Reporter's Notebook

Restaurants are unloading corporate jets

Private jets have become corporate hot potatoes, at least among restaurant chains.

Over the past month, three restaurant companies announced plans to sell their planes.

Early in November, Bloomin’ Brands said it planned to sell its two corporate jets. Later that month, Darden Restaurants said that it would eliminate its corporate aviation division. And then, late yesterday, Bob Evans said that it, too, would stop using corporate jets.

Not coincidentally activist investors have big roles on the boards of two of these chains.

In Darden’s case, activists run the show. Jeffery Smith, the company’s chairman, is also the CEO at Starboard Value, the hedge fund that just shut Darden out in its recent proxy fight.

At Bob Evans, four members backed by its activist, Sandell Asset Management, were elected to the board in a proxy in August. 

During those proxy fights, both Starboard and Sandell made an issue of their target companies’ use of corporate jets and their symbol of spending excess. That makes it no surprise that both companies are now getting rid of the jets.

Corporate aircraft are low-hanging fruit for companies that are looking to cut costs, particularly general and administrative spending. Operating a private jet can be expensive. Darden operated a Cessna Citation Sovereign, which costs $18 million new. The airplanes require ongoing maintenance and a staff.

To be sure, corporate aircraft remain popular at many companies, and large, successful multi-national brands with globetrotting executives can surely justify the cost of owning one. But they can be difficult to justify at companies that are struggling with profitability. And companies that cut costs but keep a plane, which is often considered to be a lavish executive perk, can risk a backlash.

Many mature restaurant chains are cutting G&A spending as a relatively easy way to improve margins and, therefore, the stock price. All three of the recent cuts in corporate aircraft were part of larger packages of cost cuts. Bob Evans, for instance, hired advisers to analyze its cost structure with a long-term goal of improving margins by 300 to 350 basis points.

Bloomin’ Brands’ aircraft sale was announced as part of a series of cost cutting and layoff announcements along with the closure of some restaurants in South Korea and the sale of its underperforming Roy’s Restaurants brand.

If these chains are looking for an example, they could probably look to Burger King Worldwide. The private equity group 3G Capital bought Burger King in 2010 for $4 billion. It then, among other things, made massive cuts in G&A spending, a small portion of which was the sale of its corporate jet. Today, the company’s market value is nearly $12 billion.

TAGS: Finance
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