Business Aviation “Justification”: It’s All About Strategy!
The Board of Directors is responsible for establishing a clear definition of the corporation’s Business Aviation strategy, contends Pete Agur. Failure to do so could lead to unnecessary concerns over your use of a company aircraft.
Peter Agur Jr. is Chairman and Founder of VanAllen - a business aviation consultancy firm with... Read More
Without identifying the strategic benefits of Business Aviation to your firm, you and other leaders risk being sniped at over why the Board authorizes aircraft services. This hot potato cannot be delegated. You cannot ask your Director of Aviation Services to provide you with justification for his or her business unit’s existence. Their job is to manage and deliver the highest benefits, as those benefits are perceived by the owner, safely and for the most effective costs. Those benefits and costs are operational impacts, not strategic justification.
Avoiding the airlines may be enough justification to own Business Aviation services for a high net worth individual or a closely held company. After all, an airplane can easily be a smaller part of the principal’s net worth than a car is of yours or mine. But, fiduciary responsibility is a fundamental requirement for a publicly held company. And, since Business Aviation may be the single largest non-core business investment the firm makes, it is critical that the Board be clear concerning why that investment has been made.
The VanAllen Group (my consultancy) is often asked to help Boards of Directors determine if the commitment to Business Aviation services is justified. The following are typical examples of the strategic impact Business Aviation makes for our clients who have opted in. Their successes are not unique.
• A financial services company eliminated an entire layer of senior management by leveraging the top tier’s time-place mobility using their business aircraft. The saved compensation costs more than offset the aviation budget. Their aircraft services allow them to connect more effectively with their sales network and to capture new markets. They are achieving this level of productivity without burning out their most frequent travelers or sacrificing their family lives. Their results have included unprecedented growth and profits.
• A pharma company states their jets are critical to their inorganic growth strategy. Their Merger & Acquisition teams are perpetually investigating opportunities. Privacy and speed of response are critical to the success of their deals. They have become an industry leader.
• A manufacturing company’s dominance in its segment is based on the strategy of having their production facilities in smaller communities where costs are low and quality of labor is high. These remote sites are within easy reach of their headquarters using their aircraft. This strategy has enabled them to centralize many of their key functions like R&D, engineering and production support. Their costs and quality are unrivaled.
• A textile manufacturer uses a similar strategy of remote manufacturing facilities. But its leadership has taken their Business Aviation strategy to the revenue side. The firm sells the vast majority of its production to a very few buyers. As a result, the aircraft brings customers to the manufacturer to plan product development and delivery schedules. That kind of partnership between the manufacturer and its customers has assured long-term relationships and sustained success.
• A utility company has aircraft as a core resource in its emergency response capabilities. In the case of a substantial disaster (earthquake, tornadoes, hurricanes, floods, ice storm, etc.), they use business aircraft to assess the situation and bring response teams to the scene as quickly as possible in their effort to minimize the time of service interruption. At other times their aircraft are used to attract new industries to their communities, further defraying the costs charged to current rate payers.
Strategy Begets Success
A great business strategy lays the foundation for the success and endurance of your business. Your Business Aviation strategy is how you use aircraft services to achieve the core business strategy. Each of the cited examples demonstrates a clear linkage between that company’s strategy and their application of aircraft services.
If you have not already made that clear linkage, or have not effectively shared it with your shareholders and employees, you are likely to hear concerns, financial and cultural, about how the firm’s leadership justifies the corporation’s ownership and use of Business Aviation services.
The questions could come from internal folks like your Controller, Chief Financial Officer or your outside accounting firm. These people clearly understand the power of a dollar saved as it falls directly to the bottom line. Unless they know there is a direct connection between the Business Aircraft and the achievement of the company’s strategy and financial success, they could easily assume the aircraft is a perk, creating a black hole for earnings.
Or, you could hear concerns from shareholders and/or employees about elitist behaviors by those at the top. These missives could refer to “jaunts in the private jet”. Their sources could be as subversive as gossip shared around the water cooler or as pointed as a challenge during a public shareholders’ meeting.
In either event, if you cannot concisely explain the strategic justification of your Business Aviation services you are likely to be an easy target for a sniper firing pointed barbs. Your best body armor is to preemptively declare your Business Aviation strategy.
This concept is beautifully illustrated by the conversation I had with a union steward who I sat beside during one of my many airline flights. I asked him what he thought of his company’s use of Business Aircraft (expecting a thoroughly entertaining rant). I was stunned and delighted when he said, “The more places those executives go, the more deals they can make. That means more work for us!”