Time-Shares at 35,000 Feet
from May/June 2003
by Jessica Heim Fourneret
John Rowe, CEO of health-insurance giant Aetna Inc., vowed a year ago to reduce the company’s operating costs. Among the first things he looked at were Aetna’s two helicopters and Falcon executive jet. Says David Kelso, the company’s chief of strategy and finance: “They were sitting in a hangar most of the time, with 24 pilots sitting around with nothing to do.” Rowe and Kelso both smelled big savings. Ultimately they sold two of the three planes, keeping one helicopter, and took Aetna into a deal with NetJets, a company that provides corporate aircraft on a time-share basis.
As it happens, Berkshire Hathaway’s Warren Buffett had a similar epiphany. During the mid-1990s, he bought a time-share in a Hawker 1000 for his family’s use. He loved the service so much that he did a testimonial for Executive Jet, as the company was then known, meanwhile letting founder Richard Santulli know that if he ever wanted to sell...
Santulli eventually took him up on the offer, and Buffett bought the outfit for $725 million in 1998. He’s since sold the “Indefensible,” Berkshire Hathaway’s corporate jet, whose purchase he had apologetically announced (in comically tiny print) in his famous annual report.
Companies are notoriously secretive about the nature and cost of their corporate air forces. Aetna is no exception and won’t disclose what it used to spend. But according to NetJets executive vice president Kevin Russell, “They now save $3 million a year in operating costs, they put $20 million back in the corporate treasury, and they have a fleet of jets tuned to their needs at a tremendous savings.” Confirms Kelso: “We started looking into this as just a way to save money, but we found that we have much more flexibility in the type of aircraft we can access as well as in the timing of our flights. On board-meeting days we can schedule one flight out of Boston to pick up directors there and in New Hampshire and New York, and land in Connecticut, where we’re based.” Having one’s own plane would mean sending it to Boston empty to start making the pickups.
Aetna also uses NetJets as a backup to commercial flights. “Once, on a board-meeting day, one of our directors was stuck in Denver after his commercial flight was canceled,” says Kelso. “He would have missed the meeting, but NetJets was able to get him here.”
Here’s how it works. NetJets offers five-year fractional-ownership deals for a choice of 12 types of fixed-wing aircraft. The price depends on how often the customer plans to use a plane and what type of plane it is. The service isn’t cheap, even for non-frequent flyers. For example, it costs $487,500 to buy a one-sixteenth share (equal to 50 hours of flying time per year) in a new $7.8 million, seven-seat Citation Encore, plus $6,588 per month for such things as pilot salaries and insurance and $1,421 per “occupied hour” for fuel, maintenance, and in-flight catering. A half-share (400 flying hours per year) in a new $49.2 million, 18-seat Boeing Business Jet is $24.6 million, plus $132,800 per month and $4,190 per occupied hour. Customers recoup some of this when they sell their shares back to NetJets after the contracts expire.
Corporations including General Electric, Gillette, and Prudential Insurance account for about 70% of NetJets’ customers, and Santulli, who is still the chairman and CEO, points out the appeal the company has to bean-counters. “CFOs are delighted when they look at the value proposition,” he says. The company has celebrity time-sharers too, among them Tiger Woods, Pete Sampras, and Arnold Schwarzenegger.
The concept of partial aircraft ownership took off in 1984, when Santulli, a former mathematics professor, sold shares in a single plane to three friends. By 1992, 90 people were investing in 18 planes. Today NetJets has more than 3,000 customers and over 500 aircraft. The company doesn’t quite have a monopoly: A handful of much smaller competitors, including Cleveland-based Flight Options and Canada’s Bombardier FlexJets, serve 1,300 outfits and individuals.
Companies obviously try to justify a time-shared jet as a cost-saver. But there are some nice perks too, which may not make it into the annual report. NetJets maintains a database of customer preferences for in-flight comforts. “If you continually want to fly with red caviar from the Black Sea and Dom Pérignon champagne, we will charge you for it,” says Russell, but more humdrum tastes, such as a favorite brand of beer, are provided gratis when you schedule your trip. Try to get that on a commercial flight, even in the front.
