>To control costs, companies including Citigroup and Time Warner are selling their jets. Alcatel-Lucent has allowed leases on two to expire without renewing them and has put its third jet up for sale.
Maybe General Motors should throw in a fleet of Cadillacs.
The automaker is dumping its corporate jets into what some participants say is the worst market they have ever seen.
Just seven months ago, hundreds of mega-millionaires, including Ralph Lauren and David Geffen, were elbowing one another in the lineup to buy a $60 million Gulfstream G650, which was not expected to hit runways until 2012.
It did not matter that $500,000 had to be wired to Gulfstream’s account at a Midwest branch of JPMorgan Chase at exactly 12:01 a.m. April 15, or that those who secured a place in line could not sell their rights if they changed their minds, according to one bidder.
Most Read Business Stories
- 6 Dr. Seuss books won't be published for racist images
- Frontier cancels flight, citing maskless passengers
- Biden vows enough vaccine for all US adults by end of May
- Amazon sued by Black cloud-computing manager over alleged racial discrimination and sexual harassment
- The penthouse atop Smith Tower is on the rental market for the first time
Some eager moguls even tried to improve their chances of getting a jet quicker by opening accounts at Chase’s Midwest office. Among high-ticket status symbols, “me and my brand-new jet” was it.
But that was before the credit crisis and before billions of dollars in corporate and individual wealth were lost.
“The jet market stinks,” said Richard Santulli, the chief executive of Netjets, the private-jet company owned by Warren Buffett’s Berkshire Hathaway.
To control costs, companies including Citigroup and Time Warner are selling their jets. Alcatel-Lucent has allowed leases on two to expire without renewing them and has put its third jet up for sale.
And the public-relations fiasco that engulfed Detroit’s automakers when their CEOs flew to Washington on company planes to seek a government bailout has underscored how inappropriate such travel can seem in this recession.
General Motors, which leases seven planes, put the majority on the market before the government said it must do so as a condition of assistance. The automaker has also closed its air-transportation-services unit, which had 49 employees.
“We could not justify an in-house aircraft operation,” GM spokesman Tom Wilkinson, said. “We are negotiating to transfer the remaining planes to another operator. Ford, too, has shut down its flight department.”
Jet brokers, who have a worldwide clientele, say the market has constricted abroad in recent months as well.
“Our inventory is up dramatically and demand is way down,” said Josh Messinger, of J. Messinger Corporate Jet Sales, a jet broker. “The decline is particularly pronounced for those who bought more recently because prices had soared so much.
Down in Dubai
“I spent a week in Dubai, and the front page of the paper there had articles every day about their economy having issues due to real-estate issues,” Messinger said.
Santulli said the Russians had been big buyers of jets. “But the fall of the Russian stock market has had a huge impact,” he said. “The Indian stock market stinks, and the dollar has gotten stronger, which hurts airplane sales.”
Because jets are priced in dollars, they become more expensive for foreigners as the dollar rises.
Among jets, the large-cabin, long-range segment of the market is suffering the most, said Bill Quinn, director of aircraft sales and acquisitions at Boulder, Colo.-based Cerretani Aviation. That includes planes from Gulfstream, Bombardier and Falcon.
Carrying costs are high. A Gulfstream G550 costs about $47 million.
Though expenses can vary by state, one mogul’s business manager estimated annual costs run about $1.3 million, including $500,000 for property tax and $400,000 for pilots and stewards.
Typical operating costs are more than $2,000 an hour in the air, he said.
The corporate side of the business is particularly vulnerable because of public scrutiny. “They are not going to do employee layoffs and keep the jets,” said Mary Hevener, a tax adviser who specializes in executive compensation at Morgan Lewis & Bockius.
Tax break reduced
Besides, Congress stripped away the deductibility of personal travel for executives in 2004 by allowing companies to deduct from taxes only the rough amount of a first-class ticket, far less than private-jet travel costs.
Corporate chiefs concerned about public scrutiny are more inclined to look for alternatives than to return to the airlines.
Some are examining whether they should take delivery of planes already ordered. One company had been looking to upgrade its two planes.
“Now they are weighing whether or not to buy new planes or keep what they have,” Quinn said.
Some are downsizing. “Some of these guys just move the deck chairs around,” Quinn said. “They get rid of the big planes and go to fractional ownership, or they go to charter, or they come back into the marketplace with a leased plane,” he said.
But every part of the private-jet industry has been affected. Netjets lets people buy a fractional ownership in planes, and it sells Marquis jet cards that give customers access to the fleet in 25-hour increments. Those businesses too are seeing a slowdown.
“People have lost a lot of money and are careful about how they spend it,” Santulli said.