It used to be that the choice of what business aircraft to acquire was a decision made by the CEO and the Chief Pilot. The boss said "I want this aircraft" and the pilot either got it or tried to dissuade the boss for reasons of speed, cabin or range. Today, opportunities to use business aircraft are sufficient only if the numbers make sense, and make "cents."
Some years ago I did a study for a manufacturer who was expanding from the Americas into Asia, particularly China. They already had a larger-cabin business jet, but the senior leaders were considering a much larger airplane with global range to better meet their expanded travel needs. The CEO and Senior VP were clear on what they needed—the ability to go global.
The CFO was just as clear on what he needed—financial justification. There was no way would he stand for a what he called "A Royal Barge." In other words, the aircraft had to earn its keep, or he would recommend the board veto it. This is exactly why you hire a CFO. It is their job to make sure every dollar gets spent wisely. Our goal then was to recommend an aircraft upgrade that could handle the global travel of the CFO and SVP, both as flying-office and as restful-space, so that these rainmakers could do business right after landing. But since, the the CFO and board were not going to write a blank check, we needed the financial justification for the global jet.
Going from the corporate headquarters to to Asia was two-stops with the aircraft available at the time. One-stop to Asia was technically feasible but only if the weather was perfect and the headwinds were light. Our analyses identified two sets of aircraft. A 4,100 NM range aircraft could get them to or from Asia with one-stop 95% of the time. A 6,000 NM range gave them the desirable non-stop capability. Aircraft in these categories all have comfortable cabins with the latest navigation and communication systems. The seats could fully recline allowing for the executive to rest, if necessary. The galley could prepare the meals needed to fuel people for a 10 to 14-hour trip. The financial differences that had to be addressed were:
- Any new aircraft would cost more to acquire than the sunk investment in their current, smaller business jet.
- Operating costs would go up with a bigger jet. However, given the newer aircraft's more fuel efficient engines and advanced systems, the cost jump was minimal.
- Acquisition had to make sense financially.
We were able to show the added days in the office and the business jet’s more productive travel environment en-route were valuable to the company. The reduced travel time and more restful experience en route was seen as significant by the CFO. The saved travel days, the productive work environment on the business jet, and the secure work environment were good financial reasons for the new aircraft. Still, the question remained— do they obtain the 4,100 NM jet or the 6,000 NM jet?
Looking at the Asia trips, we compared the added costs to acquire and operate the larger jet with its 6,100nm range with the cost of the fuel stops and added travel time of the 4,100 NM jet. We looked at the difference in the ownership costs - acquisition and residual value after 10 years in this case. Based on the trip frequency, we arrived at a cost savings of about $600,000 per year by accepting the one-hour fuel stop needed with the 4,100 NM jet on Asian trips. The CFO was not sold on the 6,100 NM aircraft as adding that much more value. The flight department, CEO and Senior VP were satisfied with the 4,100 NM jet, which is the aircraft they purchased.
Given the frequency of their Asia trips, the 6,000 NM jet was not financially justifiable. Operationally, the flight department favored the shorter stage lengths with a break, even with the added crew member. For this company, the numbers made send for the 4,100 NM jet. For another company with higher trip frequencies or greater passenger loads, the 6,000 NM jet would make better sense. In all cases, you have to look at the costs and the benefits to do what makes "cents" financially within the parameters of the mission requirements.