Are corporate jets a waste of money?

Almost certainly not:

While shareholders have strong incentives to limit value-destroying perquisite consumption, it is challenging to identify such perquisites. Many corporate assets that enable forms of perquisite consumption also provide operational benefits. Corporate jets represent a potent example. We find business-related flights increase firm performance. Our results also highlight the channels through which jet use can either enhance or destroy firm value. Consistent with the benefits of information gathering and monitoring, firms with soft and complex information that is difficult to transmit remotely are more likely to fly to company subsidiaries and plants, and these flights positively affect firm value. In contrast, among firms with weak governance structures where flights are more likely motivated by agency factors, jet use is more likely to be value-decreasing. The ability to differentiate has important implications in today’s activism environment.

The full piece is by Lian Fen Lee, Michelle Lowry, and Susan Shu, via the excellent Kevin Lewis.


Take Wal-mart. It's largely middle managers flying private. From Bentonville, Arkansas a team can hit 2-3 stores in the Upper Midwest in a day, versus taking connections both ways and eating up over a day per store. That's a huge gain in efficiency.

Sam Walton used to fly himself in a Cessna!

For the price of a corporate jet, they could hire more local management, and have higher levels do more remote checks with phones and e-mail, only attending to a store once it's worth spending an entire day of the regional manager's attention so he or she can take that longer flight.

So while it's less optimal on some levels, the alternative isn't likely that much more inefficient or costly. Once you take into account the external costs of pollution from the Private Jet, versus the social gains of one additional middle class worker in a small town, total utility is almost certainly decreased.

Why are you so sure you're smarter than they are?

"So while it’s less optimal on some levels".

The levels that it is less optimal on are the most important levels.

Several years back FedEx was getting fed up dealing with one of Walmart's dumpster fire Black Friday events and made up some excuse about shipping labels being in the wrong location. The Wal-Mart manager in charge woke a few pilots up in the middle of the night and flew boxes of shipping labels around the country in order to deliver some TVs in time for Christmas.

I don't believe anybody objects to business use of corporate aircraft to increase efficiency and performance. I certainly don't. I have a concern that the folks who travel in private jets have lots of influence with policy makers (they are, by definition, part of the wealthy elite) and they use that influence to discourage the development of a modern transit system in America, leaving working Americans to travel the overcrowded and deteriorating highway system, a very inefficient means of travel and making them far less efficient than they otherwise could be. Why is Cowen so concerned about the efficiency of the wealthy elite and not concerned about the vast majority on which we rely for producing the goods and services that make our economy great. Let the corporate CEO stay in his office so he doesn't interfere with the real work of American commerce by working Americans. Consider: Rex Tillerson, the former CEO of ExxonMobil, has proven to be an incompetent Secretary of State, and one has to wonder just how efficient he was as CEO of ExxonMobil, flying here, there, and everywhere in the corporate jet.

"discourage the development of a modern transit system in America"


Our airports are packed full of people. This is why people fly private.

BTW, those are businesses, too. Why don't they counter-lobby?

Also, I've flown in many countries. Its about the same everywhere.

Or are you worried that we lack trains?

Good points made by Harangue, and I'll chime in with the observation that rail only works when there is density, such as in Europe, parts of the northeast in the USA, and Tokyo, Beijing, etc. It won't work in Australia (except to ship coal, though I notice they use monster trucks there too), nor the USA, which generally is not dense enough. Check out Vaclav Smil's "Prime Movers of Globalization" for more such freaky facts.

It does not work in Germany. I fly from Stuttgart to Hamburg because trains rarely are on time or cheap. This is a myth about Europe that travel by train does work.
It is OK when you travel from big city to big city in France but it is not cost

Time is money. When you are a high-powered white collar executive, like I was, then not even commercial planes are fast enough, but you need a helicopter or corporate jet, like the OP says.

Weren't there hundreds of people pointing out - before Tillerson became Secretary of State - that being a CEO had very little to do with being head of the State Department? And now you (if you were one of those people) are now saying that "Ha, well he wasn't a good SoS so he probably wasn't a good CEO either!"

Can't have it both ways...

Short answer to the question posed in the title: "It depends."

Yeah, that seems like the takeaway, rather than "Almost certainly not"

I will cop to not reading the article, but assuming that the authors have a measure of " firms with soft and complex information that is difficult to transmit remotely," I would think that is the key to knowing when it will create value and when it won't.

Yes. Tyler's headline is misleading. Per the abstract they sometimes are useful, sometimes not. OK.

I'll read the article when someone sends me the $42 it costs. How many do they sell, I wonder?


Just hit Sci-hub (or the libgen mirror). It's funny, I know numerous academics who find it easier to just download it "illegally" than go through the hurdle of finding their passwords. Elsevier is evil, all political sides should agree on that point.

Keep in mind the same rationale is given in business mergers and acquisitions, where 50% of all M&A's fail five years after the merger. The theory is private businesses 'know what's best for them' and the public should not interfere even if half these mergers fail. That's probably good thinking, though I'm in favor of a Toben tax for stuff like excessive trading on Wall Street and/or Fx markets, which don't seem to have any benefit.

Many fail due to poor execution, too. It's much easier to have a reasonable idea about buying a company than it is to effectively make the combined people, systems, and processes work.

Despite my lack of possession with a private jet, I can see the benefits of a use of such a vehicle such as traveling. On the other hand, it is nevertheless a very pricey asset. I have no say into what corporations should do to the jet as long as it seems economically efficient for the firm. I may need to question the author as to why he or she would pick corporate jets to write about. In a way I do see more means of travel if the jets were to be replaced by alternative vehicles, because many firm members do require the means of travel. Additionally, without substantial evidence from a credible source it is rather difficult to be persuaded by this thread

Because it is a political football with the recent tax code modifications.

Oh, it was a football long before that!

Obama brilliantly used corporate jets to attack "the rich" but then offered jets a tax break in his stimulus.

Its just so easy to use this as a class warfare attack. It must be very hard for politicians to resist.

"In contrast, among firms with weak governance structures where flights are more likely motivated by agency factors, jet use is more likely to be value-decreasing."

Talk about a Straussian slow pitch.

Catastrophic GE CEO had an empty jet following him around in case his broke down. Weak governance?

That did seem dumb.

Hey. No criticizing that stuff. Surely there was a market justification for it, as well as Immelt's no doubt gigantic paycheck. Even now the market fanatics are working it out.

That quote cannot be fairly summarized as “almost certainly not”.

Attention, the article says flights while Tyler says jets.

This may be an ownership Vs rental situation. How many companies require a 24/7 availability of jets?

A working version of the article:

The data includes only jets owned by the companies. But I found this little footnote:

"Flights to resort locations can potentially understate the extent of personal flights, for example if CEOs travel to vacation homes in locations that are not classified as resort locations, or overstate the extent of personal flights, for example if industry conferences are held in resort locations."

They use a poor people definition of resort locations to differentiate between business and private interest flights. What is a resort location? Las Vegas, Scottsdale, Palm Beach.....

So with this additional information, do you believe the demand for private jet travel is more or less elastic than you believed before?

I can't read the full article for free, but it sounds like less elastic. So changing the tax treatment isn't going to change the quantity of travel as much, for good or for ill.

Probably at the margin still elastic since many marginal but efficient users will be very close to substituting to other alternatives. Their demand will be mixed in with those who do it for consumption reasons -- also elastic at the margin. Of course, inframarginal use will be different. Also, given much lower prices I would expect use to expand for many firms. Again, the only conclusion must be somewhat elastic.

But for many current users, highly inelastic.

Cowen's blog post is a reflection of the great man theory of successful business. If one were to ask executives below the executive suite of the CEO, I suspect the answer is that business succeeds in spite of the great man not because of him. Private jets are more than a convenience: they are a statement of power. And the greater the power, the larger the jet. A certain conservative think tank has its annual spring meeting at a nearby resort, a very private, exclusive, and expensive place. On any given weekend, the small airport nearby (there are no commercial flights) is filled with private jets, the owners of the "cottages" and the guests at the resort flying in for weekend visits only to fly out on Sunday night or Monday morning; hence, I refer to my home as fly-in, fly-out America (as distinguished from flyover America). But I know when the think tank is having its annual meeting. Sure, there may be a few more private jets parked at the airport, but that's not the tell. The tell is the size of the things, massive jets that could transport armies, but with one or two passengers along with the flight crew. Is that efficient? A certain former CEO and public figure almost always attends, and his jet (or is it His jet) is always one of the largest if not the largest, reflecting the size of his ego if not his manhood. My first comment singled out poor Rex Tillerson, his incompetence on full display for the world to see. But Mr. Tillerson is the world's greatest diplomat compared to that moron in His massive jet who bears most of the responsibility for igniting the conflagration in the middle east.

He didn't start the fire.

Tillerson has been fine, but maybe he just looks that way compared to the incompetent boobs that preceded him.

I think that the article indicates the opposite as "firms with soft and complex information that is difficult to transmit remotely" that use private jets to ferry around executives may well be more efficient precisely because the executives are leaving their offices and going around walking the shop floor and so have to actually confront what is going in the business with their own eyes and ears instead of merely relying on the reports of yes men.

You think the managers being flown on corporate aircraft are meeting with engineers, manufacturing workers, sales and service people, and send users?

Well, I suspect that the good ones are doing those things. Certainly not all managers are good.

Untaxed income for weekend vacations.

But its cool to attend a global warming summit in Bali.

" Its also worth noting that when Buffett bought a Bombardier Challenger 600 over 20ago, he named it the “The Indefensible” due to his past criticisms of such purchases that were made by other corporate CEOs. However and after he started using a private jet for awhile, he realized its value as a business tool. Hence, he renamed his aircraft: “The Indispensable.” "

He also finances and insures corporate jets, fyi.

Right, but of course that was after buying his own and deciding that they are worthwhile.

If corporate jets add value, and employees should be empowered, then a corporate air fleet would be available to all employees, like was the case at DEC under CEO Ken Olsen after DEC opened multiple major engineering and manufacturing sites after outgrowing the Maynard Mill complex.

Regular chopper service between New England sites began when the distance and traffic made the van service provided after the initial expansion insufficient. Expansion out of New England to Colorado led to regular jet service so engineers could easily meet in both R&D and manufacturing. The same for the expansion to Europe with the plant in Ireland. And chopper service to Logan to catch commercial flights was both regular and on demand. Plus additional planes of several classes were available for charter for corporate sales or engineering support.

At one point DEC had the largest private fleet of aircraft in the world.

Then the MBA era came in with their top down, expert business elite, profit focused, management style that destroyed DEC to "create value" and "liberate wealth".

For most of the time, the use of all transportation services was not charged back to the passenger's cost center. DEC used distributed matrix management that included the 5x5 for product development: engineering, manufacturing, quality and certification, sales and marketing, and customer support. Ie, everyone in the product value chain. Face to face meetiings of doers, not suits making impossible promises.

The MBAs made decisions that placed profits over product success, customer service, long term success. Thus the aircraft became restricted to use by those dooming the business because doing so "liberated wealth". They needed to fly around to slash labor costs, sell off core services and units that weren't high profit, etc.

If corporate jets aren't carrying engineering and manufacturing project leaders, the planes aren't furthering the long term future of the business.

Well, that's a novel version of DEC's history. I've always understood, even from former employees, that the problem was a giant strategic blunder - failing to appreciate the potential of the personal computer. DEC was flying high, so to speak, on VAX's and never got a serious PC product out.

Another way to look at it: a private jet has a relatively fixed cost for each flight it takes (fuel, wear/tear, maintenance, pilots...) whereas flying commercial has wild fluctuations in value.

I have paid over $2,000 one way within the US for a last minute flight due to an absolute emergency. At some point, with a large enough company, you are breaking even or possibly saving money by elminating paying for high fares, extra hotel nights, lost productivity due to employees spending extra time in airports...

What's the latest estimate of the real cost of the Loop? $5b?

firms with soft and complex information that is difficult to transmit remotely are more likely to fly to company subsidiaries and plants, and these flights positively affect firm value

I'm betting at most such companies, the people that know the "soft and complex information that is difficult to transmit remotely" are not the people being flown around in the corporate jet.

Wouldn't it make more sense for the executives to fly to the subsidiaries and plants, instead of vice versa?

The pretext for the use of private jets, or, in fact, any jets or other aircraft, is the commodification of time. With time being so valuable that private jets are necessary, it seems that executives that don't have much time are thus "time poor". On the other hand, an unemployed "low skill" brown person must be very wealthy in time, having so much of it.

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