Under pressure from an activist shareholder to cut costs, GE is reducing the number of business jets it owns.
“We are executing on a plan to take out $2 billion in cost by the end of 2018. As part of that effort, starting today, we are reducing the Corporate Air Transport services and will use charter companies as needed,” said a spokesperson for GE.
This is a bad decision.
GE needs corporate aircraft. It is a $125 billion company with almost 300,000 staff in more than 170 countries. GE Aviation alone has more than 50 sites across the US and more than 100 worldwide.
The company flies its aircraft hard and monitors the financial returns of using them. It is not unusual for a smaller GE corporate aircraft to fly 11 sectors in one day.
I can confidently tell you this because, one week ago, Honda Jet and GE launched a video showing how owning a Honda Jet has made its workers more productive (you can see it below).
“A lot of our sites are not easily accessible by commercial aviation,” says one executive. “To get to some you need to take multiple flights and sometimes then drive for a couple of hours to get to our sites, so the HondaJet flying direct is a huge productivity gain.”
Another executive says: “The HondaJet is a game changer in productivity. We have a site in Strother, Kansas. It took two or three days to get in and out. Now you can fly in and back home in a day.”
The video quotes a finance manager saying: “There are some great routes where it is cheaper than a commercial flight… but it is really about productivity. We looked into this and it is four times more productive.”
Although this video is focused on its HondaJet (GE builds engines for the HondaJet in a joint venture with the Japanese company), the same is no doubt true for other aircraft and GE divisions.
There is a lot of irony in the decision.
GE Aviation is an important engine and systems supplier to business jet manufacturers. It has strong relationships with business jet owners. But the parent company is cutting its own fleet.
The cost-cutting campaign is partly driven by Nelson Peltz’s Trian Fund Management; but Peltz is a long-term user of business aviation and understands the value that it gives him.
GE is also no doubt going to charter a lot of aircraft (there will be winners in this decision), even though this will be more expensive than owning.
GE has always been an impressively-run company but it looks clear that this decision is driven by optics rather than logic. Managing costs makes sense. Cutting costs by lowering productivity does not.