Selling Business Jets: The Ultimate Executive Toy

Selling Business Jets: The Ultimate Executive Toy

TINY ROWLAND AGREED TO KKTIKB from the board of Lonrho after a long and bitter struggle against German property owner Dieter Bock. On that day he lost more than the job he had held for 33 years; he also lost access to

Lonrho's Gulfstream executive jet. Tiny Rowland often used the jet to visit LonrTio's 500 companies or many international contacts, especially in Africa, but it was a £2 million a year item that many of Lonrho's shareholders resented.

The shareholders' views on Lonrho's business jet were akin to those held by many people. As Brian Barents, president of Learjet explained: 'The business jet has gone from being the sign of & dynamic, fast­moving,

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entrepreneurial corporation to one of corporate privilege and excess.' The business jet market was hitting hard times. Businesses were looking at their costs and there seemed to be fewer and fewer charismatic and powerful people h'lsc liny Rowland or King Fahd of Saudi Arabia who were willing and able to buy

a jet. Shareholders had reason to l>e sceptical about the cost­effectiveness of the jets. Unlike commercial airlines that spend most of their time flying, busi­ ness jets spend most of their time on the ground. In Europe they fly on average for only about six hours a week.

'There is simply not enough viable business for seven or eight competing manufacturers,' complained one business jet marketing executive. 'There is bound to be more consolidation, since there is probably room for only three or four manufacturers.' Business jets' low utilization means that they last a long time and ownership is limited. The United States is by far the biggest market with 4,000 business jots operating; France has 490, Germany 360 and the United Kingdom 260. Japan is a very wealthy market, but govern­ ment restrictions have kept private ownership down to 90.

Recognizing potential buyers is simple ­ the organizations that can afford to own and operate a business jet are easily identified. The difficult problem is reaching key decision makers for jet purchases, understanding their complex motivations and decision processes, analyzing what factors will be important in their decisions, and designing marketing approaches.

There are rational motives and subjective factors in buyers' decisions.

A company buying a business jet will evaluate the aircraft on quality and performance, prices, operating costs and service. At times, these may appear to be the only things that drive the buying decision. But having a superior product isn't enough to land the sale: marketers must also consider the more subtle human factors that affect the choice of a jet. According to Gulfstream, a leading American supplier of business jets:

The purchase process may be initiated by the chief executive officer (CEO), a board member wishing to increase efficiency or security, the company's chief pilot, or through vendor efforts like advertising or a sales visit. The CEO will be central in deciding whether to buy the jet, but he or she will be heavily influenced by the company's pilot, financial officer and perhaps by the board itself.

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Each party in the buying proeess has subtle roles and needs. The salesperson who, for example, tries to impress both the CEO with depreciation schedules and the chief pilot with minimum runway statistics will almost certainly not sell a plane it' he or she overlooks the psychological and emotional components of the buying decision. 'For the chief executive', observes one salesperson, 'you need all the

numbers for support, but if you can't find the kid inside the CEO and excite him or her with the raw beauty of the new plane, you'll never sell the equipment. If you sell the excitement, you sell the jet.'

The chief pilot, as an equipment expert, often has veto power over purchase decisions and may be able to stop the purchase of a certain brand of jet by simply expressing a negative opinion about, say, the plane's bad weather capabilities. In this sense, the pilot not only influences the decision but also serves as an information 'gatekeeper' by advising management on the equipment to select. Though the corporate legal staff will handle the purchase agreement and the purchasing department will acquire the jet, these parties may have

little to say about whether or how the plane will be obtained and which type will be selected. The users of the jet ­ middle and upper

management of the buying company, important customers and others ­ may have at least an indirect role in choosing the equipment.

The involvement of many people in the purchase decision creates

a group dynamic that the selling company must factor into its sales planning. Who makes up the buying group? How will the parties interact? Who will dominate and who submit? What priorities do the individuals have?

Two European companies think they have an answer to competing in this competitive and increasingly cost­conscious business aircraft market. France's Aerospatiale's Socata subsidiary, with Mooney of the United States, have spent FFr500 million developing the TBM700, a single­engined turbo­

prop aircraft. It is smaller and slower than conventional twin­engined busi­ ness jets, but much less expensive to buy and run. Aerospatiale, which

claims that the TBM700 has some of the capabilities and comfort of the larger executive jets, hopes to sell 600 of them.

The other market entrant is JetCo. It does not make aircraft, but offers a 'fractional ownership' scheme that claims to offer all the benefits of private ownership at a fraction of the cost. 'As little as 07,000' per month buys a share in one of JetCo's fleet of Hawker 800 or Beech jet 400A 860­plus kilo­ metres per hour jets, or Beechcraft Super King Air B200 twin­turboprop aircraft. Michael Riegal, managing director of JetCo, explains the financial advantages of JetShare: 'A corporate jet is an extremely expensive asset with annual operating cost of between $800,000 and 81 million if you include fixed and variable cost as well as depreciation.' As an alternative JetShare offers one­quarter ownership of a corporate jet, with an entitlement to 150 flying hours, for $287,500 per year. When in use, JetCo puts a temporary company logo on the front of the jet and will even personalize 'cushion covers and things ­ items that are easily changeable'.

Not all business jet makers are taking the frugal route, Canada's Bombardier is developing the Global Express (Gex) BD­700 business jet, capable of carrying eight passengers and four crew non­stop on sectors such as San Francisco­Tokyo. London­Tokyo and Paris­Buenos Aires. Gex is faster than other business jets: cruising at Mach 0.88 (that is, 88 per cent of the speed of sound), it will knock an hour off their times on shorter routes

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like Johannesburg­Moscow or Berlin—Los Angeles. Gcx was launched at the end of 1993 with & development cost of CSl.4 billion, and within a year the company had orders find options for 40 aircraft worth C$1.5 billion. Wow, some toy! 1