Clearly, The Big 2.8’s head honchos did themselves no favors by swanning into DC for a federal teat suckle on big ass private jets. And Ford CEO Alan Mulally’s family outings on the company Gulfstream G500 were a bit OTT for a company on the ropes. But used judiciously, there’s nothing wrong with private jets per se; they can greatly increase an executive’s ability to get information from front line troops. By not sticking-up for private aviation, by slinking back into town via hybrid, the Big 2.8’s CEOs threw a valuable industry into disrepute. No, I mean the private aviation industry. AIN Online reports that “H.R. 7321, the auto bailout bill, which would have prohibited the financially strapped automobile manufacturers from owning outright, leasing or owning any interest in private passenger aircraft, as long as the government debt was outstanding; and required the manufacturers to sell or divest any aircraft or interest that was owned before the bailout. Even though the bailout bill failed, the damage was done. “Jeff Beck, a Gulfstream contract pilot, had one word to describe the state of the economy and the fallout following the GM and Ford announcements: bad. ‘As soon as [people] started talking about the auto executives and their private jets, it just killed the contract pilot business and the aviation business,’ Beck said. A number of other flight departments followed suit, Beck said, and now there simply aren’t enough jobs to go around.” Needless to say, there’s yet more perfidy here in GM and Ford’s craven capitulation to the congressional class worriers.
“Both companies [GM and Ford] blamed the economy, rather than the increased media attention they received for flying to Washington, D.C. in private jets to request government financial assistance. In its statement, GM said it had suffered ‘significant cutbacks’ and would be ceasing operations at Detroit Metro Airport as of January 1 and ‘pursuing sale of four of the [company’s seven] aircraft.’ A Metro Airport spokesman told AIN that as of mid-December, GM had yet to notify the airport of its plan to vacate the space. ‘As far as we’re concerned, they have that space through 2009,’ the spokesman said. ‘We’ve certainly seen everything that has been in the press, but we haven’t received any official notice, so nothing has changed.’
“Both companies told AIN they laid off 49 employees each, although earlier reports had stated that the GM closure would leave as many as 72 people unemployed. Neither company would provide a breakdown of the specific number of pilots, flight attendants, maintenance or dispatch personnel employed by the respective flight departments.”
Great article. Because our CEOs don’t have any balls, a lot of people have to lose their jobs for no good reason. My company has a division that makes general aviation aircraft and has been adversely affected by this nonsense.
The implosion of the big money crowd probably has more to do with these layoffs than does the theatrics of the 2.8 or Congress.
Companies and individuals of all sorts of looking for every possible way to reduce costs, and private jets are an obvious target for cuts.
Many previously highly income people now are suddenly not high income people. Those who still have a lot of money are being more cautious about flaunting it. Congressional theatrics are the side-show here, not the big tent.
Corporate Jets are a legitimate tool for a Fortune 500 company as they allow C-Level executives to avoid airport delays and fly direct to smaller towns that have limited or no commercial service.
Now when the executives start using it to go golfing or whatnot it becomes abusive.
GM, Ford were the Big Tent on this issue. The publicity was horrible for the industry; these were flight departments everyone looked up to, had been established for many years. Ford’s department supported the AF Reserve, including one of its pilot’s being the Commander of the AF Reserve and a number of senior AF officers. Sales have fallen off a cliff and these closures were a sign of panic to the community.
In case you didn’t know, Mr Brian Ross was the reporter who used a bunch of hidden cameras to ‘catch’ the Big-3 execs flying on their ‘evil’ aircraft and broke the story…What a waste of time and complete flipping non-issue has now put a lot of folks out of work-
Quote from Sweetness and Light about Mr. Ross’ past: ” On 18 February 1993 Dateline NBC aired an investigative report about General Motors pickup trucks allegedly exploding upon impact during accidents, because fuel tanks were badly designed. Although there were fuel tanks design problems with GM cars before, Dateline’s film showed a sample of a staged low speed accident with the fuel tank exploding. Dateline NBC did not disclose the fact that this accident was staged, or the fact that the only reason there was an explosion was that the vehicle contained planted explosives. The viewers were never told about it. It appeared to be a major discovery of investigative reporters. GM investigators discovered a mistake by a study of the Dateline film. GM subsequently filed an anti-defamation lawsuit against NBC. The lawsuit in question was quickly settled by NBC and as a result Brian Ross and a few persons responsible for the incident were fired from NBC, and Ross found employment with ABC News, where he continues to work to this day.”
Gee….you think Mr. Ross might still have a case of Red-Ass over his getting caught by GM for faking the gas tank explosions? Yet, ABC retains his services as Chief Investigative reporter. If the MSM had any sense of decency, he should be drummed out of the news profession but instead he is a chief investigator-this should indicate to one and all the fine quality and integrity of today’s MSM.
http://sweetness-light.com/archive/is-brian-ross-a-reliable-reporter
I knew an engineer who worked for Chrysler his entire career, surviving through all of their ups and downs. He told me many years ago that as a result of the federal loan guarantees Chrysler was forced to eliminate corporate aircraft. The irony was that the aviation division, which operated as a separate entity, was very well managed and made a profit by leasing the aircraft out when not needed by Chrysler. The government forced Chrysler to divest themselves of a money making operation.
Furthermore, the corporate jet was the perk Iacocca valued above all others. Its loss was an affront to him. I was told this is what prompted Chrysler to purchase Gulfstream in order to assure this never happened again.
Not only has this badly hurt the General Aviation sector, and cost a lot of jobs, it’s simply another case of politicians making points with absolutely NO concern for the truth or who will get hurt.
PS. I called this one as well. I seem to remember calling for the congressman responsible to be shot, or something.
Yes, it’s penny wise and pound foolish to have CEOs of large corporations changing planes in Charlotte.
On the bright side, forcing executives onto domestic commercial airlines might improve service for the rest of us.
According to the SEC, when CEO Jack Welch retired from GE on September 30, 2001, he received a myriad of benefits, including access to GE aircraft for unlimited personal use and business travel.
Apparently, corporate fleets exist not just for legitimate business use, but for something other than legitimate business use as well.
Some years ago (Clinton administration I believe) taxes were levied on luxury boats. The yacht industry went into a depression. Then the administration “experts” noticed that ordinary working people made their living making those evil luxury boats. The administration punished the rich folks and got a number of working people laid off. The rich folks went off and got their yachts from Italy or someplace else. These schemes to demonize things inevitably backfire.
I file this whole affair under the heading “things the government shouldn’t be managing”. The government does not run many things well. And if I don’t like the job they are doing, I can’t send my business to a competing government.
I am a former GE employee and GE stockholder, and I do not approve of the perks for Jack Welch. He was paid big bucks and should purchase his own stuff with his own fortune.
tced2,
You might want to consult a history book. Or Google…
The “Luxury Tax” was a product of the administration of 1991’s Mr. Read my Lips… (That’d be the presidency of Bush the Elder)
Yes, it was (yet another) demonstration of the law of unintended consequences. Bad idea, pretty easily skirted by the rich.
I agree that Welch made more than enough to live quite well, without his perks-for-life package after he left. (Many of those have been discontinued as well, due to the political fallout. Long before the current crisis became apparent to the average American.)
@porschespeed,
Tip O’Neil (D) was speaker of the House in 1990.
George Mitchell (D) was majority leader of the Senate in 1990.
The tax bill was primarily their work. Yes George Bush signed it as a compromise. But that was not the main point.
back to private jets and those that have them,
I wonder if the Speaker of the House (Pelosi-D) has given up the publicly funded coast-to-coast jet? She made a big deal about being entitled to non-stop transportation back to her home district. There are many commercial jet flights from Washington to San Francisco. (JetBlue has some costing several hundred dollars – a lot cheaper than a “private” government jet)
The tax bill was primarily their work. Yes George Bush signed it as a compromise. But that was not the main point.
Apparently the main point was to blame everything on the Democrats, whether they did it or not.
Jet-Gate really proved the MSM can’t deal with the substantive issues, nor can the Senate (or was it Congressmen?).
The issue being; the size of the dunce hats Rick, Bob and Ron should have been wearing, and WHY they weren’t wearing them. (Is there a rule about hats in hearings?)
@qwerty,
Oh, I think we both know what the point was.
@tced2,
Don’t misunderstand, I don’t care for irresponsible spending no matter which group of them does it.
Yes, I remember who was running Congress at the time. Ever sit down to read who wrote what pork into that budget? You should. You’ll find that they are ALL guilty.
Neither party is blameless…
When ABC originally ran with their pre-written story (which they ran again the other night as part of their end of the year wrap up on “scandals” and then patted themselves on the back, or maybe jerked off, it’s hard to tell the difference sometimes), I called up GAMA, the general aviation trade organization and they weren’t very happy about congresscritters and the MSM badmouthing business jets. At least 30,000 Americans are employed building business and private jets, and probably more than that are involved in piloting and servicing them.
You think ABC News cares about those people?
Meanwhile, Sanford Weill, who made about a billion dollars in compensation when he ran Citigroup until he retired in 2006, and his wife will still fly for free on Citi jets for another 8 years.
At least the domestic automakers need to be able to get engineers and managers to production facilities stat when a production line is stalled, what do bank executives do that can’t be handled via videoconferencing?
Robert, so it’s perfidious that the Detroit CEOs didn’t defend business aviation in the face of grandstanding congresscritters? I can’t say that I didn’t wish the CEOs had showed more spine, but I can understand their meekness.
Detroit can do no right. Bloviating members of Congress attack business aviation and it’s the fault of the Detroit CEOs. Okee Dokee.
Apparently the main point was to blame everything on the Democrats, whether they did it or not.
Nope, the main point was how class warfare is bad policy. As for blaming everything on the Democrats, I know you think that Dems can do no wrong, but what tced2 actually said was “Clinton administration I believe”. The “I believe” part is critical. It means that tced2 wasn’t completely sure about his information.
And while porschespeed is correct that both parties load up legislation with pork, the fact remains that setting budgets and tax policy is the role of Congress, not the White House. Since the President has no line item veto powers (something Democrats oppose) that makes thinks like that Luxury Tax more the responsibility of Democrats than on President Bush the elder.
I was working for DuPont when the 10% luxury tax was passed. We supplied many boat builders with Imron and other paints. The luxury tax sunk (pun intended) many shipbuilders and almost put Hatteras Yachts out of business.
A little insight for those of you who don’t fully understand the bizjet game. It’s really too complicated for even one of my long posts, but a few themes keep coming up here.
Why do corporations offer use of the company jet as a perk to retired officers?
Taxes and insurance. The tax code makes it a cheap way to give a big benefit, with small tax implications. Also, the corporation has the jet, and the variable cost of a trip for the old man is much less than it costs for a charter.
Insurance regulations are such that once someone becomes really valuable, they cannot fly in anything less than a certified twin engine, turbine powered aircraft or their coverage is not in place. To change this clause is expensive (I would hate to see Lutz’s premiums).
Why do the corporations buy such fancy planes, rather than more utilitarian versions?
The fancy bits are usually not that big a percentage. The planes are supposedly bought to fulfill a mission. If you are an international company, you will want your officers to have access to a top of the line plane because that’s all that will get them across an ocean. There are government and military GV’s out there because they needed the capability for their mission. They load theirs up with electronics rather than leather seats, but it’s still the same plane.
I don’t know too many companies that use gold plating on their interiors, but most people think that all bizjets are built out like that because that’s what they saw on tv. Still, they spend a LOT of money on the interiors, but that’s what it costs. I redid my little bug smasher’s interior, and it cost over 8k. That’s 4 little seats, some carpet, and leather grips on the control yokes. If I had gone for the cheapest materials, it would have been 6k, and I would have lost more than the difference when I went to sell it.
Why so many layoffs over some unfortunate remarks?
Tax policy changes, along with discussions over user fees for airspace usage, have put a LOT of risk into the game. When Congress signals they are going after the fat cats, everyone in all of general aviation trembles with fear, and rightfully so. I rarely use my own plane anymore because changes in the tax code designed to hurt Jack Welch and friends actually cost them a little, but pushed me to the point where I could no longer write off necessary maintenance and training flights (it’s actually worse, there is a tax penalty for them). They even limit my ability to donate flights. This of course hurt the value of the plane, because other potential owners would be in the same boat.
Added to this, the FAA and the airlines have been trying to get Congress to allow them to set up user fees in lieu of the fuel and ticket taxes in place now. They want every plane to pay the same under a “blip is a blip” justification. The problem is that they have pushed the cost of a blip up to the point that supports airliners’ needs. Also, they don’t treat all blips the same. Without going into anymore rant, it’s a ridiculous idea, but Congress refuses to make a decision, so we sit in limbo.
Isn’t the problem just the economy?
Yes, and no. The whipsaw effect is increased due to all the risks caused by the government. Aviation is still highly regulated, and very much affected by tax rules. It’s an expensive activity, with very high capital costs where the math can and does change everytime Congress or the FAA have a meeting. You would think with the high costs they would grandfather things, but they don’t. Uncertainty like that makes it tough to play.
Lastly, imagine that cars were all still handbuilt. Now imagine the parts costs. Now imagine what the rules of the road are because it’s mostly used by busses, bikes, and horses. Now figure a license takes months and thousands of dollars to obtain, with a commercial license taking years and tens of thousands. Now you understand general aviation.
Landcrusher: Thank you for your long post, and for trying to help me understand. But, I still do not understand.
If the former CEO of CitiGroup is retired and wants to fly to the Cannes film festival in style, then why can’t he just buy himself one of these expensive planes and hire his own crew? Or hire his own charter? Either that or they can sit and relax in the first class lounge at the airport while they await their flight. They certainly received enough compensation to make this a trivial expense out of their own pocket. (Think $1 billion over, say, a ten year period.)
Why is it vital for Ford’s competitiveness for Mrs Mulally and the kids to have these expensive and exclusive planes at their beckon call? I can understand Mr. Mulally not having to lounge in the first class suite at the airport, but certainly Mrs. Mulally can do this – don’t you think?
The public’s perception of the use of the corporate fleet is nothing less than a perversion of corporate power ran amuk. Centuries ago, when a certain French King was beheaded at the guillotine, the cottage industry that supported the extravagancies of the French Crown took a dive, I’m sure. But those extravagancies never should have existed to begin with.
I think the people are now sick and tired of this corporate system that has bred this new monarchy in America. It is not just the abuse of the corporate fleet of aircraft; it is the mantra that somehow these narcissists are worth $100 million/yr in compensation, that they do not pay any income tax, that once retired they fly around the world in private business jets ad infinitum at the shareholder’s expense, etc…
Lastly, I want to add that my choice for what products and services I purchase IS affected by this mumbo-jumbo of monarchy and privilege. I am leaning towards Japanese branded vehicles for my perception of higher value, and a perception of zero abuse by the Japanese manager’s of the resources that their shareholders have entrusted onto them. If society is better served with more appropriate corporate governance and fewer general aviation jobs, then so be it. After all, in the end, France is better off without their monarchy.
Thus, I will go out of my way to avoid financing anything through GE credit or CitiGroup, and driving any vehicle stamped FORD/LM.
allegro,
You won’t like my answer, but the reason they give the perk is that it allows the company to provide something with a high cash value at a lower cost and with a tax advantage. IOW, it is just one more thing making the CEO overpaid. I agree they are overpaid, but this actually saves both parties money. Also, much of these contracts were written before the fractional jet market became such a good deal. The jet perk will likely go away due to both PR issues, as well as the fact that the ex-CEO can now get his own jet ride at a cost similar to what it cost his ex employer. Several years ago, the Cannes trip would cost the ex-CEO three times to charter what it would cost the ex-employer to take him on a company plane.
Same answer applies to the wife. It’s a contract item that was negotiated.
I disagree with the French aristocracy analogy. Corporate jets actually can, and do, save a company money and make their management more efficient. This isn’t just an extravagance. Deny the king a gold plated coach, but don’t deny him the finest team of horses. Most of the corporate jets really are functional, not extravagant.
The whole “perks” thing is really a bad argument. Really, there is compensation and compensation. The whole “perks” thing is all about perception, and while perceptions must be managed, it’s not something that I want to worry about. To me, they are overpaid in cash already. If you cut their pay to what it ought to be, and then give them the jet, I would be much happier. Only a foolish person is really concerned about a 100k a year perk because it’s jet usage. I concern myself with whether the guy is worth the 100k a year compensation, and then don’t worry if they pay him in jet usage or $2 bills.
On the new monarchy, I think most of these guys pay a LOT of taxes. Of course, few pay more than 25% of the total, while many people making less pay a higher effective rate. It’s simply because Congress is full of hubris. The IRS and Congress will never be as effective as teams of private accountants. They should go for simple codes over trying to micromanage us through taxes. The wealthiest can always afford to beat the complex system. I agree they are overpaid, but once again, I don’t care how they get paid, or how they travel. I only care that as a stockholder, they are overpaid.
You are of course entitled to avoid business with the 2.8 because of your principles. I do the same, but because I am sick of indirectly supporting the union subsidization of liberal politicians.