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Are Business Jets Boondoggles?

Jack Olcott suggests that some Boards are abusing business aircraft- at the expense of shareholders- by underutilizing this vital business tool.

Jack Olcott   |   1st May 2014
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Jack Olcott Jack Olcott

Possibly the world’s most recognized advocate, if not expert on the value of Business Aviation,...
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The answer depends on a company’s usage.
Jack Olcott suggests that some Boards are abusing business aircraft- at the expense of shareholders- by underutilizing this vital business tool.

All too often journalists are quick to accuse corporate aircraft owners of receiving unfair advantages through their use of Business Aviation. For example- a well-respected Op Ed writer for a prominent New York newspaper recently vilified “private jets” because of what he felt were subsidies available to “tycoons” who employ business aircraft for transportation.

He referenced three areas: Accelerated write-offs for depreciating business aircraft- using our nation’s Air Traffic Control System “paid for by chumps flying commercial”- and reducing personal taxes of aircraft owners by stating that company leadership needed more security when traveling. With no acknowledgement that companies require efficient and safe transportation for their personnel and customers- he asserted that CEOs simply desire a more comfortable way to travel—all at taxpayer’s expense.

Characterizing Business Aviation as a boondoggle- he wrote “I worry about those tycoons sponging off government. Won’t our pampering damage their character?”

Aside from his pejorative generalizations- the Op Ed writer displayed a biased unfamiliarity with the tax rules applicable to business use of aircraft- which require that an aviation asset (like other assets subject to depreciation and deduction of related business expenses) must be proven to be ordinary and necessary to the generation of a company’s revenues. Failure to do so precludes any asset- including business aircraft- from being depreciated.

Nor did he appreciate that owners of business aircraft pay fuel taxes for their marginal use of our nation’s ATC system- which would exist to serve the country even if all “private jets” were grounded. Regarding security- no one would deny President Obama access to Air Force One. Yet the CEO of a major company is many times more exposed to kidnapping than the US president. A quick search of the Internet shows that CEO kidnapping for ransom is a real concern and is happening far too often - even in first-world areas of the globe.

A company-owned aircraft cannot be considered a business expense if its primary use is personal. Furthermore- carefully proscribed rules apply when an executive flies for non-business reasons- and the financial benefits of such a privilege are taxed to the passenger at the rate applicable to the executive’s personal tax rate.

To avoid abuse as well as the specter of inappropriate use- Boards establish and oversee policies applicable to personal use of company aircraft. Directors are well advised to review their company’s policy for personal use.

 

Real Abuse
Without appropriate oversight- any corporate asset can be abused. A business aircraft is no exception. Transgressions are minimal- however- since few company assets receive the detailed scrutiny from many sources—IRS- shareholders and press—that Business Aviation receives.

A company’s real abuse of business aircraft is more likely to be failure to use this asset to its fullest potential. Companies and their Boards transgress by omission rather than by commission. The corporation that limits access to the company aircraft to only executives on Mahogany Row fails to return all the benefits of Business Aviation to its shareholders.

Owners should follow the best practices of their peers by opening the use of the company aircraft to middle managers- technical experts and service personnel; e.g.- to any employee with a need to serve customers and cultivate clients. On average among companies operating business aircraft- only about 20 percent of passengers are top executives- according to data gathered by Harris Interactive- Inc. for the National Business Aviation Association.

Examples of abusing Business Aviation are refusing to use the company’s aviation assets to establish stronger bonds with customers or to travel more efficiently. Bringing clients to the home office for factory tours and relationship building is a well-documented advantage. Yet a major Fortune 100 corporation with which we are familiar waited more than four decades before it explored such usage. The same company limited access to the top dozen or so of its corporate executives. Such a narrow application of company resources is- in my opinion- real abuse of Business Aviation.

 

Speak Out and Inform
Business Aviation is not well understood. Had the Op Ed journalist referenced earlier in this article known more about the use of business aircraft- I doubt he would have equated “private jets” to boondoggles and subsidies for wealthy “takers”.

Thus it is imperative that users of Business Aviation stand tall and articulate the reasons why company aircraft- properly managed- are particularly beneficial applications of corporate assets. If you would like to give testimony to how Business Aviation is used as a vital tool to the furtherance of your business for inclusion in these pages- we would be delighted to hear from you. Contact Jack via the email below.

 

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