In today’s economy, obvious opportunities to use business aircraft are sufficient only if the numbers make sense.
Conklin & de Decker, the firm where I am a part owner, did a Business Aviation study for a major supplier to the Big Three shortly before the auto industry’s financial woes hit. The supplier already had an older business jet, but company officers were considering a much larger airplane with global range because their travel needs had expanded. Both the CEO and Senior VP used the business aircraft; the latter officer traveling between 200 and 250 days per year. In particular, he was doing considerable European travel, staying out on the road more days than he cared to admit, and the airline connections were not favorable. The CEO and soon, this Senior VP, were also negotiating contracts—indeed big contracts—in Asia.
The supplier’s current business jet was too small and lacked the range for Europe, let alone Asia.
The CEO and Senior VP were clear on what they needed—the ability to go global.
The CFO was just as clear on what he needed—financial justification.
There was no way would the CFO stand for a Royal Barge. The aircraft had to earn its keep, or he would recommend the board veto it.
Our goal at Conklin & de Decker was to recommend an aircraft upgrade that could handle the global travel of the CFO and SVP, both as flying-office and as restful-space, so that these rainmakers could do business right after landing. The CFO and by extension the board, however, was not going to write a blank check. Although profitable, the company was facing the costs of a major expansion and major growth. The Board needed justification for every dollar spent.
Going from the Midwest to Europe non-stop was a firm requirement. That parameter gave us a set of aircraft to evaluate. The Midwest to Asia was either one-stop to two-stops with the aircraft available at the time. Non-stop to Asia was technically feasible but only if the weather was perfect and the headwinds were light. Our analyses identified two sets of aircraft, those with about 4,100 NM range and those with in excess of 6,000 NM range.Both aircraft groups have comfortable cabins with the latest air-to-ground communication systems. The seats could fully recline allowing for the executive to rest, if necessary. The galley could prepare the meals needed to fuel people for a 10 to 14-hour trip.
The differences that had to be addressed were:
– Any new aircraft would cost more to acquire than the sunk investment in their current, smaller business jet.
– Operating costs would go up with a bigger jet. However, given the newer aircraft’s more fuel efficient engines and advanced systems, the cost jump was minimal.
– Acquisition had to make sense financially.
For the European trips, three days of business with clients took five days via the airlines (six if you counted jet lag effects). The new business jet could complete the trip in four days, saving one travel day and returning a rested, more productive Senior VP to his office. For the Asian business the time saved increased to three or four days per trip.
We were able to show the added days in the office and the business jet’s more productive travel environment en-route were valuable to the company. The reduced travel time, in excess of 60 days per year for just the two executives, was seen as significant by the CFO.
The saved travel days, the productive work environment on the business jet, and the secure work environment were good financial reasons for the new aircraft.
Still, the question remained—which business jet would be better. Do they obtain the 4,100 NM jet or the 6,100 NM jet?
We had to look at the Asian trips in detail. When comparing the added costs to acquire and operate the larger jet with its 6,100nm range, and the number of fuel stops avoided with that aircraft, we arrived at a cost savings of about $100,000 by accepting the one-hour fuel stop needed with the 4,100 NM jet on Asian trips. The CFO was not sold on the 6,100 NM aircraft. Operationally, the flight department favored the 4,100 NM jet as well. The CEO and Senior VP were very satisfied with the 4,100 NM jet, which is the aircraft purchased by the company.
The CFO had the numbers needed to avoid any discussion of a Royal Barge. The senior executives had a much more productive and less grueling travel schedule, and the company was able to secure new business in Asia. The numbers were there for the board to see – the business jet made financial sense for their company.