Plane Conversations

What is General Aviation?  Mainstream media tells you that it is toys for the super-wealthy, chariots for the elite, excess for pampered executives.  Our purpose with Plane Conversations is to tell you that mainstream media is (we’ll be generous here) mistaken.  

We’ve shown you how corporate flight departments along with personal and chartered aircraft can save on the actual hard costs of travel.  We’ve demonstrated the savings you can find on a balance sheet.  We’ve talked how, yes, these are sometimes the toys of the very wealthy who have worked for the privilege of aircraft ownership.  But, we’ve also talked about the small business owner who uses his personal aircraft as an essential business tool.  We’ve demonstrated how general aviation contributes to mankind, specifically, how private aircraft were used to move tons of aid and NGO aid workers into Haiti.  Now, we’d like to tell you a little about how general aviation contributes on the ground here in Middle Tennessee.  

In the May 2010 floods in the Nashville area, Smyrna Air Center collected and distributed clothes, food, cleaning supplies, even televisions to hundreds of affected families.   McKenna Saunders, Director of Marketing, oversaw the collection and distribution of all items.  She said, “The most emotional moment for me was when I met a distraught mother who came into Smyrna Air Center to pick up donation items for her family. I helped her pick out boxes and boxes of goods as she tried to hold back tears, and when we came across a box of baby food, diapers, and wet wipes, her face lit up, and she started screaming with excitement! That’s when it really hit me that people are in desperate need of even the simplest of daily necessities.”  

The Smyrna/Rutherford County Airportis very active in community support projects like Meals on Wheels and clothing drives.  Each Fall, the airport collects new and gently used winter clothing for children attending the John Coleman Elementary School in Smyrna.  The school was originally constructed to serve the children of  personnel stationed at Sewart Air Force Base, which became the Smyrna/Rutherford County Airport.  Airport Manager Lois Vallance said, “When the Airport Authority was looking for avenues of community service, it only made sense to adopt John Coleman School.”  For the Meals on Wheels program, Vallance added, “Some Airport Authority employees and other volunteers are on a rotating weekly schedule to provide assistance to the Meals on Wheels program.  Whether its packaging the meals, delivering to a prescribed route–and sometimes staying to chat a few minutes–the volunteers are always as touched as those who receive the hot food.”  

CFM employee Shad Holloman (L) with a group working in post-Katrina New Orleans.

Employees at Corporate Flight Management are active in Habitat for Humanity builds and recently were able to volunteer helping out at Feed America First, which provides food to other relief organizations to distribute to rural populations that need a little help.  According to Executive Director Tom Henry, this Middle Tennessee facility will distribute some five million pounds of food this year to the hungry just in this area.  It was an eye-opening experience to see that we don’t have to look far from home to find people who need a hand.  Employee spouses and children also pitched in to repackage beans and rice.  Iowa native and recent Tennessee transplant Amber Sulzner said, “I thought this was a really good experience for us all to have a chance to give back to people who are less fortunate in our communities.  I wasn’t aware of how many families this organization helped and the amount of food that went in and out of the warehouse on a weekly basis.  Overall I felt this was a very good experience and I am now a pro at filling ziplock bags with rice. I also look forward to us hopefully helping this organization again and have even more volunteers.”  

So, what is General Aviation?  Are we an industry existing in the rarified air of the ivory towers?  Not even close.  We exist in local and global communities that experience disasters and need.  And we do our part to help in those communities whenever we can. 

(L-R) Amber Sulzner, Doug Cate, Jon Anne Doty, Jaegar Doty, Jeremy Gillard, Ken Dalton, Bill Allen, Tim Merenda, Melanie Howell, Annette Morton, Debbie Cate, David Augustin, Rachel Charlize, Jerome Vele Reece.

Every time I do something outside my normal routine, I learn something new (or at my age, get reminded of something that I forgot). This is true of my most recent trip to the British Virgin Islands on business. We were delivering an aircraft to the island of Tortola for BVI Airline, an up and coming company delivering air carrier services amongst the BVI. We also were returning on another aircraft which was due for some major inspections.  The inspections were  to be accomplished through our capable maintenance staff at Corporate Flight Management. We also, in a whirlwind fashion, dropped into San Juan to conclude some business with another carrier. The trip was a three day turn around on BAE Jetstream 32s.  Given the time constraints and amount to be accomplished, it was a trip that could only have occurred on private aircraft.

Here are a couple of lessons learned or remembered.

Pre- plan your communication needs.

Technology and services are a great boon to travelers – if you know what your capabilities are. I have a new service and a new plan and for my telecommunications and found out I was pretty much in the dark.  It wasn’t that I couldn’t communicate, it was just that I didn’t know my plan well enough to know how much it was going to cost me – an important consideration to my CFO soul. As I downloaded email and text to my phone –I wondered, “how much this was going to cost me?” People around me had a lot of suggestions and ideas as to what it might cost. I found out later just how wrong they were via my monthly statement. I could have avoided that if I had called my provider, told them my itinerary, and found out what were my best options. Next time!

Know what time it is.

I traveled from Central Savings Time to Atlantic Time. My new cell phone did a wonderful job of changing with the time zones. I knew exactly what time it was – or so I thought. My business associates and I scheduled a breakfast meeting at 7:30 AM. But what wasn’t discussed was time was relative on the Islands. When they said 7:30, they meant Eastern Time.  I thought they meant Atlantic Time.  I wish I had known about the use of time zones because I sure could have used that extra hour of sleep! Turns out other members of our entourage were an hour late. Next time…… we will synchronize our watches, always a good practice.

The business trip was a great success and new business for the company was developed. As we went through the various customs offices, I was reminded of how wonderful it was to travel through non- airline means. Through the whole trip we went through only one metal detector and we didn’t have to stand in line for it!  The trip schedule was our choice.  The time on the aircraft was pleasant because the travelers were co-workers, and we were able to plan our next meeting en route. Additionally, the time together was useful as new ideas for travel processes for our customers.  Since we experienced what our customers experienced while traveling international destinations, we got a better perspective on process improvements.  These discussions occurred simply because we had both time and opportunity.  Without planning the conversations, we informally discussed various ways we could improve on what we do as a company simply because we had the time and the privacy to do so.

What did I really learn and remember when I stepped outside my routine? The value of private business travel is worth the price.

In any family dynamic, each member has a role to play.  Until the invention of Trivial Pursuit, my role was to lose at every single board game we played.  It didn’t matter which game it was, I stunk equally badly at them all; but, I was okay with that.  It’s just how it was.  When I went to college, my liberal arts studies did not include Game Theory; so, in spite of its 50 year history, this business decision making tool is new to me.

In a July 24, 2010, article in Financial Post, Michell Osak highlights both the strengths and the weaknesses of using Game Theory in the strategy development process.  The theory is ideal, he says, in “strategic situations where competitive or individual behaviors can be modeled.”  However, the theory’s flaws are that it assumes that “the players act rationally and in their self-interest” and that they “act strategically and consider the competitive responses of their actions.”  Osak goes on to quote The Economist magazine which said, “Managers have much to learn from game theory provided they use it to clarify their thinking, not as a substitute for business experience.”

It seems to me that wholesale flight department liquidations were an example of a time when Game Theory was substituted for business experience – to the detriment of an entire industry.

Studies have shown that companies which either own or use private aircraft tend to pay larger dividends to their shareholders.  Yet, some of those very same companies dissolved their flight departments.  Those decisions were not based on months of study, but, rather were a knee-jerk reaction to negative press reports.  Game Theory said that a company using a business aircraft would look wasteful when compared to a similar company that didn’t.  Game Theory predicted a negative public relations issue.  Game Theory dictated that companies jettison one of their most useful business tools.

It’s time to start making decisions based on business experience again and leave the board games for family night.

Yesterday I spent time with clients considering the upgrade of their turboprop aircraft, a King Air 200, to a business jet. Their travel needs are growing and the trips they do are reaching farther out from their home base, so a jet is in consideration.

As we talked a few questions were asked: Have the values of used aircraft hit bottom? Is it a good time to buy, and if we decide to buy what would be the best investment? These questions sound much like the questions Jim Cramer might hear on Mad Money about which stock to buy.

I have also had conversations this week with two representatives from manufacturers of business jet aircraft.

Discussions centered on the current state of the market for new and used business aircraft. One of the problems the manufacturers of new aircraft are facing is the competition with their own late model used aircraft on the open market.

Starting in late 2008, and throughout all of 2009, the prices of used business jet aircraft fell in some cases as much as 50-60%. In an uncertain economy no one was buying and sellers could not get an established value without buyers.  

A four-year-old low time jet in like new condition today may be selling for half of its new price when delivered in 2006. Compare this to 2007, and the ten years prior, when a four-year-old aircraft could sell for 85% to 105% of its new price, depending on the manufacturers backlog of orders in production for the same model.

The brokers in our industry would probably confirm that the market of used aircraft has started to move, and the first aircraft to sell are those late model low time aircraft that took a huge hit in a “no buyer” market. As worldwide buyers absorb this inventory the prices have and will continue to firm up. 

Aircraft older than ten years, although still in excellent condition, may be slow to recover their value of two years ago, if ever. The supply of older used aircraft for sale is still greater than demand and will stay that way for a few more years. Prices may not go down much more, but will most likely not recover anytime soon.

Back to the original question:  Is it a good time to buy? If you have established the need and defined the mission of business aviation for your company, then it is a good time to buy. If you are ready to upgrade to an aircraft that better fits the mission, or a newer aircraft that will provide more capability, lower maintenance costs, and better reliability, then it is a great time to buy. 

Talk to people in our industry including manufacturer sales reps and reputable brokers of used aircraft. Wheels Up contributor Jeremy Cox  is one of those guys.  

Talk to other business jet operators, flight department managers, and aircraft management companies for insight. Do the analysis that determines what aircraft best suits the mission. Look at new versus used and the pros and cons of each.

There is a lot of knowledge in our industry and most everyone I know is willing to talk to you to share what they know.

If you have the need to travel to grow your business there has never been a better time to buy. It is a buyers market and there is good value in both new and used business jets.

Robert Cook in his July 8 Wheels Up post  writes about the challenges and opportunities of regional airports as they look to their future in the nations transportation system.

I would posit that the best and maybe only hope for these airports’ future viability is general aviation and business aviation.

Over the next five years airlines are not going to step in and save the day for these airports. The reality is that the number of airports being served by the airlines will most likely dwindle.

It would require a major strategy shift and change in the economic models of the airlines in this country to prove me wrong.   

In the absence of the DOT’s  Essential Air Service Program, most of the 100 plus airports receiving the subsidy, by way of the airlines serving them,  would lose their commercial air service. That’s roughly 20% of the airports in the US that have airline service due to government subsidy.   

As I hear from representatives of airports about what they believe they need to serve their constituents, they all seem desperate for scheduled airline service.

I sometimes wonder if we forget the true purpose of traveling by airline – to save time!

Business travelers have not forgotten the purpose of air travel. If it doesn’t save them time they don’t buy it, they drive, or just don’t travel at all.  

If marginalized air service to a regional airport doesn’t meet the market that demands time saving and convenient travel then why waste valuable resources to develop it, only to end up with a losing proposition?

Just like the airlines, business and general aviation do not meet the needs of every traveler. Business aviation cannot provide the same low cost service that Southwest can provide. What it can provide is efficient travel solutions to the small, medium and large businesses that will create the jobs in communities served by regional airports.

The prosperity of the communities and the small or regional airports that serve them depends on job creation and being connected to the market, both domestically and internationally.

A regional or small airport’s success should not be measured so much on having cheap airline seats to tourist destinations, or inconvenient scheduled service. Success should be measured  by having  viable and efficient ways for the community’s businesses to connect to their vendors and customers.

Maybe the small and regional airports should consider ways to develop alternative air travel by promoting and investing in the development of general and business aviation solutions.

Business aviation has taken a beating in the past two years.  While we are now seeing some signs of recovery, we must remember that those signs do not constitute prosperity. We can blame industry difficulties on the government or on the economy, but the reality is that we need to quit following the old business models. In many areas, we are doing things today just as we have for the past 30 years.

If we look to the technology sector of our economy as a possible success story to emulate, we see a constant flow of innovation in the market. Computing technology gets not only faster and more productive by the day, but it also gets cheaper. Social Technology has taken on a life of its own with changes happening faster than even the social media gurus can keep up with.

Those of us in aviation know that we cannot change or innovate as fast as the technology sector of this economy. Or can we?

When it comes to the aircraft design and regulation compliance that make our industry safer, admittedly we cannot go any faster than the government allows. New aircraft designs are also limited by the allocation of capital and have long cycles from initial investment to development to payoff. The tech sector can crank out new smart phones every six months, but we can’t just crank out new jets that fast.

Aircraft design and safety compliance timing may be out of our control, but that should not stop us from innovating.

Innovation starts with conversations. Doc Searls coined the term “the market is conversations” in his 1999 book The Cluetrain Manifesto.  With consumers self-aggregating and expressing intentions online, why can’t we engage in the conversations and meet those intentions?

We need to expand our market by engaging the larger audience of travelers in conversations about the value proposition of business aviation and even leisure travel by private aircraft. It starts online these days and ultimately moves to face-to-face contact.

We also need to challenge our market and our industry to start conversations on how to deliver business aviation at a reduced cost. The solutions must come from the entire supply chain, with everyone involved in business aviation as a part of the solution.

I have yet to hear anyone say they would like to go back to riding on the airlines after experiencing travel on a private aircraft.  What I have heard, hundreds of times, is that they can’t afford what we offer; so, they grudgingly go back for more of the misery of air travel by mass transit.

What are we going to do about it?

Airlines versus the Private Aircraft

Comparing travel by airlines to travel on private aircraft is like comparing travel by train or bus to travel by automobile.

One mode of travel can not meet all the needs in this country.

Travel by train and metro rail systems works great in and between major cities in densely populated areas of the country.  However, for the majority of the United States landmass, it is non-existent since population  density and the geographical distances between cities make it impractical to build and operate.

So we have the personal automobile and we always will. It may be in a different form one day – all electric or a hybrid of different energy sources – but we will still have it. Even in the cities with mass transit, the personal automobile or the communal automobile (taxi) still serves an important function of on-demand point-to point-travel.  

What is so different about the use of private aircraft for business or personal travel and using the airlines? The airlines seem to be migrating towards a form of mass transit system that primarily serves the travel demand between dense population centers domestically and internationally. Today, there are fewer, not more, cities served by airlines than just a few years ago.  

As airlines have shown no desire to fly in small market cities in this country, the void of scheduled air service to and between small cities grows.

We all fly because it gains us time that we can use on one end of the trip or the other. In the absence of air mass transit between cities, the air travel solution for small markets is private and business aviation. There are currently no other solutions.  

Will we ever give up the automobile totally in favor of the train? Probably not anytime soon, if ever. We will, however, get more efficient versions of the automobile.

And so it should be with private aircraft. Let’s make them more efficient and use them more efficiently.

Those in this country who see the private aircraft as a luxury mode of travel need to understand that, just like the automobile, the private aircraft, in all its variants, is an efficient mode of transportation in this economy – especially for those of us who have chosen not to live in the big city. Because we don’t have access to the metro rail and the 500 scheduled flights a day at an airport nearby, we need our cars and small planes to connect both locally and globally.

So is there a typical trip in business aviation? Not really.  But they do all share a common demoninator: trips using business jets save time over other modes of travel.

I was able to experience this again first hand last week, when our CFO, VP of Maintenance and I took one of our aircraft to go see a good client and friend in Fayetteville, Arkansas.  As we planned the trip, we looked at the options of how to best get there. Our options included driving,  an airline flight out of Nashville and connecting through Dallas, or taking one of our aircraft. By car, our travel time would have been about nine hours.  By airline, it would have been about four and a half hours.  In either case, the trip would have required us to stay overnight to make our meeting times.  The airfare on the airlines is between $1100 and $1300 per person round trip; so, three of us could have cost close to $4000, or about $4400, including hotel rooms and additional meals. Nashville to Fayetteville is not a low fare market.   

We have access to our charter aircraft and small flight school aircraft that I can pilot; so, we even had to decide which aircraft to take if we chose to fly ourselves. In a Cirrus, the flight would be tow hours, thirty minutes, while in a twin-engine turboprop the flight time would be an hour, fifty minutes.  Because the Cirrus was not available, we scheduled the turborop.  

We departed at 6:35am which meant I had to get to the airport at 6:20 - no early arrival required and the plane would not have left without me had I been a few minutes late.

We arrived in Fayetteville, Arkansas, at 8:30 am. Our client picked us up at the airport and we drove to his office, about ten minutes away. After a two hour meeting covering a wide range of business issues,  we drove to look at the other airports in the region. We took a little time to stop off at a legendary local restaurant, Herman’s, and enjoy a plate of their famous ribs. After lunch, it was time to go home; so, with business concluded, we were back on the aircraft at 1:30 pm and back in the office at Smyrna at 3:30 pm. We had accomplished a fill day of business on the road and arrived home with a couple of hours left in the day to wrap up more issues.

Our two hours in the aircraft each way provided the additional benefit of discreet and secluded time with my colleagues to catch up on issues of the day. A lot of business gets done in the secluded cabin of business aircraft.  

The day after the trip I was back in the office, rested from a night’s sleep in my own bed, and ready to take on the world again – certainly not the same feeling I have after two or three days on the road shuffling though the airline system.

These type trips happen thousands of times every day in this country; but, when I experience it myself, I am reminded again what business aviation is all about.  The rate on the Cirrus would have been $2800.00, saving us $1600.00.  The rate on the turbo-prop to a retail customer would have been about $5200.00.  With the savings or with the extra $800.00, we gained a full day in the office for three senior executives who were well-rested and productive upon our return.  That extra day is worth it at twice the price.

If you do then something is wrong with the airline system or your employees.

I will vote for a broken airline system.

Thinking about a recent NY Times article by Lisa Galst entitled “Rewarded for Flying Coach” makes me smile as I write this.

What is the world coming to when you have to pay your employees extra for the misery of riding in the back of the aircraft in the cheap seats as opposed to booking the more comfy seats up front? Sounds like hazardous duty pay to me.

I have never heard any of our clients having to incentivize their employees to take a flight on a private aircraft. In fact it is sometimes the other way around. Last week when talking to one of our good clients he was telling me that he uses the flights he books to see his clients as a morale booster for his employees. Those who travel with him are excited about the experience and when they get back to the office everyone else hears about how cool it was.

With all that is happening in the airline industry:

• reduced capacity resulting in high load factors which equals crowded airplanes
• oversold flights and increases in denied boarding
• cancellations due to the new tarmac rules
• a la carte fees for everything the ticket no longer buys you

Is it any surprise that people just don’t want to do this anymore?

And the federal government has the idea that they can step in and solve the problem with legislation to make it against the law to provide bad service.

Private aviation and business aviation are sitting on a gold mine of opportunity.

What if these companies took the money they are spending to incentivize their employees to fly coach and used it to fly more in private aircraft?  They would get happier employees and gain a lot of productivity by not sending them through a hub that is cheaper to save a buck. Besides, with business aviation there is no such thing as routing through a hub. Its all point to point.

In our business, every day we have to sell the value of what we do.

If you base that value on our rates compared with coach class airline fares, we can’t compete on the seat price alone. In some cases, with four or more travelers going on the aircraft, we can get close; but, most of the time, you can buy a seat on airlines a lot cheaper than you can charter a business class aircraft.

So, when a business person makes the decision to spend more money on a chartered flight than they would on airline seat(s), how do they make the rational decision to do so?

This week, I was talking with a client of ours who runs a successful advertising agency in Nashville. He is a true entrepreneur who built his business from the ground up. When he decides to spend a dollar on something, it is his dollar; so, he thinks in terms of ROI on every decision.

Over the past few months, he has taken six trips in our aircraft, all of them for business and all to places that did not have non-stop airline service. In a few cases, his destinations had no airline service at all. By chartering an aircraft, he was able to take his staff with him to meet the client and he was able to complete the trip in a single day - no wasted time or overnight expenses that would have been required had he traveled any other way.  

What’s it worth to him? Here is what he had to say:

“I have spent years working all the hours necessary to build my business.  Now it is about relationships.  Relationships with my clients all over the country AND relationships with my family at the dinner table and at bedtime.  While there is rarely economic justification for the additional expense of skipping security lines, connecting flight issues, and playing hotel roulette… there is certainly reward in the immeasurable joy of lunch with your client in Terre Haute and being home for dinner with your family in Nashville.  Both rewards produce profit that propel my business and my life.”

Arnie Malham, President – CEO, Malham Leverage Group

The productivity gains of flying business aircraft buy back the most precious commodity we possess – time! Time with our clients on one end of the day and time with our family on the other end.

It would be great if we could figure out how to place a true monetary value on our time.  It would be even better if we could monetize the gains we get in productivity and creativity when we experience a different form of travel that does not add stress to our already busy lives and that gets us home to family more often.