““CEOs go to their vacation homes just after companies report favorable news, and CEOs return to headquarters right before subsequent news is released. More good news is released when CEOs are back at work, and CEOs appear not to leave headquarters at all if a firm has adverse news to disclose. When CEOs are away from the office, stock prices behave quietly with sharply lower volatility. Volatility increases immediately when CEOs return to work.” —David Yermack, a New York University finance professor, whose recently released study shows a correlation between when CEOs take their private jets on vacation and movements in their companies’ stock price ”
The Bizav Advantage: The case for bizav, in dollars and cents
Remember the CEOs from Chrysler, Ford and GM who flew on business jets to Washington to testify before a Congressional committee in the fall of 2008? Pressed to explain their use of corporate aircraft, they all looked and sounded as if they'd been caught doing something wrong. The mainstream press had a field day with the story, offering spectacular sound bites and video footage of business jets taxiing around Dulles International Airport. The incident reinforced a public misconception that corporate aircraft represent mere toys for the rich. If only there were a way to prove the value of business airplanes to the skeptics.
In fact, such proof exists. Several studies in recent years have done an excellent job of demonstrating that corporate jets can significantly boost the bottom line.
Back in 2000, Jack Olcott, then president of the National Business Aviation Association, wondered whether there might be a correlation between the use of business airplanes and the price of a company's stock. Olcott sought the help of Michael Dyment, then a partner with Arthur Andersen in New York. Dyment was captivated by the topic, having recently seen proof of business aviation's value: Intel had traced flaws in its Pentium 3 computer chip to the fact that engineering teams from around the country had had difficulty arranging meetings during the development process. "There were often meetings at which dozens of critical people never showed up," Dyment said, because "the airlines were so unreliable."
Intel subsequently took a bold step and built its own private air shuttle service-an Intel airline of sorts-that now operates on a daily schedule to connect the company's U.S. manufacturing and engineering centers. Today, Intel employees must use the shuttle to travel between its locations. Dyment, now CEO of NEXA Capital Partners and NEXA Advisors, LLC, said the budget-neutral shuttle clearly demonstrates how business aviation can benefit a company.
After the Intel incident, Dyment headed a 2001 study at Arthur Andersen of the value of business aviation. The results strongly suggested a correlation between business aviation and corporate success.
A FEW YEARS AGO, DYMENT AND SOME OF HIS associates grew curious about whether those findings still held up. "We thought it was time to take another look at the data and the conclusions," he said, "especially since there had been so much industry consolidation." The result was a new study, "Business Aviation: An Enterprise Value Perspective-The S&P 500 from 2003-2009," that NEXA released late last year. Sponsors of the study included more than a dozen aerospace companies and associations, among them Amstat, Avantair, Aviation Week, Bombardier, Cessna, Embraer, the General Aviation Manufacturers Association, Honda, the National Business Aviation Association, OAG, Piaggio, Sikorsky and Talon Aircraft.
The report's key conclusion: business airplane users continue to outperform nonusers in terms of revenue growth, profit growth and asset efficiency. The study linked business aircraft use to "the fundamental drivers of a company's long-term value creation" and included in-depth interviews with S&P 500 executives. It incorporated raw data as well as figures that were weighted to account for the effect of varying company size and "the challenge of sustaining rapid growth as a company scales business operations." Said Dyment: "The methodology isn't perfect, but it is pretty good. I braced myself for the skeptics after the study was released, but there weren't any."
Among the findings:
• Average annual revenue growth on a market cap-weighted basis was 116 percent higher for business aircraft users (6 percent higher using unweighted data) than for nonusers
• Average annual earnings growth was 434 percent higher for users (253 percent higher using unweighted data)
• Average annual earnings before interest and taxes were 81 percent higher for users (54 percent higher using unweighted data)
• Market capitalization growth as measured by market value growth was 496 percent higher for users of business airplanes (95 percent higher using unweighted data)
These statistics reflect the five-year period from 2003 through 2007 because the authors "wanted to isolate the effects of the recession that began in December 2007." However, they also looked at data for 2008 and 2009 and found that business aviation users "continued to strongly outperform nonusers in almost every major financial category we analyzed."
Moreover, they determined that business aircraft users represented:
• 95 percent of S&P 500 corporations on Business Week's "50 Most Innovative Companies" list for 2009
• 86 percent of S&P 500 firms on Fortune's "50 Most Admired Companies" list for 2009
• 90 percent of S&P 500 firms on Business Week's "25 Best Customer Service Companies" list for 2009
• 98 percent of S&P 500 firms on the Business Week/Interbrand "100 Best Brands" list for 2008
• 95 percent of S&P 500 firms on Fortune's "50 World's Most Admired Companies" list for 2009
• 90 percent of S&P 500 firms on Corporate Responsibility magazine's "100 Best Corporate Citizen's" list for 2009
THE EVIDENCE POINTS TO ONE conclusion, Dyment said. Corporate aviation "provides a unique competitive benefit to America's businesses, manifesting in higher shareholder and enterprise value."
That, of course, is the message that the business aviation industry has been trying to deliver all along. "A compelling part of the NEXA study is the list of companies that operate business aircraft," said Ed Bolen, president of the National Business Aviation Association. "No matter how you measure it, this is a list of the best companies in America. They provide essential transportation to businesses in thousands of communities that have lost regular airline service.
"All too often, people focus on the luxury aspect of business aviation and miss the word 'business,'" Bolen added. "Business airplanes allow you to do more with less. People ought to be able to talk about what they do with their aircraft that adds value to the business."
Perhaps now they can, thanks to studies like the one from NEXA. The data clearly shows shareholders-and anyone else who asks-that smart companies operate business airplanes.