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Business Aviation Justified

Posted on: September 29th, 2012 by Pete Agur

Business Aviation Justified

If growth is your goal, Business Aviation is your vehicle.

By Peter v. Agur, Jr.

Founder, The VanAllen Group, Inc.

 

“You cannot justify your use of Business Aviation economically.”  That statement exposes a fundamental lack of understanding of your core enterprise, your growth strategies, your culture, and how you apply your most critical resources.  It is like telling a community it cannot afford a fire truck because it costs too much per mile driven.

 

Your enterprises’ strategy probably seeks to create additional revenues while managing the resulting costs.  That means your future success is revenue-based.  Therefore, deepening market penetration, developing markets, and expanding products and service lines are all critical to achieving your goals.  Those outcomes rely on the leadership, guidance and influence of your key people.  Getting those key people more places, more quickly and more often shortens your business cycle and raises revenues, dramatically.  Your entire organization, top to bottom, can understand and support that.  Don’t be surprised by where that support comes from.

 

Years ago I was on an airliner en route to meet with the Chairman of GM.  Sitting next to me was a fellow wearing a GM windbreaker.  I asked him what he did.  He said he worked at a headlight plant and was on his way to Detroit to bring samples of new designs for a car under development.  I asked him if he knew GM had company planes.  He did.  He had ridden on their shuttle aircraft when he worked at another plant.  I asked his thoughts about their executive jets.  His responded very quick, “I’m glad they use them.  The more trips those folks take the more deals they do and that allows us to build more cars and trucks.”  He clearly understood how and why Business Aviation was used by GM.  Most impressive of all: he was a union shop steward.

 

To that GM employee’s point, today I am working on a project for an international investment banking firm.  Even though they have been long term Business Aircraft users, they have asked for a “clean sheet” analysis of all their air travel options for their top leadership team.  Their business is spread over four continents.  Like most companies creating and nurturing strategic alliances and markets, the CEO is directly involved in every deal.  In other words, their CEO is critical to revenue creation.

 

Like most financial executives, his CFO can see the power of savings.  After all, theoretically, every dollar saved goes directly to the bottom line as an incremental increase in profit.  Practically, that is not the case.  A dollar not invested in Business Aviation is partially offset by the added cost of airline fares, hotels, et al.  But there are two more less obvious costs this CEO and CFO should also consider; the economic cost of time and the less tangible costs of lost opportunity.

 

The economic cost of the CEO’s time is easily calculated.  A CEO being paid $5mm (well below the average for FORTUNE 500 CEOs) who puts in a 50 hour week is being paid more than $2,000 per hour.  Door-to-door travel time on Business Aviation takes about three hours per domestic leg and four hours per international leg less than on the airlines.  In this particular case, displacing the CEO onto the airlines for his international and transcontinental trip legs alone adds 220 travel hours to his annual schedule.  That is equivalent to more than four weeks of productive time lost to check-in, security, connections, customs and immigration, baggage claim, and added ground travel.  It does not take into consideration the en route reduced productivity due to the lack of privacy and effective work environment on the airlines.  220 added travel hours of top executive time costs the company well over $400,000.  That does not include the parallel costs for his travelling companions or the unscheduled delays which occur on about 25% of all airline flights.  It is apparent that the airline “net net savings” are much smaller than they initially appear.

 

Moving the CEO off of Business Aviation onto the airlines also incurs some unintended consequences.  The CEO is now spending 9% of his time (220 hours / 2,500 hours) getting on and off the airlines rather than doing business.  Since top executives’ time tends to be inelastic (there is no more time available), that translates to a 9% reduction in the CEO’s productivity.

 

In the end, something has to give.  When faced with this issue most executives frankly admit they would travel less, go to fewer meetings.  The ultimate impact on the company is fewer deals get done and those that do get done take longer.  What does that cost the company?  Probably a lot more than the difference between the cost of traveling on the airlines versus using Business Aviation.

 

Economically, think of Business Aviation as your company fire truck.  It is taking firemen and women to either stoke the engine of your enterprise with new revenues or to remote sites to put out fires that threaten it.  Either way, you wouldn’t send them on public transit, would you?  That is Business Aviation justified.

 

 

 

 

Peter v. Agur Jr. is managing director and founder of The VanAllen Group, a management consulting firm to business aviation with expertise in safety, aircraft acquisitions, and leader selection and development.  A member of the Flight Safety Foundation’s Corporate Advisory Committee and the NBAA’s Corporate Aviation Managers Committee (emeritus), he has an MBA, an airline transport pilot certificate and is an NBAA Certified Aviation Manager.  www.VanAllen.com.


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