Justifying Business Aviation - What is my time really worth?
From: Turbine Pilot By: John J. Sheehan (From AOPA Pilot, September 2003.)
When you mention that you fly your own aircraft for business the first reaction from most people is "That's neat" or "Great." As the conversation progresses through the predictable, where do you go, how did you learn to fly, and how long does it take to get to Peoria, the subject of cost eventually will be touched on.
Whether the conversation takes place at a chamber of commerce meeting, cocktail party, or church social the question, "Doesn't it cost a lot?" inevitably comes up after the amazement and admiration fade away. How do you answer?
The standard "Sure it costs a lot, but the advantages are great, too" or "It's really less than you would think" may serve well in casual conversation, but how do you answer the question when posed by a more critical audience? How do you answer the cost question when your business partner, chief financial officer, or spouse asks?
The question of how much it costs to operate your own aircraft usually comes long before actual aircraft operation. It often arises in the contemplation stage and usually with a spouse, fellow pilot, or financial advisor. Since you are either already a pilot or aspire to be one, you are probably already attracted to the idea of using an aircraft in support of your business. But since you are a businessperson you restrain your inner fun-seeking self and do your cost calculations (see "Annual Cost of Operating a Twin Turboprop," page 110).
Your first reaction may be, "Wow! How can I justify $1,200 per hour?" But, after the initial shock subsides, reason starts to set in. There have to be good reasons that more than 10,000 companies operate business aircraft in the United States. In determining the value of operating a business aircraft, the following questions come to mind:
• What is my time really worth?
• How can others within the company benefit from the aircraft?
• What are the opportunity costs associated with company travel?
• What are the intangibles associated with business travel?
If you were being compensated at $1,200 per hour, justifying a business aircraft would be easy. But, since most of us receive more modest sums for our efforts, a different view of the situation is needed.
Let's say that your salary and other forms of compensation work out to be $150,000 per annum. With benefits this becomes $200,000. If you are giving the company 2,000 hours per year (at least!) your cost to the company becomes $100 per hour. Yet, your value to the company is some multiple of your compensation; if this were not true for each employee the company could not make a profit. This theory was developed by the insurance industry when it sought to determine the value of an employee for purposes of issuing key employee loss insurance.
If you are the chief executive officer or other executive this multiple may be as high as 10 or 15 times your compensation. How much business will you bring to your company this year? From this perspective your value to the company may be $1,000 to $1,500 per hour. Can't quite justify the 12-times compensation required to make our example work? Read on.
Unfortunately, most bean counters look at travel as a straight cost equation: What's the cost of an airline ticket compared to the alternative? Obviously, this does not incorporate our concept of value stated above, but neither does it look at the total travel time involved. For example, an airline flight from your base in South Bend, Indiana, to Asheville, North Carolina, for a meeting with a customer will require at least one night on the road, several airplane changes, and hours spent waiting around airports. Total time away from home base to accomplish a three-hour meeting may work out to be as much as 36 hours; the same trip in a Beechcraft King Air may require as few as nine hours. If you take just one other employee on the trip, regardless of his or her compensation level, the trip makes good sense without the heavy calculations.
How much do you value an extra day a week in the office or an extra couple of weeks over a one-year period? How much more productive will you be if you kick the airline habit? If you wish to quantify the value of your and other employees' time in detail look at the Travel$ense software program; a downloadable demonstration version is available online (www.nbaa.org/T$/).
If a company aircraft benefits the company and makes your life easier, how about others within the company? As mentioned before, taking others with you on trips makes a company aircraft the vehicle of choice for most trips under 1,000 nm between nonairline hub locations. Others within the company undoubtedly have travel requirements similar to yours and would benefit from the value provided by a company aircraft. Yet, since your job description probably does not include the title "company pilot," it makes sense to have at least one other employee who is able to fly the aircraft.
Whether this person is hired as a pilot and given other nonaviation duties within the company or vice versa makes little difference. The rationale for his or her employment should be a shared responsibility for both flying and some other occupation to make money for the company. This type of multitalented employee can also help with your piloting duties on longer, multi-day trips. Such a person may be considered a safety asset for both you and the company. If the flying starts taking too much time away from the other job, it may be time to hire a full-time pilot.
Still having difficulty making the cost-versus-value formula work? If so, it may not be the right time to step up to a turbine-powered aircraft. Or, stepping up to a Cessna CitationJet may be too big a leap. Something more modest may be indicated. Certainly, a used Piper Cheyenne, Socata TBM 700, or King Air makes a good entry-level turbine-powered aircraft.
Stepping up to a turbine requires different skills than flying piston-powered aircraft; the insurance industry makes this clear with its experience requirements for the first step into turbines. Yet, with adequate initial experience, good training, and a temporary high-time-in-type copilot, insurance requirements can be met.
The reliability and performance advantages provided by turbines make them quite attractive when compared to their piston-powered cousins. Fortunately, an array of turbine-powered aircraft that can meet your transportation needs is available. Choosing the right combination of operational capability and purchase and operating costs can help you fit almost any need and pocketbook equation. Get to know the turbine-powered aircraft market through other business operations and knowledgeable brokers and sales organizations.
Being creative, seizing opportunities, acting decisively, knowing the market, and focusing on the future are all key factors in becoming and remaining competitive in your company's chosen field. Making a difference in your industry requires the ability to seize opportunities, to stay ahead of the pack, and to take rapid action; the company aircraft can support that need. (See "Strategic Uses of Business Aircraft," page 111.)
The ability to capitalize on some form of competitive advantage, to follow through on a bright idea, is what separates the winners from the losers. Often, doing this requires swift, decisive action and getting there "firstest with the mostest." This means getting to a customer with an idea before others do, cementing a relationship, allaying fears, and making an offer that can't be refused.
Trying to do this via the airlines may not be the best use of company executives' time, especially if you need to get to Bluefield, West Virginia; Artesia, New Mexico; or Burns, Oregon, far away from airports served by airlines.
Time saved during travel can be measured. Other desirable features of traveling by company aircraft are not so clear, but they may be equally if not more important than what can be measured. The most notable difference between airline travel and using your own aircraft is the hassle factor.
While difficult to define in their entirety the hassles associated with airline travel are many and varied: waiting in lines, lots of them; the cattle-call process associated with security procedures; delays, cancellations, reroutes, and being stranded in the middle of nowhere. Perhaps more important is the uncertainty of the process, the unpleasant surprises that await the unwary traveler at every turn. The time spent waiting is not very productive, either. The time spent enduring the airline experience is essentially time lost, often in a frustrating and stressful fashion. We are out of control; the airlines control our destiny for the entire period, if in fact they are actually in control.
Business aircraft return control of our travel schedules to us. Since most of us like to think we are in control of our future the business aircraft provides us with the ability to schedule our trips when we wish. We don't have to wait until tomorrow or until a seat is available; our one-airplane airline is ready when we wish.
Security, privacy, and confidentiality are all prized features of the corporate environment. Even though increased airline security may have improved our chances of not being interfered with during the travel process, the fact that we are placed among the thousands of other travelers actually increases the risk. And attempting to work on or discuss confidential company material at any time during airline travel is chancy at best.
Stress associated with the travel process applies to any type of travel, not just the airlines. But stress associated with travel comes in several degrees, and it is associated with the degree of control that we have over the process. Airline travel provides only minimum levels of information and control while piloting our own aircraft provides the ultimate level of control. Granted, there are frustrations associated with flying our own aircraft, yet we are better informed and have options, and therefore tend to be less frustrated.
The satisfaction associated with piloting your own aircraft, mastering flight, successfully negotiating the air traffic control system, and arriving at a planned destination is difficult to describe. Simply put, achieving a goal by flying an aircraft is an enjoyable and rewarding experience. While this is difficult to describe to partners, bean counters, and spouses, the enjoyment of piloting an aircraft is a major factor in what we do. Without this sense of satisfaction and pride there would be little incentive to do it. Don't discount the enjoyment factor when calculating the benefits of on-demand air transportation for your business.
The image you and your company project is an important feature of your business presence. By flying your aircraft to visit a customer or potential customer you are saying that the customer is important enough to warrant a special trip; the fact that you are flying your own aircraft sends a strong message to the customer that they are indeed a VIP, worthy of your attention. Even more impressive is picking up customers and taking them with you on a trip of mutual interest.
The forgoing should provide you with sufficient ideas and ammunition to justify or not justify the decision to use an aircraft for business transportation. Remember, however, it is a business decision and not just a smoke screen to give wings to your passion for flight. Ask yourself these questions:
• Is the company's financial position sufficiently healthy to support the operation of a business aircraft?
• Am I experienced and confident enough to pilot the chosen aircraft in all circumstances? (If not, consider hiring a professional pilot to help.)
• Is all the potential travel necessary to increased company success?
• Can I travel enough to justify a company aircraft?
• Is this really a business decision not unduly influenced by my ego or personal desires?
While answering these questions may not be easy or definitive, the reality check they provide will give you a good idea as to whether operating a company aircraft is a good idea. Consulting your business advisors, friends, and family will help with the decision.
Lots of people fly an aircraft for business purposes, some for the right reasons and some for questionable reasons. Justifying the operation of a business aircraft should be subject to a number of objective and subjective inquiries. Make them wisely and enjoy the experience.
John J. Sheehan is president of Professional Aviation Inc., a company that assists corporate flight departments with safety, management, and training issues. This article is based on a segment of his new book, Business and Corporate Aviation Management, McGraw-Hill, New York. He holds an ATP certificate and an MBA degree.
Return to Library Overview