General Electric Co.’s cost-cutting plan is claiming a high-profile victim: the company’s corporate-jet fleet.
Under new Chief Executive Officer John Flannery, the manufacturer is turning the page on an era when it would hand top bosses the keys to its private aircraft. Starting Wednesday, flights will be scaled back and replaced as needed by charter services, the Boston-based company said in an emailed statement. GE intends to sell the jets, it said without providing fleet details.
The straitened approach to air travel shows how Flannery is considering all options as he seeks to shore up earnings and reverse this year’s biggest stock slide on the Dow Jones Industrial Average. The cuts are part of GE’s two-year plan to eliminate $2 billion in expenses -- a target Flannery’s predecessor, Jeffrey Immelt, agreed to in March after talks with activist investor Trian Fund Management.
“GE is currently undergoing perhaps the most far-reaching reassessment in its history,” Nicholas Heymann, an analyst at William Blair & Co., said in a note to clients. “Management under new CEO John Flannery is enacting a structural reorientation of GE’s culture to likely be more cost conscious, transparent, and decentralized.”
Cost reductions are poised to rise as high as $1.4 billion this year, surpassing the $1 billion target, Heymann said. Next year’s cuts are likely to reach as much as $1.7 billion, fueled in part by “expanded workforce reductions” and “exiting peripheral businesses,” he estimated.
Like many other large businesses, GE has required its CEO to use the company’s aircraft both for business and personal travel for security reasons, according to its proxy statement. Immelt tallied up $257,639 for personal trips in 2016, his last full year on the job. That figure doesn’t include business travel. The CEO is now permitted to fly on charter or commercial flights after a change to company policy.
During the last three calendar years, top managers spent a combined total of $1.4 million on personal trips on company planes, according to data compiled by Bloomberg.
GE, which manufactures jet engines, owns six corporate jets and two AgustaWestland helicopters, according to Federal Aviation Administration records. The company has three Challenger 600s and two Global 5000s, which are all made by Bombardier Inc. It also owns a HondaJet, a light plane for which GE developed the powerplant.
The six corporate jets would fetch a combined total of about $70 million, according to valuations from Aircraft Bluebook based on average equipment and the year made. Values can change depending on the number of flight hours, equipment and whether the aircraft has an engine-maintenance program.
The annual flight and fixed costs based on 423 flight hours, a common benchmark, are about $1.75 million for each of the Challengers and about $2.5 million for each Global, according to data from the Conklin & de Decker aircraft cost evaluator. The HondaJet’s annual fixed and flight costs are about $560,000 for the same flight time.
GE also has an equity share of five corporate aircraft, including three Gulfstream planes, that are owned by fractional jet operator NetJets Inc., a unit of Warren Buffett’s Berkshire Hathaway Inc. The remaining two of the five fractionally-owned planes are an Embraer SA Phenom 300 and a Cessna Citation Excel, FAA records show.
Under an agreement signed with Massachusetts and Boston last year, GE was granted access to parking for an executive jet and helicopter at Logan International Airport and offered a hangar site for six corporate planes at Hanscom Field.
By Richard Clough, Anders Melin and Thomas Black