to Asia, the Middle East and South America indicate considerable business growth in those areas. But, while the growth in business aviation seems to offer a promising outlook for American businesses, many companies are still hesitant to admit that they own private jets. In fact, when making the above video, we were repeatedly instructed to obscure tail numbers, as companies didn't want the existence of their expensive planes publicized. Asked about JSSI's customers, Kleros offers an enigmatic smile and says "We work with many Fortune 500 companies."
Given the cartoonishly wasteful behavior of the Detroit Three, it's easy to dismiss business aviation as a ridiculous expense, but Kleros is quick to note the potential cost-savings of private business aviation. "A jet flight to China costs roughly $7,500 per hour," he estimates. "To fly one person, that's a lot of money. But if you're flying a whole team ... the cost becomes more economical." Factoring in reduced flight times, more flexible logistics and the fact that a team can use a private jet to work while en route to a meeting, and business aviation starts to look like a bargain.
But does the business aviation industry's recent growth presage a broader economic recovery? Even in the aerospace industry, its effect seems negligible so far. While private business flights have gone up, year-over-year sales of private jets dropped by 4.6% between 2010 and 2011. However, Honeywell Aerospace (HON), a major player in the private aviation field, predicts that 2012 will usher in a period of major expansion for private jets. With an estimated $225 billion in sales over the next decade, Honeywell's forecast may be a harbinger of a bright future ... or a lot of hot air.