Saturday, March 07, 2009

Q: What’s a good way for a Big Corporation to save money?

A: Use the Corporate Jet [listen]

OK, I’ll admit it. I don’t think that I am going to make any new friends on this one. But, what the hell?

It seems that recently there has been a lot of hubbub running through the airwaves expressing indignation about the audacity of Big Ass Bank CEO’s taking the corporate jet to Washington in order to get some bailout dough in order to allow the big wheels of finance to keep on rolling.

Whether or not bailing out cash strapped banks is a good idea is a question that is better answered by someone who actually knows something about intricacies of financial prestidigitation. As far I can tell, turning a ten dollar deposit into a hundred dollars in loans is a fantastic, yet fundamental magic trick that seems to be the bedrock of the global economy.

So I am not going to comment about the wisdom of bank bailouts. But, I do know something about the economy of corporate jets.

The Big Ass Computer Manufacturer that I worked for in the nineties had a jet. It was a Gulfstream, I think. I was never on it. That was a privilege reserved for senior executives and board members.

One day I was ranting on about the injustice of it all—thousands of assembly line workers supporting the excess privilege of corporate executives. After I finished my rant my boss sat me down to explain the facts of life. If I had to put a title on the lecture, I would call it, The Value of Time.

At the time I was working for the Big Ass Computer Manufacturer, it had 19,000 employees and was pumping billions of dollars in revenue. Also the company’s stock was headed to its $80 a share high mark. There were billions of dollar in play every day. At the top of this prosperity was a group of ten people running it all. If these guys made a good decision at 9 AM, a few million dollars showed up on the bottom line at 5 PM; make a bad decision and a few million bucks went to the red. Given these numbers, it is not that far fetched to think that the value of the senior executive’s time was worth well in excess of $5,000 an hour.

So let’s say I am Joe the CEO in New York and I have a meeting in Washington with the powers that be. Let’s use the scenario that my group of four—me and three senior VPs—are traveling on a standard commercial flight, at a ticket cost of $658 round trip from NY to Washington.

We leave my office at 10 AM, just after a 9 AM conference call with the President of France. We want to get to LGA by 10:30 AM for an 11 AM flight to DC. We hit severe traffic at the Triborough and get to LaGuardia at 10:50 AM. Due to the heavy traffic we have missed the flight. The next one is in an hour. So, we get to wait. That hour will cost my company at the least $20,000. And because we are to meet with the House Committee on Really Important Things, I am going to cost the taxpayers some money because all the Congressmen and Congresswomen will have to wait for us too.

Or we can go to Plan B. We leave my office at 10 AM, hit severe traffic, arrive at La Guardia at 10:50 AM. We go to the Corporate Hangar, get on the Gulfstream and off we go. The cost? About four thousand bucks a head back and forth. (You can lease 50 hours of a corporate jet for about $425,000 or 8,515 an hour.) While this may seem expensive at first glance, when you take a look at numbers in terms of risk mitigation and opportunity cost, four thousand bucks for a NY to Washington roundtrip flight for a Fortune 500 executive is not that bad. In fact, it's pretty good.

I know, I know, four grand is a lot for the average traveling salesman. But, these people are not average. They may be running multi-billion dollar corporations into the ground, but they *are* running multi-billion dollar corporations. The Gulfstream is nothing more than a piece of the equipment that you need to play the game. Think about it. A pair of leg pads for a NHL goalie still costs around $1200, even if the goalie plays for a last place team. It costs a lot of money to play in the Big Leagues.

So it seems to me that the real issue is not the corporate jet. It’s the people traveling in the corporate jet. I mean, all this righteous indignation would be but a murmur if the passenger were Brad Pitt, or if our 401Ks were worth the money that we put into them.


Post a Comment

<< Home