Image Problem Dragging On Corporate Jet Business

January 30, 2009

Could the corporate jet become the 2009 version of the USD$6,000 shower curtain?

The gold-and-burgundy shower curtain that Tyco International bought for former chief executive Dennis Kozlowski became a symbol of corporate greed almost a decade ago, following the dot-com bust.

Beyond the macroeconomic forces driving down sales of corporate jets -- companies are trying to cut costs and finance is drying up -- the private plane also faces an image problem.

The Detroit automakers and Citigroup have come under withering criticism in the past few months for their use of corporate jets at a time when they are turning to Washington for financial support.

The world's largest maker of the planes, Textron, said on Thursday that customers canceled orders for 23 of its aircraft in the fourth quarter and that an "unprecedented number" of customers asked to defer their orders.

"It's almost like political suicide" to buy a jet right now, said Perry Adams, vice president and senior portfolio manager at Huntington Private Financial Group of Traverse City, Michigan, which owns Textron shares.

"Thousands of people are being being laid off and yet the company is going to go out and purchase a corporate jet? It's bad timing," he said.

The heads of Detroit's three automakers -- General Motors, Ford and privately held Chrysler -- were hammered last year for flying in private aircraft to Washington to petition the US government for billions of dollars in bailout money.

They seemed to get the hint. One month later, the CEOs drove from Detroit to Washington -- a 500-mile trek that would take about 9 hours without breaks -- for their second appearance before Congress. They have also agreed to cease using their corporate jets as a condition of receiving government loans.

Citigroup on Tuesday canceled an order for a USD$50 million jet, after politicians complained that the purchase was excessive for a bank that last year received USD$45 billion in government funds.


Textron on Thursday cut the 2009 delivery forecast for its Cessna unit to 375, down from last year's record 467. In response, Cessna laid off another 2,000 people, bringing its total job cuts since December to about 4,600, or 30 percent of its workforce.

"The economy is having an especially egregious impact on the business jet industry," said Lewis Campbell, chief executive of Textron.

Textron's shares tumbled more than 30 percent to their lowest point in more than a decade.

General Dynamics, which sells Gulfstream light jets, on Wednesday cut its production outlook for 2009.

Other big makers of corporate jets include Canada's Bombardier, which late last year warned of slowing orders, and France's Dassault Aviation.

Even Cessna admits that the private jet -- which it argues can be the most efficient way of moving corporate managers quickly around the country -- is facing an image problem.

"There is now a perception issue that's contrary to what we've been working toward for years," said Doug Oliver, spokesman for Cessna.

Richard Aboulafia, vice president at aerospace consultancy the Teal Group, in Fairfax, Virginia, said some of the ire against corporate jets is misdirected.

Elitist or not, jets serve a business purpose by transporting people quickly -- something that cannot be said of Kozlowski's infamous shower curtain.

Citi said that walking away from a jet it had ordered in 2005 -- far better days for the finance industry -- would cost it millions of dollars in penalties.

Makers of corporate jets, as well as the executives who fly in them, can do little now but keep their heads down and wait for the public mood to change, Aboulafia said.

"There's not much you can do but ride it out. There's always a dislike of the wealthy and corporate excess," Aboulafia said. "What's different this time is that popular sentiment has been inflamed by the use of public money for bailing out companies."

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