The $40 million Magnolia by the Lakes senior living center nestled between Cass and Sylvan lakes in Keego Harbor is preparing to open next spring, but its management is looking to the skies.
With plans to open six more "luxury European style" senior centers across the U.S., President and CEO Farideh Bagne is weighing financial options for owning a corporate jet.
"In order to utilize our staff in a cost-effective manner, we really need to make sure their time is not spent at the airport in lines and waiting on planes," Bagne said. "Commercial planes are often late, and delays cost us a great deal of money."
Bagne and her company are looking to enter corporate aviation only a few years after many local companies abandoned the practice. Southeast Michigan's industry has faced seven years of turmoil and fallout from the recession, when jets became a symbol of corporate greed, but is now gaining altitude while adjusting to the new normal.
The value of new corporate jets to U.S. businesses and operators, an indicator of industry health, peaked in 2008 at $14.5 billion before plummeting to $7.1 billion in 2009, according to aviation analysis firm Teal Group Corp. But the industry is hitting the runway again, and deliveries of new business jets are climbing, reaching $10.5 billion in 2014.
Rough landing
In 2008, the CEOs of General Motors Co., Chrysler and Ford Motor Co. flew on corporate-owned jets to go before Congress seeking a publicly financed bailout to save their companies from collapse.
The trio was met with rancor from elected officials and public outrage over lavish corporate spending while asking for taxpayer dollars.
"There is a delicious irony in seeing private luxury jets flying into Washington, D.C., and people coming off of them with tin cups in their hand, saying that they're going to be trimming down and streamlining their businesses," Rep. Gary Ackerman, D-New York, told the Detroit 3 CEOs at a hearing of the House Financial Services Committee.
The result was the executives driving to the U.S. Capitol weeks later in the automakers' newest electric vehicles. GM and Chrysler were later forced sell their corporate jet fleets as part of the bailout.
But the public shellacking hit more than just the automakers — corporate aviation itself practically collapsed between that one event and the Great Recession, said William Garvey, of Business and Commercial Aviation magazine.
"That single event in front of Congress was ground zero for everything that happened to this industry," Garvey said. "It wasn't a downturn. It fell off the cliff."
Annual shipments of business jets worldwide dropped from an all-time high of 1,317 in 2008 to 874 in 2009 and continued to slide to 672 in 2012, according to data by the General Aviation Manufacturers Association. New business jet deliveries are growing again, but at 722 in 2014, they are much lower than peak years.
Locally, it devastated operations at Oakland County International Airport in Waterford Township and the support companies that call its airfield home.
Takeoffs and landings of private jets and recreational planes at the airport dropped from 202,345 in 2007 to 119,581 in 2010, according to figures provided by J. David VanderVeen, director of central services for Oakland County.
Takeoffs and landings continue to decline, falling to 111,672 in 2014, despite a rise in corporate jet use, VanderVeen said. The decline is mostly attributed to fewer privately owned recreational planes , he said.
Jet fuel sales at the airport fell from 12.8 million gallons in 2007 to 8.6 million gallons in 2010, but increased to 9.1 million in 2014.
"Generally, aviation is the first to enter the recession and the last out," VanderVeen said.
Corporate Eagle, which operates fractional jet ownership and jet management services out of the Oakland County airport, lost two-thirds of its billable flying hours, said Rick Nini, president and CEO.
Corporate Eagle's revenue fell from $13 million in 2007 to $8.5 million in 2009, Nini said.
"People understood the benefits of business aviation, but the optics of what happened in D.C. had such an impact," Nini said. "Executives just didn't want their picture being taken getting on or off a private jet at that time, and it really hurt."
A myth of frivolity
The downturn and corporate cutbacks fueled misconceptions about the industry, said Greg Schmidt, president and CEO of Waterford Township-based jet management and maintenance firm Pentastar Aviation LLC.
"We serviced a number of the (automakers') fleet, but then came the very public dismantling of those fleets; that hurt," Schmidt said. "The public saw the fleets as the ultimate perk, but it's really a business tool for more than CEOs."
Schmidt said 78 percent of corporate jet passengers are below the C-suite.
John Hatfield, chairman of the Michigan Business Aviation Association and aviation director for Midland-based Dow Corning Corp., said how executives spend their time is critical, and corporate aviation is one way to maximize those hours.
According to a 2009 study of S&P 500 corporate jet users by NEXA Capital Advisors, companies that used corporate jets experienced 116 percent higher annual revenue growth between 2003 and 2007 than companies that did not. Income was 434 percent higher during that time, according to the study.
"Time is not a renewable resource; we're all bound by the same 24 hours a day," Hatfield said. "What we do in that 24 hours makes a difference on how effectively we run our businesses, and corporate jets leverage and multiply that ability to be effective."
Lear Corp. owns one corporate jet, said Mel Stephens, senior vice president of communications and facilities.
"It's a company asset; we're a global company that operates in 35 countries," Stephens said. "The fastest-growing part of our business is Asia, and it's not the most dense areas, but smaller cities. We need to get to these plants. (Our jet) is much more effective and efficient to get to these places versus flying commercial."
For Bagne, public perception isn't part of the equation.
"It's not a status symbol or for pleasure. It's a business tool," Bagne said.
Back to the skies
With the public's short memory and a recovering economy, businesses are renewing their interest in corporate aviation.
This year, GM re-established its corporate jet fleet by acquiring "a few" used corporate jets, said Pat Morrissey, GM's director of corporate communications.
He declined to reveal the exact number, but said the jets make the automaker "more competitive and efficient in the U.S. and globally."
Bagne said the healthier economy and low interest rates make the decision to enter corporate aviation a no-brainer as she weighs fractional ownership with Corporate Eagle or acquiring a $24 million Gulfstream G280.
"Right now, the cost of money is negligible, and it may be cheaper to buy a plane right now than do fractional ownership and find we need to buy one later," she said.
Bagne said she expects to make a decision by early next year.
For Southeast Michigan's business aviation industry, Bagne represents a glimmer of hope as it adjusts to a different type of buyer.
"Business aviation is coming back, but it's coming back different," Nini said. "Many companies own their own planes, but we're seeing more and more fractional ownership." The company's fractional ownership program has grown from 22 members in 2010 to 39 today, Nini said.
Corporate Eagle sells shares of its 13-jet fleet, where its members pay for an eighth-share of the jet, which allows them to use the jet without outright owning it. Corporate Eagle manages the maintenance, crew and flight details for each of its members out of its four hangars at Oakland County International Airport.
A typical eighth-share of one of its Hawker 800 jets, which holds eight to 10 passengers, costs $485,000. The corporate member can buy or lease that share, Nini said. On top of the cost of shared ownership is an $8,000 monthly management fee and about $2,800 an hour for flight time.
On Oct. 23, Corporate Eagle closed on its second fractional share of a new $10 million Dassault Falcon jet, which seats 10 and has a top speed of 520 mph.
Nini said the company plans to reach a fleet of 15 jets by 2018. Nini projects revenue to top $20.5 million this year.
Corporate Eagle, which employs 54, is also considering adding more hangar space at Oakland County airport and Detroit Metropolitan Airport.
In the past 12 months, Corporate Eagle's fleet has flown 1,529 trips, taking nearly 9,000 business executives to 27 countries.
"The time of businesses recoiling and hiding their planes is coming to an end," Hatfield said. "Companies are coming around to what we can do, and that's help them make money."
Original article can be found here: http://www.crainsdetroit.com
No comments:
Post a Comment