Monday 23 October 2017

After belt-tightening it's all about spreading wings again

Globe-trotting CEOs have been flocking back to their corporate jets as the stigma of perks wanes

IN FLIGHT: A Bombardier Global 6000
IN FLIGHT: A Bombardier Global 6000
LUXURY: Interior of an Airbus ACJ318

Thomas Black

CAVAN-based Kingspan has previously clocked up bills for private jets, spending €1.15m on "travel services" from chairman Eugene Murtagh's jet company up to 2012. Drug company Elan was grilled by investors over its use of private jets. Larry Goodman has a swanky Dassault Falcon 7X M-LJGI but the use of executive planes for Irish business travel has shrunk since the boom time.

While a weak economy may have contributed to this, the use of private jets – especially by public companies – didn't help. This may be beginning to change.

New trends in the US show that while stock market quoted firms have curtailed company-paid perks like hunting lodges and golf club memberships, CEOs are cranking up personal use of corporate jets.

The boards defend the perk as a tool to guarantee security and reduce wear and tear on globe-trotting executives. The result: non-business travel expenses rose for the third straight year in 2013. Gone is the outrage at CEOs flying in high style that peaked during the recession.

"If your CEO is on vacation and you need him or her to come back quickly, you'd much rather have them be able to hop on a plane and fly back for a meeting as opposed for them waiting to catch the next commercial flight," said Aaron Boyd, director of governance at Equilar, a California-based firm that compiles data on executive pay.

General Electric CEO Jeffrey Immelt racked up $343,121 in personal use of the corporate plane last year, and the tally for JPMorgan Chase's Jamie Dimon doubled. Meanwhile, billionaire Larry Ellison leased his own aircraft to the company he runs for $1.5m.

Spending on jet travel rose 61 per cent last year among the 10 top Standard & Poor's 500 firms that reported such data and 3.1 per cent for the top 50.

Companies like Boeing and Halliburton mandate the use of corporate jets for leisure trips. And flying enthusiasts like Ellison, the 69-year-old founder of Oracle, and Google's Eric Schmidt are taking it to the next level by renting their own jets to the firm.

Oracle paid Wing and a Prayer, the operator of Ellison's aircraft, a total of $4.3m over three years. At Google, executive chairman Schmidt was reimbursed $1.4m as executives, including the CEO himself, flew on his private aircraft in 2013. Schmidt, a billionaire, doesn't profit from the deal, the company said.

Personal use of corporate jets is making a comeback after some corporations took the perk away five years ago following the financial crisis. The outrage peaked when auto chiefs including Ford's Alan Mulally and Rick Wagoner, then at GM, flew on company jets to plead with Congress for bailout money.

The stock market gains of the past two years – the S&P 500 has jumped 34 per cent – helped diffuse criticism over some perks, paving the way for more travel on the corporate jet, said David Schmidt, a consultant at executive compensation firm James F Redas in New York.

"If the company is performing poorly, it's a red flag and people are going to be upset," Schmidt said. "If the company is performing wonderfully, who cares."

Google's Schmidt, 59, is reimbursed at $7,500 per hour for the company use of his aircraft, which is less than operational costs, the search engine said in its proxy.

"Eric does not profit from the use of these aircraft," the Mountain View, California-based company said. Google didn't return calls and messages seeking comment.

The winners of the rebound in corporate flying are jet makers like Gulfstream, a General Dynamics unit, and Bombardier. The delivery of large jets including Gulfstream's G650 and Bombardier's Global 6000 rose 32 per cent to 249 jets last year from 2011, while medium and small planes dropped 15 per cent.

Most companies cite security as the reason they pay for CEOs to take non-business trips on the plane.

Personal jet usage by Facebook's Mark Zuckerberg and his guests totalled $650,164 in 2013 and accounted for 99.5 per cent of his total compensation. The 29-year-old billionaire CEO, who takes a $1 salary, flies on chartered aircraft "in connection with his overall security programme", the social-networking company said.

Halliburton, the Houston-based oilfield-services company, goes a step further. After a threat analysis from a third-party security firm, the board has directed CEO David Lesar, his wife and children to use the company's aircraft for all travel. The personal use of company planes attributed to Lesar was $463,329 in 2013, up 35 per cent from the previous year.

"There are companies with legitimate security risks," said Alan Johnson, founder and managing director of the New York-based compensation consultant Johnson Associates.

"Having them fly on the company aircraft with more security is probably a really good idea."

Unlike small jets and turboprop aircraft that are flown by the owner, corporate jets match the safety record of airlines. Since 2005, there have been no fatal accidents in the US involving company-owned business jets flown by professional pilots.

©Bloomberg, additional reporting by Nick Webb

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