Sharing of corporate jets up

Pickup: Smaller firms are helping revive the company plane industry.

August 30, 2005|By Meredith Cohn | Meredith Cohn,SUN STAFF

With property in Louisiana, Wisconsin and Colorado, as well as Maryland, the real estate developers at St. John Properties spend a lot of time on airplanes. But they don't wait in security lines or elbow for a good seat on the economy airline. They fly on their own plane.

Although St. John is not a Fortune 500 company and not much of a household name outside suburban office park circles, the firm has joined the new jet set. It recently bought a block of time on a jet, called a fractional share, which allows it to own a piece of a plane rather than pay for the whole thing.

With such lower-cost options available and an improving economy, industry experts say smaller companies are getting their foot in the cabin and reviving the corporate jet industry. And, reflecting the times, real estate firms like St. John are helping fuel the comeback - not the Internet companies that did nearly a decade ago.

"You can leave at 8 in the morning and get back at 8 at night and spend a complete day in Wisconsin," said Larry Maykrantz, chief financial officer for St. John, formerly MIE Properties. "An executive's time is valuable, so if you look at it analytically, it's very easy to justify the cost."

Despite the price, there are more corporate planes being manufactured, bought, leased and shared by U.S. businesses than in recent years, after a lull spurred by the 2001 terrorist attacks and a sagging economy.

They range from small propeller planes seating a half-dozen people and costing less than $2 million to 20-seat transoceanic jets worth more than $40 million. Smaller, cheaper planes in demand from smaller companies are also on the way. They can take off with a few hours' notice, be host to conferences in the air and land at 4,600 public use airports nationwide, compared with a few hundred commercial airports.

Many new entrants don't see private planes as an indulgence, but a sign of success, even efficiency - especially at a time when security measures and the volume of people flying are causing delays and hassles at the nation's major airports.

"It might sound outrageous to an ordinary person, but this isn't a CEO from IBM being flown to Monaco," said Richard Aboulafia, an aviation consultant for the Fairfax, Va.-based Teal Group Corp. "It's become an awful lot of people taking a shuttle between factory sites."

The corporate jet has been around for decades, rising - and diving - with the economy, he said. There was a rapid ascent during the high-tech stock boom from 1995, when 331 planes were delivered, to 2001, when a peak of 758 were delivered. The industry dipped to 492 planes by 2003 before rebounding. This year, 626 planes are projected to be delivered.

The total number of private planes in the United States now stands at about 16,400, up about 60 percent from the beginning of the 1990s.

Paul E. McDuffee, director of the Corporate Aviation Department at Embry-Riddle Aeronautical University, said as industries grow and executives are better compensated, their use of private jets grows. Now, he said, it's not just smaller companies, but more middle managers who have the means to board private jets for business or leisure.

The Internet and video conferencing have cut down on the amount of travel, but, McDuffee said, for many there is no replacing the "value of face to face," or in the case of real estate, "seeing the property."

Companies that deal in fractional flying time have lowered the bar of entry. Business is up for the handful of fractionals, although none are earning a consistent profit.

"We saw resilience in 2004," said S. Michael Scheeringa, chief executive of Flight Options, a Cleveland-based affiliate of the Raytheon Co., a leader in the fractional industry. With 200 planes and 2,300 owners, it controls about a third of the fractional market.

"In 2004, prices and demand started to firm up, and in 2005, certainly the general aviation business has seen robustness in terms of demand," he said. "And the No. 1 reason for flying private is convenience."

St. John decided on 50 hours of time with CitationShares, a Connecticut subsidiary of the airplane manufacturer Cessna and the aviation services firm TAG Aviation. In the past few months, St. John Properties added 50 more hours with NetJets Inc., one of the largest and the first of the fractional companies with its founding in 1986. Warren E. Buffett, chairman and chief executive of Berkshire Hathaway Inc., bought the company in 1998 after three years as a client.

The National Business Aviation Association said there are now 6,556 fractional shares sold, up from 289 a decade ago. Business people are also chartering more planes and buying time cards, the flying equivalent of phone cards. They give the holder a certain number of hours in the air, but there is no ownership stake.

Big companies and their executives are still the biggest owners and users, the group said.

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