In a fall 2009 report from Nexa Advisors, LLC, titled "Business Aviation — An Enterprise Value Perspective," Warren Buffett said, "Berkshire has been better off by having me in a plane available to go and do deals."
Buffett is not alone in his embrace of travel in a company plane. Unlike most of the U.S. economy, over the past several years the general aviation segment has steadily grown. ("General aviation" is defined as one of the two categories of civil aviation. It refers to all flights other than military and scheduled airline and regular cargo flights, both private and commercial. The aircraft, commonly referred to as BizJets, can be propeller powered, turbo, or full jet, and either corporate-owned or rented/leased.)
Data from the General Aviation Manufacturers Association showed that in 2009 general aviation aircraft logged 27 million hours and transported 166 million passengers, instructors, pilots, or student pilots. Corporate America is estimated to have flown 17.8 million hours and transported over 100 million company partners or employees.
The Nexa research was conducted from 2003 to 2009 and was based on the S&P 500 corporations and their use of general aviation aircraft in the conduct of their business. Included was the impact of the contribution of the general aviation to the U.S. economy. The current best estimate is that the industry total contribution is $150.3 billion for 2008, up from $17 billion in 2000. Employees total more than 1,265,000, up from 900,000 in 2000.
Top Companies On Board
The Nexa study included information on the use of BizJets gathered from surveys by business media in various "best of" categories:
- 50 Most Innovative Companies, Business Week 2009: 95% use BizJets.
- 100 Best Places to Work, Fortune 2009: 86% use BizJets.
- 25 Best Customer Service, Business Week 2009: 90% use BizJets.
- 100 Best Brands, Business Week/Interbrand 2008: 98% use BizJets.
- 50 World's Most Admired, Fortune 2009: 95% use BizJets.
- 100 Best Corporate Citizens, The CRO 2009: 90% use BizJets.
There are currently 500 commercial airports in the United States for scheduled airline traffic, and more than 4,000 paved, general aviation airports. The FAA (Federal Aviation Authority) reports that there are more than 234,000 general aviation aircraft currently in the U.S., and estimates that there will be more than 275,000 in use in 2025. The latest FAA aerospace forecast for fiscal years 2009-2025 stated:
- Jet aircraft are forecast to account for most of the increase, with hours flown expanding at an average annual rate of 5.2% over the forecast period. The large increase in jet hours will result from the increasing size of the business jet fleet.
- The number of general aviation hours flown is projected to increase by 1.8% yearly over the forecast period. Much of the increase reflects increased flying by business and corporate aircraft.
- As demand for business jets has grown over the past several years, the current forecast assumes that business use of general aviation will expand at a more rapid pace than that for personal/sport use.
Among the businesses that are directly involved in the general aviation segment, the latest information available from all sources indicates that there are more than 18,270 FBOs (fixed-base operations) in the United States. And except for the monopolistic states of Washington, Wyoming, North Dakota, and Ohio, all of these FBOs, plus the ancillary service centers, charter operations, flight schools and corporate-owned aircraft, offer market opportunities to write workers' compensation coverage.
Finding WC Coverage
Historically, providing workers' compensation coverage for business aircraft operators and employees of mid-sized corporations has been a problem. In many instances, coverage is obtained through two workers' compensation policies, sometimes with different insurance carriers: one policy for the flight crew, and one policy for all other employees of the company. This is referred to as "industrial aid," or "split risk." In some instances, the employer must create a subsidiary corporation that has only the flight crew as employees — a time-consuming and potentially problematic insurance solution.
Frequently, splitting the risks is the only option available to an agent. Many workers' compensation insurers are comfortable writing the ground operations of an aviation risk but shy away from the flying exposure. They will offer coverage for those ground operations but suggest that the flying exposure be placed elsewhere.
While splitting the risk can enable the purchase of otherwise difficult to place workers' compensation insurance, a split risk creates its own set of problems. In a split risk, there are literally two corporations housing two sets of employees. Agents must make sure the insurance previously purchased for the "pre-split" corporation now covers both corporations. If the workers' compensation is placed with different insurance companies, less attractive terms such as payment plans might be offered. Unfortunately, often the only home for workers' compensation flying exposures is the residual market.
The workers' compensation aviation risk arena is a highly specialized market. Fortunately, agents who have aviation clients can seek the assistance of aviation workers' compensation insurance specialists to help them address their clients' needs.
Thomas E. Danson, Jr., is president of Beacon-National Insurance Associates, Inc., in Sarasota, Fla. Robert E. McManus, CPCU, ARM, is a vice president at Beacon-National. Beacon-National is a licensed Managing General Agency specializing in insurance for the general aviation industry. Company information is available at www.beaconnationalinsurance.com.
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