Pictured is a HondaJet. Jet-engine maker GE is shedding most of its corporate jets in a cost-cutting move. Akio Kon / BloombergSkift Take: Salespeople for jet-engine maker GE will have a tough sell to customers because the company is gutting its flight department and selling most of its business-aviation jets in a largely symbolic cost-cutting move. Fear not, however: Old habits die hard, and these jets could one day return to GE’s fleet. — Dennis SchaalImagine if Facebook Inc. founder Mark Zuckerberg announced he was unplugging from the internet to save time. That’s how private-jet industry executives feel about General Electric Co.’s cost-cutting move to sell the bulk of its corporate fleet.
GE’s plan to shed five company-owned planes flies in the face of the boardroom axiom that such aircraft are time- and money-saving tools, not luxury items. GE sells jet engines to planemakers and will have a large presence next month at the National Business Aviation Association’s annual conference, where the motto has been ‘No Plane, No Gain.’
Savings from selling corporate jets will be minimal, and using higher-cost charter flights risks winding up as more expensive, industry consultants and brokers said. GE won’t raise much cash by selling aircraft into a used-jet market in which prices have been declining for several years, they said.
“I guess they forgot what business they’re in,” said Janine Iannar0elli, president of Par Avion, a Houston-based plane broker. “It makes no sense.”
GE says cost-savings go beyond just the jets, as they’ll eliminate spending related to facilities overhead, maintenance and crew. The company is also cutting down on travel overall, relying more heavily on video conferencing for internal meetings, said Jennifer Friedman, a company spokeswoman. Employees have more options to travel on commercial airlines after the company moved its headquarters to Boston from Fairfield, Connecticut.
“By reducing our corporate air services, we will see significant operational cost savings,” Friedman said in an emailed statement.
The business-aircraft industry is already sensitive about its image, especially after the public outcry that erupted in 2008 when auto executives flew their corporate jets to Washington to seek bailout money from Congress. Former President Barack Obama often railed against tax breaks for private planes.
John Flannery, who took over as chief executive officer of GE last month, is seeking to follow through on predecessor Jeffrey Immelt’s plan to cut $2 billion of costs by the end of 2018. Flannery is also trying to reverse this year’s biggest stock slide on the Dow Jones Industrial Average. That’s only the latest example of how GE has lagged the market: The share price has dropped 40 percent in the last decade, while the Standard & Poor’s 500 Index has gained 64 percent.
GE isn’t abandoning private aviation altogether. It will keep two small, short-range planes at its aviation unit for quick site visits, and own equity in a few larger jets shared by several owners. Fractional companies, such as Berkshire Hathaway Inc.’s NetJets, sell a portion of a jet in exchange for hours of flight.
Scuttling the flight department is probably more of a symbolic move than a large contributor to cost cuts, said Pete Agur, founder of the aviation consultancy VanAllen Group. When executives at a company like GE rack up more than 250 hours of private fly time in a year, it’s less expensive to own and operate a plane than to use charter or fractional services.
“In the short term, it’s going to have some benefits,” Agur said. “Long term, there’s no way a global company can operate only with the airlines or only with commercial options, including fractions.”
GE’s jet-engine unit will keep a HondaJet, a small five-passenger plane with a cabin height of 4 feet, 10 inches — not big enough to stand up for most people. GE will take delivery of a second HondaJet in January, said GE spokesman Rick Kennedy. GE makes the engine for the HondaJet.
“GE Aviation is actively using small-business jets to achieve efficiency by traveling between its more than 40 sites in the U.S.,” Kennedy said in an emailed statement.
Those small HondaJets can’t cover all GE’s needs to visit customers, suppliers and factories across its far-flung operations, said Steve Varsano, founder of The Jet Business, a London-based broker. Corporate jets provide more flexibility than commercial flights, allowing executives to hit multiple cities in one day or to push back takeoffs if meetings run late. The private meetings held on a corporate plane can’t be done on commercial flights, said Varsano, who said he was “shocked and surprised” at GE’s announcement.
GE could have a hard time selling the two Bombardier Inc. Globals and three Challenger 605s that it owns, said Connie Marrero, an executive vice president at plane broker Freestream Aircraft. There are 15 pre-owned Global XRS aircraft available on the market now, and in the last six months only one has been sold, she said. Eighteen Challenger 605s are on the used market, and the average number of days they’ve been up for sale tops 280.
Those planes won’t move quickly “unless you aggressively price, in which you’re taking a significant loss and hurting the rest of that pre-owned market,” she said.
It’s unusual for a large, global company to eliminate its flight department, Agur said. It’s more common for fleets to be shrunk or planes changed depending on business conditions.
“In the long term, I wouldn’t be surprised to see GE back with aviation services when life gets better,” he said.
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