My Jet Is Bigger Than Yours

By Jillian Cohan
From the September/October 2007 Issue

Filed under: Boardroom

High-end private jets, like the Falcon 7X ($40 million) are all the rage among business leaders,
writes JILLIAN COHAN. And there are good reasons—besides ego.

In May, with the Alps as a backdrop, some of the best salespeople

in the world joined some of richest customers on the tarmac at the Geneva International Airport to demonstrate the
advantages of the private jets that were on display. Boeing Business Jets gave tours of its 737s, dubbed the BB J2
(price tag: at least $51 million, plus the cost of interior outfitting, which can run another $30 million). Airbus
promoted its ACJ (Airbus Corporate Jetliner), a series priced between $45 million and $55 million, again
unfurnished. As the demand for luxury aircraft grows, Boeing and Airbus are also selling converted commercial
airliners—some of them gigantic 747s and A380s.

Among firms that concentrate on jets for businesses and wealthy individuals, Canadian manufacturer Bombardier
exhibited its Challenger and Global Express lines, at $27 million to $41 million per jet. (With furnishings, some
pre-owned Global XRS jets “are being discussed near the $60 million range,” according to World Aircraft Sales
magazine.) Dassault displayed its high-end $40 million Falcon 7X, which, flying eight passengers at Mach 0.90 (nine-
tenths the speed of sound), can go without refueling from New York to Riyadh. Gulfstream showed off its expanding
line of ultra-long-range jets, including the plane that many billionaires think is the pinnacle of speed, range, and
luxury: the G550, at upwards of $47 million, plus outfitting.

“We’re going to have a record-breaker,” Ed Bolen, who heads the U.S.-based National Business Aviation Association,
said of the international trade show, which drew more than 11,000 to the Swiss exposition center. He might as well
have been speaking about the market for corporate jets, especially the high-end models basking in the spring
sunshine.

Once considered the royal barges of the elite, private planes now have exceptionally practical attractions, thanks to
the globalization of business, the erosion of commercial air service after 9/11, and—in an age when the time and
safety of CEO s are worth big money to the businesses they run—the acceptance of the notion that convenience,
speed, and security are worth the expense, which can easily reach six figures for an international round-trip on a
high-end jet by Gulfstream or Bombardier.

Sales this year will set new records. In late July, Gulfstream reported that its second-quarter sales were up 13 percent
over last year, profits were up 19 percent, and its funded backlog of orders was worth more than $9 billion. Many of
the ultraluxe models on display in Geneva are looking past 2010 for deliveries. One executive said that he could turn
around and sell his contract for a jet to be delivered in 2009 for about $2 million; that’s the value of being able to
jump to the front of the queue.

A price tag of about $50 million is just the starting point for a high-end jet. The plane could cost another $4 million
to $7 million a year to staff, maintain, and operate. It’s not unusual for a world-traveling executive who flies 200 days
a year to have four or even six pilots on the payroll for a single jet, and one or two flight attendants.

“The popular image is of the guy on the Monopoly board—the guy with a monocle and top hat smoking a cigar,”
said aviation analyst Richard Aboulafia of the Teal Group. “The reality is a lot more pedestrian. The majority of the
hours of use on a business jet are just that: top management going between manufacturing sites or customer locations
and wanting to do it quickly.”

Gulfstream showed off its expanding line of ultra-long-range jets, including the plane that many
billionaires think is the pinnacle of speed, range, and luxury: the G550, at upwards of $47 million, plus
outfitting.

As the hub-and-spoke model of commercial routes took off in the 1970s, so did the marketing of Jetstars, Sabreliners,
and Learjets that promised to save managers travel time and maximize their productivity as they flew directly
between small and midsize cities where plants and offices were located. Yet the argument that tied profits to jet use
was shaky, as Donald Pattillo observed in his book, A History in the Making: 80 Turbulent Years in the American Aviation
Industry. Instead of becoming symbols of practicality and productivity, by the late 1970s jets “became known as the
ultimate corporate perk.”

Kenneth Lay, the late CEO of Enron, used the company’s Falcon jets to ferry his wife and daughter on shopping trips
(Enron had six jets: two Falcon 900s, one Falcon 50, and three Hawker 800s). According to The Wall Street Journal,
some executives, including Ford CEO Alan Mulally, have compensation plans that, for security reasons, allow their
families and guests to travel on corporate jets, with the company picking up the tab for a specified number of
personal-use hours. Other wealthy businessmen prefer to own their own private planes and charge their companies
when they use them for business. There can be tax, as well as ethical, advantages to such a setup.

Today, corporate jets are seen increasingly as smart investments. “Wal-Mart has the largest private jet fleet of any
company in America, and they hold nickels like they’re manhole covers,” says a Midwest hotel chief who has used a
private plane since the 1960s. “If you have a senior executive on the road and he can get done in one day what it will
take him three days to do flying commercial, he can go home more often. And a happy executive is a productive
executive.”

The rising acceptability of private jets can be seen in the recent corporate history of Gulfstream, which began life in
1958 when the Grumman Corporation launched the Gulfstream 1, a sleek and hardy two-engine turboprop that is
still in operation in many parts of the world. In 1978, Grumman sold Gulfstream to a firm headed by Allen Paulson,
an aerospace entrepreneur and owner of thoroughbred horses, for $52 million. Paulson, in 1985, sold the company,
now called Gulfstream Aerospace, to the Chrysler Corporation (then riding high under Lee Iacocca) for $637 million.

It was an uncomfortable partnership, and when a recession took hold five years later, Chrysler sold out for $825
million to a partnership owned by Paulson and leveraged-buyout specialist Forstmann Little. Gulfstream started
losing money, hurt by high capital costs, sluggish sales, and the effects of a 10 percent luxury tax on planes and boats.
In 1993, Ted Forstmann finally stepped in personally, and, by 1996, Gulfstream managed to go public in a $1 billion
IPO.

Today, corporate jets are seen increasingly as smart investments: 'Wal-Mart has the largest private jet
 fleet of any company in America, and they hold nickels like they’re manhole covers.'

The company then announced the launch of its huge hit: the ultra-long-range GV (“gee five”) jet, which won the
industry’s Collier Trophy. As demand for its corporate planes rose, Gulfstream thrived. In 1999, military contractor
General Dynamics bought the company for $4.6 billion. “These are the best times we’ve had in our business,” CEO
Joe Lombardo told the press recently. In 2006, the company had sales of $4.1 billion with earnings of $644 million.
Apply the overall General Dynamics price-to-earnings ratio of 17 to that figure, and you get a market value of about
$11 billion for Gulfstream—about 200 times what Paulson paid for it in 1978.

Like every other private-jet manufacturer, Gulfstream is getting a boost from international sales. About two-thirds of
the world’s private business jets are based in North America, but orders from abroad cushion manufacturers against
shocks in the U.S. economy. “Everyone’s in the development game. Everybody’s growing,” says Gil Wolin, an
executive with the international business-jet management firm TAG Aviation. Wolin’s company recently opened an
Asian branch to meet customers’ needs to be close to developing markets where commercial service is scanty.

When Boeing launched its separate BBJ line in 1996, most of its customers were in North America and the Middle
East, says Steven Hill, president of Boeing Business Jets. At the time, the subsidiary’s managers expected to sell six or
eight planes a year. Instead, they sold 71 by 2000. “Very definitely, your Russia scene is a big slice,” Hill says. “Asia is
becoming a much bigger slice, and the Middle East and North America continue [to be strong]. For us, the demand
side has never been this great. It’s coming from basic growth in the amount of billionaires, or people that are capable
of owning such a large business jet.”

Indeed, as the number of billionaires worldwide keeps climbing—Forbes now pegs the figure at 946, up 23 percent in
just a year—so are sales of private jets. Boeing counts among its clients Russian oil magnate Roman Abramovich and
Google founders Larry Page and Sergey Brin (they share a 767). Bombardier’s Global Express line has attracted
buyers such as Bill Gates, Steven Spielberg, and Cirque du Soleil founder Guy Laliberte. Oprah Winfrey purchased a
Global Express XRS in 2006 through her production company. Virginia-based entrepreneur Sheila Johnson favors
Dassault’s Falcon jets, as does Swiss travel-industry tycoon Sergio Mantegazza. Steve Jobs got a Gulfstream GV as a
bonus in 1999. Gulfstream has earned a reputation as the Rolls Royce of private jets, and billionaires are getting in
line for the new 550, which has a range of 6,750 nautical miles (7,768 statute miles), permitting nonstop travel
between Tokyo and New York. Real estate tycoon Tim Blixseth, British retail czar Philip Green, and London-based
mogul Lakshmi Mittal each own one. Just leasing a G550 costs $381,600 a month, according to Jet Lease, a Palm
Beach firm. Dallas Mavericks owner Mark Cuban, a dot-com billionaire, was the first person to order a private plane
online when he bought his GV in 1999.

The very rich love their planes. Many billionaires are intensely competitive and delight in the knowledge that their
own jet is bigger, faster, or has a longer range than that of a friend or rival. Out of generosity or embarrassment at
what might be seen as extravagance, many owners are eager to have friends or even new acquaintances join them on
their planes, acting almost as travel agents.

For someone who has everything, the private jet is the last and best status symbol—better than a 15,000-square-foot
house in Wyoming, or a 100-foot yacht. The private plane conveys a sense of power and influence, says Milton
Pedraza, who heads a New York research firm called the Luxury Institute. If you’re cutting a deal, it can also give you
leverage. “The fact that you flew across from New York to Europe on a private jet—people will know just how
ridiculously expensive that is. It’s a $100,000 trip. They’re going to know that you have massive wealth or influence to
pull that off.”

Since even eight-digit millionaires can afford small or midsize personal jets (a pre-owned 1988 Cessna Citation SII,
for example, was recently advertised at $2.5 million), some billionaires have turned to the extreme end of the luxury
market, seeking larger, more opulent aircraft. Take Joseph Lau. One of Asia’s richest businessmen, the Hong Kong
real estate magnate has a net worth of more than $2 billion. Along with his modern-art collection, which includes a
$17 million Andy Warhol portrait of Mao Zedong, and his wine cellar, which holds more than 10,000 bottles, Lau
can now claim ownership of a VIP Boeing 787 Dreamliner. The plane can fly up to 10,000 nautical miles nonstop
and sells for $153 million.
Its commercial counterpart seats up to 300 passengers, but the interior-design concepts Boeing unveiled at the
business-jet trade show in Geneva portray a private Dreamliner as a 5,000-square-foot mobile luxury home with
spiral staircases, vaulted ceilings, and plenty of space for video screens and pricey artwork. Lau cited fuel efficiency,
intercontinental range, privacy, and convenience as reasons for buying the plane, but he also said an incident on a
commercial flight persuaded him to fly privately. A fellow passenger had stripped to his underwear and changed into
pajamas in full view of travelers in the first-class cabin, Lau told the South China Morning Post: “I felt embarrassed
and I am a man, let alone how the women would have felt.”

The very rich love their planes. Many billionaires are intensely competitive and delight in the
knowledge that their own jet is bigger, faster, or has a longer range than that of a friend or rival.

A first-class ticket no longer promises a first-rate travel experience: shoeless walks through security checkpoints and
quart-size baggies of toiletries are just the latest indignities. Average flight delays at the busiest airports have doubled
in the last five years. Meanwhile, routes are being cut back.

While private jets have access to more than 4,000 airports nationwide, commercial flights operate at fewer than 500,
with service concentrated in about 40 “fortress hubs” where airlines have consolidated operations. An outdated
air-traffic control system adds to the snarls for commercial planes, but high-end private aircraft, flying at 50,000 feet,
can get above both the congestion and the weather.

“Basically, it’s the difference between a bus and a limousine,” said Jamie Cheng, cofounder of the Helium Report, a
series of buying guides for high-end luxury goods such as yachts and private jets.

While a commercial passenger waits hours to go through ticketing and security lines, business-jet travelers don’t even
have to walk through a metal detector. They can drive straight up to their plane, hand their bags to the crew, and
climb aboard.

Consider the time saved flying from Atlanta, say, to a winery in Northern California: Instead of budgeting over two
hours to navigate Hartsfield-Jackson International Airport, which has the highest passenger volume in the world, you
would head northeast of the city to DeKalb-Peachtree Executive Airport, avoiding traffic around the commercial
hub. Instead of taking a five-hour flight to San Francisco, renting a car and driving two hours north to Napa Valley,
you would fly nonstop into the Napa airport, which serves only private planes. What would be a 10-hour ordeal by
commercial airline is a smooth, six-hour trip by private jet.

“Once people get to experience the benefits of business-jet travel, it’s a hard benefit to give up,” said Jay Salmen,
president of Minnesota-based Petters Aviation. At the Geneva trade show, Salmen’s company announced its purchase
of six Airbus A318 Elites. “We’re very bullish on the business-jet market,” he said.

As the trade show drew to a close, jet makers shared his optimism. Just as its organizers had predicted, the show set
attendance and exhibitor records across the board. Each day brought a new headline: Boeing booked seven new
orders for BBJs. A Saudi company wanted 20 large Gulfstreams. The interior-design completion shops for high-end
jets were booked until 2011 or later. As a result, customers in a hurry to buy corporate jetliners were paying high
prices for used planes, with some sellers recouping 120 percent of their investment.

Joining other industry observers with a bullish estimate of the business-jet market, analyst Aboulafia predicted that
the next decade would see demand for 12,000 business jets worth $173 billion. More than half of the planes would
be high-end models, he estimated.

As long as the world economy continues to create rich travelers who value speed, security, and comfort, there will be a
market for the largest private jets. A week after the Geneva trade show ended, and the Gulfstreams and ACJs had
flown back to their corporate hangars, Steven Hill reflected on the success of Boeing Business Jets. “I can’t think of
something short of a global economic shock,” he said, “that would change what’s happening.”
Jillian Cohan writes for The Wichita Eagle.
Image credit: photo by flickr user Drewski2112.