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Continued: 3M execs are cutting costs, but flying high

  • Article by: SUSAN FEYDER , Star Tribune
  • Last update: February 4, 2012 - 3:30 PM

From early retirement packages to cutbacks in hiring, 3M Co. says it is constantly looking for ways to lower its costs. But at least one expense is being spared the scalpel: its fleet of corporate jets.

According to documents recently obtained by the Star Tribune, the Maplewood-based conglomerate could spend close to $250 million to replace its fleet of five aircraft, with two planes purchased in 2010 and 2011 and three more planned over the next three years. The purchases include top-of-the-line Gulfstream G550s, with features that include reclining leather seats and couches that fold out into beds.

3M executives declined to be interviewed for this report. Company spokeswoman Jacqueline Berry says the fleet is needed because of 3M's far-flung operations.

"We're meeting with customers, we're interacting with 3M employees. Many of the locations that we have around the world are not easily accessible by commercial jets," she said.

But 3M may have a tough time explaining such purchases, especially to its workforce, which has bled thousands of jobs over the past three years. Company jets have also become symbols of corporate extravagance, leading other Fortune 500 companies to downsize or disband their fleets.

3M's splurge on jets seems out of place given its emphasis on cost-cutting, said James Cox, a professor specializing in corporate and securities law at Duke University.

"This would seem to be the perfect environment where executives could fly another couple years on the older models, or worse yet, fly first-class," said Cox, who has published extensively on corporate governance issues. "What does this spending [on planes] crowd out?" he asked.

For Rod Werner, who heads the union at 3M's fastener plant in Fairmont, Minn., it's the workers. "At contract time, they tell us there's no money," said Werner, whose United Steelworkers Local 11-505 represents about 100 people at the facility.

Employees would be "very, very upset" about the company's plans, he said.

3M has more planes than other area companies with global operations, like agribusiness giant Cargill, which has four, and General Mills, which has two. Ecolab and Medtronic don't have any.

The planes 3M bought, Gulfstream G550s, are regarded as the gold standard of corporate aircraft and are built for long-range trips. The Gulfstream Aerospace website describes the G550 as "a brawny aircraft with an international reach."

Indeed, 3M's operations outside the United States make up a significant part of the company. At the end of 2010, more than 60 percent of 3M's 80,000 employees worked in foreign countries, and last year most of the company's capital spending was outside the United States.

But foreign travel accounts for a small portion of the trips made in the company's fleet, according to a Wall Street Journal database of Federal Aviation Administration information. The data show that the most popular destination for 3M's planes at Holman Field in St. Paul has been Park Rapids, about 200 miles away from its headquarters. Berry confirmed that 3M has used the planes to transport employees and customers to its Wonewok conference center, which is on Big Mantrap Lake.

Executives can also tap 3M's fleet for vacations and other trips. In its most recent proxy statement, 3M said CEO George Buckley's 2010 compensation of $23.2 million included more than $150,000 in costs for personal use of the company planes.

Charles Elson, a corporate governance expert, said there's a legitimate role for corporate aircraft as long as they are used for business. But making jets a perk often sends the wrong message.

"It's like using the company car to drive to Disneyland," said Elson, who heads the John L. Weinberg Center at the University of Delaware. He said executives who want to travel by private jet can hire charter companies. "They can afford it," he said.

Ford, General Motors and Chrysler learned about the negative perceptions surrounding corporate aircraft when they used them to fly their CEOs to Washington in 2008 to seek government loans. The fallout was so immense that Ford got rid of all its planes and GM downsized its fleet.

The outcry, along with economic pressures, has caused other companies to be more cautious. Since 2008, sales of new business jets have fallen by one-third and the market is now glutted with used planes, said Michael Boyd, a Denver-based aviation industry consultant.

"The drumbeat [of bad publicity] has continued," he said.

For instance, when InBev bought Anheuser-Busch in 2008, the brewing giant boasted that it had no company planes as evidence of its cost-conscious culture. It hammered home the point by downsizing Anheuser-Busch's fleet.

3M's plan to replace its planes comes on the heels of an aggressive belt-tightening initiative that included 4,000 layoffs in 2009 along with cuts in research and acquisitions.

The company has said its current round of cost-cutting won't be as severe, but it is paying close attention to its bottom line and recently noted on a conference call that it has cut discretionary spending like travel and consultants. 3M also has a hiring freeze, with replacements limited to key positions that are closest to customers.

3M, which started the year with more than $4 billion in cash on its balance sheet, recently cut an undisclosed number of employees through an early retirement program. The company has said it expected about 1,000 people to volunteer but wouldn't say what it would do if it didn't get enough takers.

Dawn Elm, a professor who teaches business ethics at the University of St. Thomas, said businesses in the midst of cost-cutting need to be mindful of how their spending decisions look -- no matter how logical they may seem internally.

"Companies need to be careful," she said, "particularly in this day and age when reputation for an organization can be either a significant asset or detriment."

Susan Feyder • 612-673-1723

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