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GM to return two leased jets amid criticism

General Motors Corp will return two of its leased corporate jets amid intense criticism in Washington this week on the luxury travel arrangements of its chief executive.
/ Source: msnbc.com news services

General Motors Corp will return two of its leased corporate jets amid intense criticism in Washington this week on the luxury travel arrangements of its chief executive even as the company pleads for federal aid.

CEO Rick Wagoner was in the capital to testify on the company’s dire financial situation but his testimony was overshadowed by irate lawmakers who blasted him for flying on a private jet to ask for public funds and failing to make personal sacrifices in exchange for federal assistance.

Chief executives from Ford Motor Co, and Chrysler LLC, who were also there to plead for $25 billion in federal aid, came under fire too for flying to Washington in private jets.

GM spokesman Tom Wilkinson said on Friday GM decided to return the aircraft because of a “really aggressive cutback in travel.”

The company, which is in a cost-cutting mode, is scrutinizing every trip, he said, but declined to disclose the name of the company it leases the airplanes from.

GM leases its planes rather than owning them, according to Wilkinson. The automaker once had seven planes and eliminated two planes in December, and will cut two more soon. Wilkinson said also the decision to return the leased corporate jets was made before this week’s hearings and the company has also cut about half of the staff of its corporate aviation program.

“There is a perception issue,” Wilkinson said of Wagoner’s travel to Washington on a private jet. “We need to be very sensitive to that going forward.”

He, however, said the company has not decided on what mode of transportation Wagoner would take if had to travel to Washington again. While it might have looked bad to fly private jets to Washington to ask for loans to save the business, flying commercial had risks, too, Wilkinson added.

"It's not something where you'd want to stand in line on a commercial flight and risk having your flight canceled," he said. "Pretty high stakes when you're testifying in front of the House and Senate like that."

Wagoner and Ford CEO Alan Mulally are required by their companies to fly by private aircraft for security reasons, according to company documents filed with the U.S. Securities and Exchange Commission.

The policy for Chrysler CEO Robert Nardelli is not required to be disclosed because the company is not publicly traded.

Skeptical lawmakers took to task the three CEOs for their luxurious travel arrangements at congressional committee hearings.

“Couldn’t you have downgraded to first class or something, or jet-pooled or something to get here?” Rep. Gary Ackerman, a New York Democrat, asked the executives at a hearing held by the U.S. House Financial Services Committee.

Even Democrats who said they were sympathetic to the automakers’ plight expressed frustration that the executives used private jets while professing ruthless cost-cutting measures.

A Chrysler spokesman said the automaker also leases or charters jets. He, however, declined to comment on whether the company was rethinking the use of private jets for executive travel, saying it was a “private matter.”

Ford did not have an immediate comment on its corporate jet policy.

According to Ford’s proxy, CEO Mulally’s compensation included $752,203 in 2007 for personal use of company aircraft.

About two years ago, the head of Ford’s North American operations, Mark Fields, gave up use of a corporate jet for personal travel to his home in Florida after the arrangement came under criticism at a time when the automaker was losing billions and slashing jobs.

He now flies first class on commercial planes.

Corporations insist riding on private planes is not a lavish perk, but rather a necessary security requirement for top officials that also helps them be more efficient. But maybe the CEOs of America's Big Three automakers should have driven to Washington to ask for $25 billion in public money.

Flying there on corporate jets raised the ire of lawmakers. Senate Majority Leader Harry Reid, a Democrat from Nevada, said in Washington that "these guys flying in their big corporate jets doesn't send a good message to people in Searchlight, Nev., or Las Vegas or Reno or anyplace in this country."

As it turns out, that's how executives at many — but not all — big companies often get around.

About 11,000 U.S. companies operate jets or powerful prop planes, and more use smaller planes, said Ed Bolen, president and CEO of the National Business Aviation Association. He said companies like their chief executives to be productive and to have access to phones and e-mail during flights. And if, say, the CEO and chief financial officer are flying together to meet with investors, they can talk about their company's books without worrying they'll be overheard, he said.

There are some notable exceptions. Intel Corp., known for an egalitarian work culture where everyone has cubicles, has long told both executives and rank-and-file to fly coach. Intel executives rack up enough frequent-flier miles for regular upgrades to the front of the plane, though, so it's not often they're spotted in coach. Intel also charters private planes for executives traveling abroad, if the company believes there's a security threat or to save time on busy trips.

Many large companies require their executives to use company planes for all corporate, and even personal, travel.

Corporate budget-cutters have taken notice of those shiny jets. Building products maker Louisiana-Pacific Corp. said on Tuesday it eliminated its two planes and support staff. Wilkinson said GM, which leases its planes rather than owning them, once had seven planes and eliminated two planes in December, and will cut two more soon. He said the company has also cut about half of the staff of its corporate aviation program.

Paul Lapides, a corporate governance expert at Kennesaw State University in Georgia, said some boards require their CEOs to use corporate jets for security reasons.

"For a lot of CEOs, the risk of kidnapping is a real risk," he said.

He noted that risk has been heightened of late in some parts of the world. "I mean, heck, people are kidnapping entire oil vessels," he said, referring to piracy in the seas around Africa.

In tough economic times, it would be reasonable for companies to reconsider their use of corporate aircraft to determine if the number of jets they have in their fleet and the amount of money they are spending on the jets continues to make sense, Lapides said.

"Since 2000, people have gotten more thoughtful about the amount of executive transportation they own or lease, especially in light of executive compensation issues," Lapides said. "That doesn't mean everybody has it right, but it's a lot better than it was a few years ago."

Corporate jet use certainly can be expensive.

According to a regulatory filing, Ford’s Alan Mulally took in a total compensation last year of $22.8 million including $752,203 for his personal use of the company's jet, as well as personal use of the jet by his wife, children and guests "to ease the burden of Mr. Mulally moving to Southeast Michigan and away from his family in Seattle."

At The Coca-Cola Co., the world's largest beverage maker, former CEO Neville Isdell received total compensation valued at $21.6 million in 2007, including $341,849 for aircraft usage. For security purposes, the Atlanta-based company's board required Isdell to use company aircraft for all travel. He was reimbursed for the tax liability associated with the personal use of the company plane.