Somewhat lost in the shuffle of recent events, NBAA and the General Aviation Manufacturers Association (GAMA) have released the second part of a study of how the use of business aircraft affects shareholder value. The financial consulting firm Arthur Andersen was commissioned by the two associations to identify the various uses of business aircraft by American corporations and then assess whether each of these uses benefited a company in the form of greater shareholder value.
“We have learned that business aircraft can be remarkable aids to business under certain circumstances, including during economic downturns,” Andersen said. “The methodologies presented here should enable you to determine whether using business aircraft can help your company create long-term shareholder value. If you already use business aircraft, these methodologies can help you optimize the value of your fleet through the understanding of proven best practices in business aviation.”
The most recent white paper, titled Business Aviation in Today’s Economy: A Guide to the Analysis of Business Aircraft Use, Benefits and Effects on Shareholder Value, urged companies to “formally and systematically” analyze business aviation on a regular basis to determine the conditions under which the use of business aircraft can have the greatest contribution to shareholder value.
As of June, Andersen noted, more than 9,500 companies in the U.S. operated about 14,500 turbine airplanes and more than 3,000 operators flew some 7,200 turbine-powered helicopters. In addition, it said that tens of thousands of companies and individuals operate piston-powered airplanes and helicopters for business purposes.
In its first white paper for NBAA and GAMA, issued last spring, Andersen concluded that business aircraft can make a substantial difference in how a company performs, “in many cases generating significant gains in the drivers of shareholders value.” It further revealed that 75 percent of CFOs surveyed said that disposing of their business aircraft could potentially harm their company’s value. That white paper was titled Business Aircraft in the New Economy: A Shareholder Value Perspective.
It further found that, under the right conditions, a company aircraft can improve bottom-line performance and the value delivered to shareholders, especially where there often were no ready substitutes for business aircraft without diminishing company performance or losing new business opportunities.
In the just-released study, according to Andersen, it developed an analytical tool useful for understanding and categorizing the complex relationships between aircraft use, benefits and value creation. “The analytical tool has been summarized in this business aircraft analysis guide,” it said.
For the two white papers, Andersen said it interviewed many Standard & Poor’s 500 companies that use business aircraft and made an extensive review of company financial performance data from 1990 to 2000.
“We thought it could be possible to draw a connection between business aircraft use and some important drivers that set the stage for long-term shareholders value creation,” Andersen said. “Stock prices are affected by a variety of factors, many of which are external and beyond the control of individual companies. However, we found that using business aircraft can stimulate five key shareholder value drivers–revenue growth, profit growth, asset efficiency, employee satisfaction and customer satisfaction.”
Andersen said that based upon interviews with many management personnel, it has identified 34 business aircraft utilization strategies, 39 potential benefits from those uses and five shareholder value drivers that are directly influenced by those benefits.
Long-Term Value Creation
“So how does the use of business aircraft affect the practice and outcome of the business?” it asked rhetorically. “That utilization yields benefits, which yield shareholder value, forms the basis methodology for our analysis. This ‘UBV’ methodology can link the use of business aircraft to the fundamental drivers of a company’s long-term value creation.”
According to the consulting firm, these relationships are not predisposed to be positive and depend on the skill of company management in taking advantage of a unique asset, the use of which is almost always outside the company’s core competencies. “The simple caveat, then, is that aircraft use or ownership alone guarantees nothing and, as with any other asset, misuse can be costly,” Andersen warned. “The challenge for any company is to identify all of the potential uses and benefits of these assets and operate them in ways that will produce the greatest gain.”
NBAA planned to mail copies of both Arthur Andersen studies to members last month. They are also available as downloadable PDFs at www.nbaa.org.