"A chartered course? US Airways cutbacks, heightened security spur growth in private jets, business charters"

Sunday, October 31, 2004

A chartered course? US Airways cutbacks, heightened security spur growth in
private jets, business charters
By Alana Semuels
The Pittsburgh (PA) Post-Gazette


Michael Staaf had been thinking for years about expanding his real estate
management business into Florida, but found it too costly and time-consuming
to get back and forth on commercial air. So he bought a plane in 1999, got
certified as a pilot and now shuttles between offices in Fort Myers, Fla.,
and Beaver, an employee or two usually in tow.

His company is not alone in switching to private air travel. Local companies
that provide private and charter air service say business is booming, fueled
by cutbacks at US Airways, heightened airport security that has increased
delays here and elsewhere, and a desire by businesses for alternatives that
are more convenient and potentially less costly than commercial air travel.

While whole concourses sit vacant at Pittsburgh International Airport, on
the far side of the runway, the privately owned fixed-base operations center
that offers fuel, pilot lounges and other services to smaller private
aircraft is expanding. The general manager has requested that a new hangar
be built in the spring to accommodate the growth.

"It's not just here either," said FBO Av Center general manager John Carlen.
"The demand for private aircraft is increasing throughout the U.S.A. and
globally."

Carlen said the last three or four months have been especially strong for
private travel at the airport, which is unusual since business travel
usually decreases in the summer. The FBO Av Center recorded 721 flights in
May, 732 in July, 756 in August, and 792 in September. He said he doesn't
know if the US Airways cutbacks caused the spike in private jet travel.

Clayton Pegher does. The charter coordinator at the Pittsburgh Jet Center at
the Zelienople airport said the firm has seen a marked increase in inquiries
since US Airways started cutting back. "People can't get the flights that
they want," he said. US Airways' problems "have had a positive effect on us,
although I hate to say it since it has had a negative impact on so many
people."

The cost of flying by private jet is not cheap. Travelers who prefer
exclusive private airports with cable TVs and posh guest lounges may pay
$600,000 for a used six-seater such as Staaf's up to $35 million for a new
Gulfstream, which can fly overseas and seat 12 to 19 , said Don Linzer, a
shareholder with the accounting firm Schneider Downs who consults businesses
interested in buying or financing aircraft.

Companies recover some of a plane's costs by writing off about half of its
value on their taxes. But the savings go well beyond that, argues the
National Business Aviation Association. It contends that passengers are
equally or even more productive aboard a company jet or turboprop as they
are in the office, and that more than 40 percent of time aboard a corporate
aircraft is spent in employee meetings.

If such work is incorporated into the benefits of flying private jets vs.
commercial airlines, then the savings in some cases may more than offset the
costs, it and other private jet enthusiasts say. The association says that
contention is borne out by the numbers, with the number of U.S. companies
operating business aircraft jumping from 6,584 in 1991 to 10,661 in 2003.

The timing surely seems right for the corporate aviation industry, which is
churning out jets with price tags up to $40 million while commercial
travelers wince at paying more than $200 for a cross-country trip. Last
year, Honeywell Aerospace projected sustained expansion through 2013, citing
a backlog of aircraft orders as proof that both shared and company ownership
of corporate aircraft will increase.

The government is helping out. A bill passed by Congress this month extends
a tax break to companies that buy planes costing more than $200,000 for
business purposes. The break was established after Sept. 11 to stimulate
growth in aircraft sales, and critics argue that it has continued far too
long, encouraging companies to buy aircraft while taxpayers foot the bill.

Go where you want to go

Corporate jets are nothing new to business travel -- almost 400 Fortune 500
companies own their own plane. But Linzer, of Schneider Downs, estimates
that "the utilization of corporate aircraft as a business tool is much more
prevalent than it was before Sept. 11." He said this is especially
significant in the region because of the flights that US Airways has
eliminated.

For some of the region's biggest companies, jets are important because they
get business travelers to places that are otherwise difficult to reach.
Business aircraft have access to nearly 5,300 airports in the United States,
compared with 558 for commercial airlines, according to the business
aviation trade group. This flexibility is especially important for such
global companies as U.S. Steel, which has operations in Serbia and the
Slovak Republic.

"For us, it's really a matter of productivity," said U.S. Steel spokesman
John Armstrong, noting that the company has major operations in places with
limited commercial air service. The Downtown-based steelmaker's corporate
jet is mostly used by senior management, but Armstrong said the company has
a guideline that the plane does not travel empty.

This increased productivity is also helpful if executives are trying to
visit a number of sites in one day. Such is the case for Downtown-based
money manager Federated Investors, which has an eight-seater that "allows us
to get in and out of certain markets within our own time frames," said
director of procurement Maroon DeVito, who handles travel functions.

Avoiding security, getting to remote locations and saving time on multiple
stop trips all make it sensible for some big companies to have their own
plane. "You're not delayed by the things that a traditional commuter might
be," said Kevin Lowery, a spokesman for Downtown-based Alcoa, the global
aluminum giant that has its own hangar at the Allegheny County Airport. "You
don't have executive time spent in an airport, you can actually do work on
the plane, you can have confidential discussions without having to worry
about the person sitting next to you."

Not all companies can afford to buy their own aircraft. So rather than
buying their own jets, many businesses are looking into sharing them,
including through an increasingly popular option -- so-called fractional jet
ownership, which allows a company to purchase a share in a plane much as
some vacationers purchase time-shares in condominiums.

Fractional jet ownership is for companies that do a lot of business travel,
but not enough to make it economical to own a private jet, said Steve
Krupin, spokesman for New Jersey-based fractional ownership company Net
Jets. More than 6,200 companies and individuals were participating in these
fractional jet ownership programs nationally by the end of 2003, up from 110
in 1993, according to Aviation Data Service Inc.

"I see a lot more clients looking into fractional ownership because of the
US Airways situation," said Schneider Downs' Linzer. Companies "may not be
able to afford an aircraft but might be able to afford a fractional
interest," he said. There also are tax benefits from fractional ownership,
with laws allowing the costs to be deducted as business expenses.

Chartered air trips also are growing. A February survey of air charter firms
by the Air Charter Guide, a Massachusetts information warehouse for the
industry, found that half the companies surveyed experiencing increased
business.

The teleconference option

Charters are "becoming a real tool for business," said Philip Erman, vice
president of Corporate Air, the fixed based operations center at the
Allegheny County Airport that employs 100, manages about 18 aircraft,
provides fuel, maintenance and hangar space, and charters planes for
companies and individuals. Corporate Air is providing about 10 to 12 charter
flights a day, he said, including for a growing number for small local
firms.

Still, the bottom line for many companies remains the bottom line, and that
means justifying the upfront costs for charter or private jet service in the
wake of US Airways cutbacks remains an obstacle.

Latrobe-based toolmaker Kennametal Inc., for example, is relying more on
ground transportation than it has in the past. Others are putting more
emphasis on video conferences, which are much easier to do these days than
in the past because of the Internet and improvements in telecommunications
equipment. "Certainly we are keeping an eye on what happens with U.S.
Airways, but I don't really foresee us going into chartering," said Jeff
Nobers, spokesman for 84 Lumber.

Almost 75 percent of companies surveyed about their business travel said
that they are relying increasingly on technology as a substitute for air
travel or to improve productivity, according to a study released last week
by the Business Travel Coalition, which represents corporate travel
managers. The study projected a 10 percent increase in business air travel
by 2005, but spokesman Kevin Mitchell said much of that will go to low-cost
carriers.

With few low-cost airlines servicing Pittsburgh, local companies eventually
may confront no other option other than charters should US Airways fail to
remake itself or cut back even more than planned. Charter flights are
"certainly something we would entertain if it gets to the point that our
people are not utilizing their time properly" by flying commercially, said
Loren Marr, director of global purchasing at Ariba.

She said the Sunnyvale, Calif.-based business-to-business software and
services firm, which recently purchased Downtown-based FreeMarkets, is
waiting until it knows more about the fate of US Airways and other carriers
serving the Pittsburgh market.

Marr said that companies such as Ariba, which has major operations here, are
becoming increasingly frustrated by the difficulties in business travel.
Many are trying to work with the Regional Air Service Partnership, an
organization spawned by the Allegheny Conference on Community Development to
try and lure new carriers and service to Pittsburgh.

For Michael Staaf, the Beaver real estate manager, all the hand-wringing and
headaches caused by US Airways cutbacks and declining commercial air service
only serves to reinforce the decision he made five years ago to learn to fly
and to buy a plane. "It's a lot less hassle," he said. "The plane is like a
mini time machine for a business guy."


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