Monday, November 30, 2009

Corporate Jets: Extravagance or Efficiency?

The Obama administration and its allies in Congress—not to mention their political supporters in the news media—lose no opportunity to demonize business leaders, doctors, others with high incomes, and big companies themselves as “enemies of the people.” The business executives' salaries are said to be too high, their bonuses too generous, the corporate life style too extravagant; doctors charge too much; oil companies are gouging the public, etc. All this is grist for the propaganda mill of the Marxist doctrine of class warfare. The wealthy, the successful are singled out as greedy, wasteful public enemies—but the government will do “justice” by dictating how much doctors can charge, what executives salaries should be, how large bonuses should be, how businesses should be run (or merged or sold off), what products they should sell (e.g., “green” cars) and what kind of fuel should power the factories. And even what kind of transportation business leaders should use. All these things are not to be decided be any economic measure—in fact, the intent is to bypass economics entirely in favor of an anti-capitalist ideology. Economic disparity is in itself taken as evidence of a “problem” and a need to “spread the wealth”. Only the government, we are told, can correct the situation. Only government can know what is the right price for bonuses, doctor's services, etc., and only it has the power to enforce such “fairness.” Whether the government has the constitutional authority to do so or violates people's rights or liberty seldom comes up in discussions of these government interventions.

When the heads of the three American auto companies were summoned to Washington for a Congressional hearing, they were roundly criticized for arriving in their corporate aircraft. As far as I can tell, the question never came up as to whether corporate jets were an efficient, economic use of resources. It was just automatically assumed they weren't. No evidence was deemed necessary. They were simply guilty. Bad people, whom everyone should despise.

But companies invest in corporate jets for the same reason they routinely invest in telecommunications equipment, computer software, machinery and other things that promote efficiency and productivity. With private aircraft, business people can make several stops at different locations and return home the same day, saving time and travel expenses that would occur it the same trip were made over several days via auto, train or commercial aircraft. The latter can land at 500 airports, while corporate aircraft can land at 5,000. Commercial carriers have rigid schedules and destinations while private jets can fly at times of convenience and have great flexibility of destinations. Those are the same reasons so many people drive automobiles instead of taking buses.

Business aircraft also allow several employees on the same plane without the expense of additional tickets that would be required on a commercial aircraft. And those employees can meet, plan and work with each other in complete confidentiality and security aboard business aircraft.

Of course, not every business has its own aircraft or would benefit by doing so. But certainly the politicians in Washington do not know how to make such decisions for businesses. Clearly the management of companies that choose to invest in corporate aircraft have found it helps them become more efficient, productive and competitive. A recent study by Michael Dyment concluded, “In conducting this study, we found that companies using business aviation outperform non-users across every key financial and non-financial measure of business success.” Here are some specific findings of the study, which covers 2003 to 2008, the latest six-year period for which complete data was available:

-Average annual earnings growth was 434 percent higher for users of business aircraft than for non-users:

-Total stock and dividend growth was 252 percent higher for users...

-Total share price growth was 156 percent higher for users...

-Among Business Week magazine's 2009 “50 Most Innovative Companies,” 95 % of the S&P 500 companies were business aircraft users.

-Among Business Week's 2009 “25 Best Customer Service Companies.” 90% of the S&P 500 companies were business aircraft users.

-Among Fortune magazine's 2009 “100 Best Places to Work,” 86 % of the S&P 500 companies were business aircraft users.

-Among Fortune's 2009 “World's Most Admired Companies,” 95% of the S&P 500 companies were business aircraft users.

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