Measuring The Value Of A Business Aircraft
While the majority of the Fortune 500 companies engage in Business Aviation- their reasons for having access to business aircraft may not coincide with your own reasons- notes David Wyndham. How do you advocate the use of a business aircraft?
A rational- well constructed advocacy for employing Business Aviation is no longer an option. It is a necessity. It should be clear to your shareholders and others that the business aircraft is an essential business tool. One way to help in this approach is to have some means to support the value of the aircraft to your organization.
With the inevitable change of Board leadership- someone will eventually ask the question 'Why do we have the aircraft?' They need to understand the aircraft is an essential business tool without which your company would be at a competitive disadvantage in today's rapidly changing economic environment.
The tangible benefits to having an aircraft (among others) are:
• Time Savings
• Flexibility and Reliability of Operations
• Ability to attract and retain key personnel
• Ability to support customers in an effective manner.
Some- or all of these will apply to your situation. No one will deny the ability of the business aircraft to serve- but the question that still gets asked is “Are the benefits worth the cost?”
As an example- assume a trip is needed from New York City to San Antonio. The bus fare is $219- and the travel time- 50 hours. Via the airlines- you can make the trip in 5.5 hours (plus airport time) for about an 8-hour travel day. Business airfare for last minute travel may run to $1-200 per person- or $4-800 for four persons.
On the business jet- a charter may take less than 4 hours total time and cost about $10-000 for up to six. No one will say that the bus is the “best value” way to travel- even though it is “cheaper.” However- many may question the value of the business aircraft. The business jet fee is eight times the airline ticket for a savings of “just” four hours. Yet- by evaluating the travel in greater detail- you may need an overnight stay (or two) at San Antonio versus having the ability to return late in the same day on the business jet. And there’s always the added value of privacy surrounding business matters in a business jet cabin.
In order to determine the value of the business jet over the airline- you need to understand both the total time needed for the travel and the lost opportunity cost of that travel. The business aircraft has but one master- you. It will travel on your schedule and thus- offers significant time flexibility. The airlines have set schedules in order to try and fulfill most travelers’ schedules.
So how can we compare the time and cost of both alternatives? The National Business Aviation Association (NBAA) has a tool called Travel$ense (http://www.nbaa.org/prodsvcs/travelsense/). It is software that calculates the actual hours spent in travel- productivity advantages and trip expenses. Travel$ense uses actual airline data to allow your travel specialist to compare the time it takes the business aircraft to complete your trip- and the time needed on the airline. In addition to calculation of the total travel time- it also has user-defined inputs for productivity and salary.
Using this tool- you may calculate that the San Antonio trip takes 40 hours (round trip) on the airlines- while the business jet takes 16 hours. But the next step is the critical one- the value of the time. Time can never be saved. It can only be spent wisely. In spending less time in airports and in airline seats- you can be more productive.
However- you need to recognize some value to that time. In 1987 a company called PRC produced a study that looked at the benefits of business aircraft travel versus the airlines - both tangible and intangible. It then assigned a value (or cost) of the time spent (or not spent) using business school research- industry data and insurance data to assign a salary multiplier to an executive’s time. This study was further reinforced in 2001 by a similar study performed by Andersen Consulting that looked at the impact of Business Aviation on shareholder value.
While an executive is worth more than his or her salary- whether that value to a company is two times or five times greater is a subject for much discussion and controversy.
A senior executive with a high six-figure income and benefits package has to be worth at least $500 per business-hour to the firm. Business-hours spent in the office- with a client- or working somewhere quietly without disruption are more productive than business hours spent waiting at the airport. Essentially- analysis can show that the time spent not traveling can be put to productive use- and that increased productivity can offset the added cost of using the business aircraft option.
Do you have any questions or opinions on the above topic? Get it answered/published in World Aircraft Sales Magazine. Email feedback to Jack@avbuyer.com