GE shocks private-jet sector, preaching ‘no plane, no gain’

Bloomberg

Imagine if Facebook Inc. founder Mark Zuckerberg announced he was unplugging from the internet to save time. That’s how private-jet industry executives feel about General Electric Co.’s cost-cutting move to sell the bulk of its corporate fleet.
GE’s plan to shed five company-owned planes flies in the face of the boardroom axiom that such aircraft are time- and money-saving tools, not luxury items. GE sells jet engines to planemakers and will have a large presence next month at the National Business Aviation Association’s annual conference, where the motto has been ‘No Plane, No Gain.’
Savings from selling corporate jets will be minimal, and using higher-cost charter flights risks winding up as more expensive, industry consultants and brokers said. GE won’t raise much cash by selling aircraft into a used-jet market in which prices have been declining for several years, they said.
“I guess they forgot what business they’re in,” said Janine Iannarelli, president of Par Avion, a Houston-based plane broker. “It makes no sense.”

Savings Strategy
GE says cost-savings go beyond just the jets, as they’ll eliminate spending related to facilities overhead, maintenance and crew. The company is also cutting down on travel overall, relying more heavily on video conferencing for internal meetings, said Jennifer Friedman, a company spokeswoman. Employees have more options to travel on commercial airlines after the company moved its headquarters to Boston from Fairfield, Connecticut.
“By reducing our corporate air services, we will see significant operational cost savings,” Friedman said. The business-aircraft industry is already sensitive about its image, especially after the public outcry that erupted in 2008 when auto executives flew their corporate jets to Washington to seek bailout money from Congress. Former US President Barack Obama often railed against tax breaks for private planes.
John Flannery, who took over as chief executive officer of GE last month, is seeking to follow through on predecessor Jeffrey Immelt’s plan to cut $2 billion of costs by the end of 2018. Flannery is also trying to reverse this year’s biggest stock slide on the Dow Jones Industrial Average. That’s only the latest example of how GE has lagged the market: The share price has dropped 40 percent in the last decade, while the Standard & Poor’s 500 Index has gained 64 percent.
GE isn’t abandoning private aviation altogether. It will keep two small, short-range planes at its aviation unit for quick site visits, and own equity in a few larger jets shared by several owners. Fractional companies, such as Berkshire Hathaway Inc.’s NetJets, sell a portion of a jet in exchange for hours of flight.
Scuttling the flight department is probably more of a symbolic move than a large contributor to cost cuts, said Pete Agur, founder of the aviation consultancy VanAllen Group.
When executives at a company like GE rack up more than 250 hours of private fly time in a year, it’s less expensive to own and operate a plane than to use charter or fractional services.
“In the short term, it’s going to have some benefits,” Agur said. “Long term, there’s no way a global company can operate only with the airlines or only with commercial options, including fractions.”