Bankruptcies spell trouble for flight depts

 - March 20, 2008, 8:03 AM

As companies merge, expand, downsize, change top executives or declare bankruptcy, their flight departments are often significantly affected. In the past several weeks, four major companies with flight departments have filed for protection under Chapter 11. More than 20 corporate jets were operated by these four companies, and none is currently more visible than Enron.

Houston-based Enron, which filed the largest bankruptcy in U.S. history last year, had been operating one Gulfstream V, two Falcon 900s and three Hawkers. At press time the company was down to operating a Falcon 900B and Hawker 800XP. The GV, one Falcon 900 and one Hawker 800XP were returned to the lessor and one Hawker 800XP was sold before the bankruptcy filing.

Downsizing of the energy company’s flight department started before the bankruptcy filing, according to director of aviation Gary Fitch. However, the “speed and magnitude of the downsizing was totally unexpected and came in waves over a short period.” The flight department had as many as 39 employees before the filing. It had just eight at press time and it wasn’t clear if any more employees or airplanes would be let go. Enron is aware of the status of former flight department employees and “we [the flight department] have been trying to aid them with finding jobs.”

For a while, “heartache, morale and financial stress were an everyday management and employee problem,” he said. When asked if the company intended to drop the remaining two airplanes and revert to charter or fractional ownership, Fitch said, “All options are being considered.” He noted that Enron’s aircraft averaged 800-plus hours annually, including about 20 international trips.

As for the flight department’s facilities, Enron was leasing a hangar at Houston Intercontinental Airport, where all of the jets were based. “We could store a mix of five to six medium to large aircraft,” Fitch said. The status of the facility was undecided at press time.

Enron has leased and owned business aircraft for 17 years, and its history evolved through a consolidation of Houston Natural Gas, Northern Natural Gas, Florida Gas and Transwestern Pipeline. In most ways, the Enron flight department was typical of a corporate aircraft operation. The department has never operated under a Part 135 certificate, although “we have chartered aircraft regularly to support any strategic, emergency needs or if it was more cost effective,” Fitch said.

Fully Allocated Charge-back Scheme
Like many flight departments, Enron’s had a charge-back method for recouping the costs of operating airplanes. In Enron’s case, charge backs were at “full allocated cost, based on a budget estimate of 700 hr per aircraft,” Fitch explained. “This was to keep everyone aware of the true cost of corporate aviation. When we exceeded the budgeted 700-hr estimate, most additional income overage was trued up among the company divisions that had committed to a set number of [travel] hours the previous year. The number, size and range of aircraft were driven by customer demands but controlled by the full allocated cost system.”

At Enron, the flight department did not arrange airline travel, but it was involved in the contracting for aviation support around the world for short- and long-term projects. According to Fitch, “This would involve negotiations, contracts, audits and reviews involving fixed- and rotary-wing aviation contractors and selected charters on five continents.”

Additionally, the flight department worked with local travel agencies to match all employee travel needs with the company aircraft schedule. “Our flight schedule was shared with the Corporate Angel Network, providing many round-trip flights each year for cancer patients, as well as emergency requests from local agencies in need,” Fitch said.

Company aircraft were available to all departments and employees on “an as needed economic basis,” including for strategic or trouble-shooting purposes. Empty seats were available on a cost charge-back system based on the variable cost per hour divided by seating capacity. The reserving department paid the fully loaded fixed charge.

Over the past 17 years the department had anywhere between four and as many as seven corporate jets and helicopters, Fitch reminisced. “The department successfully supported the strategic and tactical transportation needs of the company when and where it was needed 24/7 around the world. The department flew approximately 59,000 accident/incident-free hours.”

Although the department’s goals and objectives were “very high,” balancing critical travel requests with the challenge of achieving the highest level of safety, the results were always the same–“dedicated men and women doing what was right anywhere, anytime by working together finding solutions to any problems or concerns to accomplish the goal.”

Fitch concluded his remarks with an encouraging word for his laid-off employees: “I would not expect our employees to be out of work for too long. Their experience and professionalism will not go unnoticed.”

Status Quo at Kmart, McLeod
One-hundred-year-old Kmart Corp., shown as operating three corporate jets, and McLeod USA, with six Citations and a Gulfstream V, both filed in January for Chapter 11 bankruptcy protection and reorganization. At press time, a Kmart spokeswoman said there had been no changes, and will be no changes in the immediate future, at the corporate flight department, based at Oakland County International Airport in Pontiac/Waterford, Mich. In a January 22 statement, Kmart said “it will reorganize on a fast-track basis and has targeted emergence from Chapter 11” next year.

The Kmart filing has not disrupted any of its more than 2,100 stores, but by the end of this month the company is scheduled to have completed an analysis that will lead to “closing unprofitable stores this year.” Staff reductions are also on the recovery agenda. The questions for the flight department are whether enough stores will close to reduce the current level of company travel requirements, and if the planned staff reductions will eventually hit the flight department.

McLeodUSA is a Cedar Rapids, Iowa telecommunications company whose reorganization effort reportedly includes obtaining funds from long-time investor and former owner of Gulfstream Aerospace, Forstmann Little & Co. Although the company said its reorganization plan will have “no impact” on employees, there was a round of layoffs in August, the result of a “change in strategy” that included some regional consolidation and integration, according to a company spokesman. The company expects its reorganization plan, involving Forstmann Little senior partner Theodore Forstmann, to be effective in the second quarter.

Global Crossing, of Bermuda, formed in 1997, is another telecommunications company that recently entered Chapter 11 proceedings, said to be the fourth largest in U.S. history. Its reorganization plan includes selling a majority stake to Hutchison Whampoa, a Hong Kong multinational conglomerate, and Singapore Technologies Telemedia, an info-communications group. In downsizing in November, two months before the filing, Global Crossing sold an Astra and cut 10 people from the flight department staff, according to a spokeswoman. Only a Gulfstream IV is currently being flown. The company’s Challenger remained on the ground at the company’s base at Van Nuys Airport in California.

The company expected the bankruptcy court to endorse its reorganization plan before the end of August.