Bizav Boosts Bottom Line, Nexa Reports

Use of business aircraft creates value for companies and their shareholders. That fact will shock no one in the industry, but now there is more data to share with skeptics. A new study of S&P 500 companies finds that companies that use business aviation create more value for shareholders by a wide margin than those that don’t.The report from Nexa Advisors, “Business Aviation and Top Performing Companies, 2017,” concludes that “When sorted into ‘users’ versus ‘non-users,’ companies deploying aircraft to support their missions outperformed those that did not in several metrics,” such as revenue growth, profit growth and asset efficiency. Overall, the increase in enterprise value was “70 percent greater for users,” said lead author and economist Michael Dyment, founder and managing martner of the research firm.

The S&P 500 comprises the 500 largest publicly traded firms in the U.S., representing all sectors of the economy, and its component companies are often regarded as the best of American enterprise.

The report, released in September, covers the five years from 2012 through 2016 and caps two decades of research published in five previous Nexa studies. They have consistently found business aviation adds value not only for S&P 500s but also for small and mid-cap companies, for enterprises anywhere, and for U.S. taxpayers thanks to the benefits derived from the Federal Government’s use of business aviation. “It’s truly a tool for top-performing companies,” Dyment said.

For its analyses, Nexa developed a methodology that links business aircraft use—whether through whole or fractional ownership, charter or other access model—to fundamental drivers of long-term value creation. “Like all economists we look for correlations, and there’s a strong correlation between business aircraft usage and a company’s outstanding financial performance,” said Dyment.

Bizav and the Bottom Line

Nexa’s analysis rules require companies to have five years of financial history, which qualified 415 of the 500 listed companies for evaluation. Additionally, corporate size has an effect on financial performance (large companies require more investment dollars to maintain revenue growth rates than do smaller entities), so Nexa weights its calculations using market capitalization to account for such variations, allowing peer-to-peer comparisons. During the study period, on a weighted and indexed basis, users boosted their top line (gross sales or revenues) by 2.4 times more than non-users.

The Nexa research, sponsored by NBAA and GAMA, also examines “non-traditional measures of greatness of increasing importance to today’s socially conscious investors and consumers.” Nexa researchers have found over the years that companies that use business aircraft dominate rosters of the most innovative, admired and socially responsible firms, as well as lists of best brands and working environments, a trend that continues with the latest study: 98 percent of the top 50 among Fortune’s “World’s Most Admired Companies,” 100 percent of the 100 companies in Forbes magazine’s listing of “100 Most Trustworthy Companies in America” and 92 percent of the 100 Best Corporate Citizens, according to the CRO rankings, use business aviation.

Ed Bolen, president and CEO of NBAA, said the Nexa report “reaffirms what study after study, from one decade to the next, has repeatedly found: smart entrepreneurs and companies understand the value of business aviation in making them more efficient, productive, nimble and competitive.”

Serving as an unintended rejoinder to news of GE shuttering its flight operations, Nexa’s research indicates companies that eliminate flight departments subsequently have less financial success than continuing bizav users. In the 2012 study, “Maintaining Shareholder Value Through Turbulent Times, the S&P 500 during the Great Recession 2007-2012,” Nexa found while some companies closed flight departments to cut costs, “S&P 500 companies that kept their business flight operations intact enjoyed greater success compared to those that did not, often with dramatically better financial results.”

Moreover, a “significant number” of the companies dropped from the S&P in the 2007-11 span were non-users of business aviation, while three quarters of those added were users. Users during this period also “mitigated revenue losses and recovered more quickly,” were “quicker to hire back employees,” and have “significantly expanded their overall workforce since 2007 relative to non-users,” the post-recession study found. By the end of the survey period, users had “more than recovered the revenue setbacks from the Great Recession of 2008, while the non-user cohort has yet to recover to 2007 revenue levels.”

The Nexa studies had their genesis in the late 1990s when then-NBAA president Jack Olcott asked accounting firm Arthur Andersen, where Dyment was then a partner, a hypothetical C-suite question: “‘If I buy a business jet, will my stock price go up?’” Dyment and colleagues determined no link could be established between aircraft purchases and stock performance. “It’s all circumstantial,” he said. “But we could analyze the S&P to see how business aviation might affect the drivers of shareholder value.”

Intangible Benefits

But one must ask, with video conferencing, Skype and all the other enhanced ways to keep in touch, do businesses still need the personal contact with customers and vendors often cited as a business jet’s justification? Nexa developed a “mobility framework” to measure the value of various forms of communication for a variety of interactions. The research found the most high-value interactions, like competitive negotiations, “are so strategic, you can’t use a phone call,” Dyment said. “You really have to go face to face.” That gives those with the most transportation options the edge. And beyond bolstering the bottom line, companies have “a richer understanding” of the intangible benefits business aviation provides, like enabling employees to spend more nights at home and reducing fatigue, thereby making employees more productive, he said. Indeed, the new report found a 34-percent gain in business aircraft operations over the past five years, confirming “that top companies increasingly realize the undeniable advantages provided by business aircraft,” said Dyment.

The increase in usage goes hand-in-hand with a new trend Dyment observed in the course of research for the latest report: users are “a little less shy now about aggressively using their business aircraft.” Dyment traces the trend in part to the Sarbanes-Oxley Act of 2002—also known as the “Public Company Accounting Reform and Investor Protection Act”—whose provisions mandating accounting transparency also apply in part to privately held companies.

“In the late 1990s, there wasn’t much governance and oversight on the use of corporate aircraft,” said Dyment, whereas today companies make greater effort to ensure operations comply with all usage, tax and accounting rules. The more stringent oversight has made companies feel less constrained about employing the assets, Dyment surmises.

Another “significant” change Dyment observed: CFOs, who were traditionally skeptical about the value of corporate aviation, “have morphed into…strong advocates of business aircraft,” said Dyment. “They see the impact of being able to move a deal team around, of collaboration on the airplane [and] the better thinking and analysis” that results.

The report also notes the economic benefits these operations bring to the airports and surrounding communities where business aircraft are based—on average $75 for each dollar invested. “A single business aircraft can bring an airport and its service community some $2.5 million in incremental economic benefit in indirect and induced economic contributions,” according to the study.