Monday, 5 December 2011

Private jets and the 0.1 per cent

Private jets, symbolic of the further concentration of wealth among the most privileged 1 per cent since the economic downturn, are getting a bit of shtick from the Occupy movement in the US. This criticism is well founded. Private jet sales and usage are actually are actually growing, defying the downturn.

An article in Executive Travel Magazine states that the number of private jet flights in the US did reduce by 20 per cent in 2009, but, in 2010, there was a fast turnaround to growth, of 11 per cent. John Rosanvallon, chair of the General Aviation Manufacturers Association welcomed tax breaks which helped to secure this recovery of the industry, saying:
Flying hours are steadily on the rise, and there are two critical U.S. tax provisions in place that will help our industry recover. One is the extension of a 50 percent bonus depreciation allowance through 2011; the other allows companies to deduct the full cost of new planes from revenues.
President Obama has repeatedly criticised tax break for private jets, six times in a single speech in June, which could potentially bring in an estimated $3 billion to the treasury in a decade. He is talking the talk, appearing to support the 99 per cent who are paying for higher fuel costs for less glamorous travel in cars and buses, but the thing is, the tax break on depreciation was part of his own administration’s stimulus package.

As of 2010, there were 11,000 private jets in the US. Only a minute percentage of people, at the pinnacle of wealth, could afford to own one. A Wall Street Journal article explains that the cheapest new entry level jet costs $5 million, plus $500,000 per year in operating costs. The majority of jet owners have a net 'worth' of $100 million plus, and ‘earn’ at least $10 million a year. Only 29,000 US citizens have net worth of over $100 million. That is just 0.1 per cent of the population, a far narrower segment of the population than the wealthiest 1 per cent.

Not all users of private jets own the planes outright. For those not quite rich enough to own a private jet, or with other spending priorities, chartering one requires deep pockets, costing around $3,000 per hour. For many senior executives, the corporate jet perk, which can come in the form of a certain number flying hours, is an important component of their remuneration package. There is compelling evidence that use of a corporate jet is even more of a perk than realised, that the planes are used extensively for leisure. A Wall Street Journal analysis of FAA flight records between 2007 and 2010 showed that the planes make frequent landings at resorts where executives happen to have holiday homes, an indication that personal use of corporate jets far exceeded the level which was disclosed to shareholders: ‘dozens of jets operated by publicly traded corporations made 30% or more of their trips to or from resort destinations, sometimes more than 50%’.

The companies only provide sketchy information to the FAA about the purpose of the flights, and who was on board, but I’ll bet that a lot of the time the high flying executives are sitting on the beach, by the pool, playing golf or whatever. And all it requires is a few supposedly vitally important messages on blackberries and other gadgets, for it to count as a business trip. An attorney representing executives in negotiating pay packages claimed that it is difficult to distinguish between CEO’s work and leisure time, something that the rest of us couldn’t swing past employers and clients. We only get paid if we turn up when we have to, fill in time sheets, and deliver what we are contractually obliged to do.

Calling these planes ‘corporate jets’ or ‘business jets’ is often a misnomer, and its not just about being creative in how the use of the planes is presented to regulators and company shareholders. It’s about flattering executives that they are staggeringly busy and important, rushing around between supposedly vital meetings, that their luxury travel is vital for galvanising the economy. It’s much like so called ‘sports utility vehicles’, SUV’s, gas guzzling heavy vehicles which are mainly used for activity which has nothing to do with exercise. Driving one of the urban tractors is the very opposite of sport, and they are used for the same sort of journeys as regular cars, trips into town, shopping, school run, gym etc.

Internationally, there is further evidence that the richest 0.1 per cent are splashing out on private jets. Globally, there was a fall in orders for private jets in 2009 and 2010, but this was confined to the smaller models, mostly used by executives of small businesses which had been hit by the recession. In contrast, deliveries of the largest private planes, used by wealthy executives of big companies, grew by 13 per cent. Growth rate is expected to increase in 2012. The growth rate is higher in Asia, but this if from a much lower starting point than in the US. As of 2010, there were only 600 private jets in the entire Asia-Pacific region. Unsurprisingly, China is a key target market, with huge growth expected from just 100 private jets in 2010. Apparently, the marketing strategy is different from the usual process of persuading owners to start with a small plane and upgrade as their wealth accumulates. A representative of private jet manufacturer Gulfstream said that in China, once a new customer decides to make a purchase they will start out with a top if the line jet. People in China with private jets will number fewer than 0.1 per cent of the population, by a few decimal points I reckon, but these individuals will be wielding the heftiest carbon footprints.

2 comments:

Lawyer in Albuquerque said...

If sales of private planes are increasing that must mean that a lot more people must be increasing their fortune.

Corporate Jet Injuries

Hill said...




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