The Wall Street Journal has a terrific investigation into executive abuse of corporate jets and shows that companies are violating the law by misleading investors about it.
How did Mark Maremont and Tom McGinty get the story?
To analyze corporate flying patterns, the Journal obtained, via a Freedom of Information Act request, records of every private aircraft flight recorded in the FAA’s air-traffic system from 2007 through 2010. These included flights previously blocked from public view.
The Journal calculated the percentage of each plane’s flights to a list of 300 locales it determined were more likely to be leisure destinations than business. That excluded major cities such as Miami, New York and Paris, and included spots like Palm Beach, Aspen, Colo., and the Bahamas. The list wasn’t exhaustive, and was meant to serve as a rough proxy for potential leisure travel.
This is smart stuff, and if the Journal had stopped there and written its story, it would have been a very good one. What makes it great is that they took it a step further, calculating the cost of personal trips and comparing that to what companies disclosed to investors. And whaddya know? They found that some companies are giving their executives far more $5,000 an hour luxury jet time than they’re telling investors.
Because personal jet use is a lucrative form of executive compensation, the law says companies have to disclose how much it cost the company to fly its execs around when it’s not business-related.
The Journal has one of its classic ledes—it’s understated and all-the-more damning for it:
Computer-storage giant EMC Corp. has a fleet of five jets that it says it uses for business travel across the globe. In addition, CEO Joseph Tucci is allowed “limited” personal use of the aircraft.
Federal Aviation Administration flight records for EMC’s planes suggest such personal trips may be more frequent. Over the four years ended last December, EMC jets landed a total of 393 times at three resort locations where Mr. Tucci has vacation homes: Cape Cod, Mass.; the New Jersey shore; and the Florida keys.
One of EMC’s jets devoted 46% of its flights going to or from these and other vacation spots over the four years. Fleet-wide, 31% of EMC flights were to or from resorts.
Again, that would have been very good, but the Journal went further:
EMC pegged the cost to shareholders of Mr. Tucci’s personal flying at $664,079 over the four-year period, which represented 97% of all personal-aircraft usage for its executives. The Journal’s estimate of the cost of EMC’s flights to or from just the airports near the CEO’s homes was closer to $3.1 million.
Busted.
But wait a second. Think about that 393 number for a minute and how many times you’d have to fly to hit that. It works out to an average 98 flights a year over the four-year period to Tucci’s vacation homes. That’s nearly two a week. To put it another way: There are only 52 weekends a year. What’s up with that? Can one person really fly that much to three vacation spots? Probably not. Who else was flying there?
The Journal has other good anecdotes, including this one:
In 2009, Leucadia National Corp., a New York City-based conglomerate, reported less than $30,000 on personal flying for Chairman Ian Cumming. FAA records show Leucadia’s four jets that year spent 220 hours flying to or from Jackson Hole, Wyo., and New York’s Hamptons, both locations where Mr. Cumming owns homes. Those flights alone would have cost $708,000, according to Journal calculations using hourly operating-cost estimates provided by Conklin & de Decker Aviation Information, a consulting firm.
To top it all off, Maremont and McGinty land the Quote of the Day from this guy (emphasis mine):
Stewart Reifler, an attorney at Vedder Price in New York who represents executives in negotiating pay packages, said the cost of truly personal trips should be reported, but said it is hard to distinguish a CEO’s work time from his leisure time. “Even if they go to a resort,” he said, “they’re still reviewing papers, looking at their BlackBerrys and talking on the phone. You just can’t compartmentalize these guys’ lives.”
Sure, you can bill us for breakfast, lunch, and that mid-afternoon Snapple break you take. We'll give you the same answer we always do. Okay, gotta go. The CJR jet is idling on College Walk.
#1 Posted by Dean Starkman, CJR on Thu 16 Jun 2011 at 02:36 PM
Good writeup on a great story, Ryan. What I love most about the Journal are the commenters, many of whom, like some of the folks who comment here, slammed the Journal's writers for their alleged "envy" and communism. Journal story comments are a fantastic window into today's reactionary brain, which seems to believe that anything rich people do is, by definition, productive--whatever the costs.
The spread of this ideology is something new, relatively speaking (a few decades old, perhaps?) I think it's worthy of study.
#2 Posted by Edward Ericson Jr., CJR on Fri 17 Jun 2011 at 07:49 AM
@ Edward--
WSJ commenters-- they make you cry, don't they?
I remember there was a story about how discount stores and groceries get busy after midnight on the first of the month. The accompanying photo showed a family pushing their cart in the parking lot. The astute readers were able to make out that the mom had some fancy fake nails. Helpfully, they pointed out she needed to change her priorities. Problem solved! Remember when our economy was brought to its knees by the profligate spending on manicures?
Who are these people?
#3 Posted by ANON, CJR on Fri 17 Jun 2011 at 10:59 AM
If the amount was limited and all flights had to been recorded, there may be a few that have a conscience and cut back on their flights or pay for them on their own. It's surely not because they are too poor to fly.
Like the old phrase"the rich get richer and poor get poorer." But then that goes back even before my time and as my son realized a few years ago--"I'm old." In other words over 65.
If the records of travel were required by IRS and other finance dept. some of this would not take place. We'll always have liars and cheats. Most of them in the double-digit million dollar range. They are also more likely to steal a newspapers from a broken container than put in the necessary costs. I've seen them do it and that was in the 70's. Things haven't changed--they mostly have gotten worse.
#4 Posted by trish, CJR on Fri 17 Jun 2011 at 03:16 PM
An investment in Leucadia, since the time Cumming took over the company (it was then called James Talcott Co.), has been more profitable, believe it or not, than an investment in Berkshire Hathaway since Mr. Buffett started it. I hope Cumming flies alot more in the future
#5 Posted by Mike Robbins, CJR on Fri 17 Jun 2011 at 06:34 PM
Great article. While we're at it, lets place GPS trackers on everyone's cars and allow the public to view in near real-time where everyone is going. You can check up on your kids, spouse, boss, and neighbor. It makes sense because we're all using the state and federal highway system, and we have a right to know where our neighbors are going. We should also be able to see our neighbors bank account info, since then banks are federally insured.
The proposed legislation would allow anyone to track any flight (private or corporate from little Cessna's to corporate jets). So what's the difference with tracking personal cars. While we're at it let's publish real-time info on all military flights. We don't need to worry about security and privacy concerns....right?
@Trisha.... FYI the IRS does require detailed records of all flights, passengers, and purpose of business with required support data. All personal/entertainment flights or passengers are disallowed business tax deductions and required to reimburse the company that owns the airplane or pay income tax on the imputed income.
#6 Posted by Pilot, CJR on Fri 17 Jun 2011 at 06:58 PM
Ryan claims: The Wall Street Journal has a terrific investigation into executive abuse of corporate jets and shows that companies are violating the law by misleading investors about it.
padikiller asks: What law?
Where exactly has it been shown that any law has been violated?
This is just another Chittum Special... An utter fabrication.. An accusation based on speculation and presented as fact in order to further the anti-capitalist agenda.
#7 Posted by padikiller, CJR on Sat 18 Jun 2011 at 06:20 PM
FYI-
Looks like shareholders may be bringing legal claims for the Jet abuse!
http://lawyerviews.com/emc-corporate-jet-abuse-lawsuit.html
#8 Posted by BillK, CJR on Thu 23 Jun 2011 at 02:42 PM
Why does nobody question the wall street journal and their owners using private jets for personal travel. They do!
#9 Posted by Pilot, CJR on Fri 5 Aug 2011 at 12:52 AM