From The New York Times, May 19, 19777 Misuse of Corporate Jets by Officers Is Drawing More Fire By RALPH BLUMENTHAL "Company planes can only be used for business," Mr. Shapiro reiterated. "Even if I want a plane, my secretary has to file a form." Du Pont executives. may charter idle corporate aircraft but only by In the aftermath of Watergate, the private corporate jet-long taken for granted as a sleek, exclusive, and prestigious executive perquisite-in-paying going charter rates. creasingly is under fire. Whle other travelers crowd commercial airline counters and press for seats on increasingly cramped scheduled flights, the businessman with access to his company's private fleet still takes off at will and flies n unmatched comfort until he alights at the nearest convenient landing strip to his business rendezvous.... Though almost no one questions that a company.. plane can serve the legitimate purpose of whisking executives quickly and efficiently from meeting, to meeting, growing numbers of skeptics are asking whether the corporate jets are also being abused for pleasure travel or to ferry an executive's family. to distant cities, Pointed questions are being raised by stockholders, by Government regulators and by corporate officials themselves. "Just as you can't reach into the till and borrow a hundred bucks," says Irving H. Shapiro, chairman of E. I. du Pont de Nemours & Company, "so you can't just borrow' one of the company's jets." At his recent annual meeting, he outlined the. stringent internal controls against misuse of du' Pont's dozen jet aircraft. Not all companies have tough controls, however, nor do the controls always work. Apparently, they fail often enough to have thrust the jets into the glare of heightened public concern. As a result, the Internal Revenue Service is rewriting its audit guidelines and instructing revenue agents to check flight logbooks for signs of nonbusiness-and thus taxable-use of corporate aircraft. Also, the Securities and Exchange Commission, having brought to light patterns of corporate po litical contributions and later of commercial bribery on other dubious payments, is now turning to cor¡.porate perks-among which the corporate jetliners are probably the most dramatic. As its rationale, the S.E.C. investigates whether the arrangement is properly disclosed in reports to shareholders. Questions Pressed at Meeting And shareholders and such spokesman for shareholders as Lewis Gilbert are also pressing questions about the planes at this season's round of annual meetings. For many businessmen, the matter is extremely touchy, having to do not only with the prerogatives of private enterprise but also with what they see as the realities of making sales and closing transactions-with how important clients are wooed and how business blends into entertainment. The realities, sensitivities and ambiguities of the company jet controversy were all on display last month when hundreds of sleek corporate aircraft converged on Augusta's Bush Field for the annual Masters classic. "At an event like this, I wouldn't know how to separate business from recreation," a Travelers Corporation spokesman said of last month's Masters golf tourney-which drew flocks of corporate jets to Augusta, Ga. "If you're hosting an agent and watching the tournament, is that recreation or business? "I would say it's business," the spokesman for the insurance company contended-though he conceded it was a pleasant way of doing business. "Of course it's recreational," Celanese spokesman disagreed. "They were there to watch the Masters-but that's a normal business practice." But for government regulators, the problem requires less hairsplittng. "We're not focusing on this plane or that plane." Stanley Sporkin, director the S.E.C,'s enforcement division, asser in a recent interview. "We're focusing on officals misusing their office. We're not talking about nickels and dimes. We're talking about pervasive patterns." Subtlety 'Not Real Problem' Similarly, according to Theodore Levine, Mr. Sporkin's deputy, subtlety "is not real problem. They know when they're misusing their position. They know their famly uses it [the company jet) when they use it for trips to the islands.' The regulators' interest was clearly whetted by a finding by the Congressional Joint Committee on Taxation that former President Richard M. Nixon owed the Treasury $33,708.19 for 341 personal flights by his daughters and and 1972 on the Presidential jet, Air Force One. In a corporate case last year, the S.E.C. sued the General Tire Corporation for failing to disclose questionable practices, including free flights on the company plane for military officers and officials of other concerns engaged in contract dealings with General Tire. In another recent case that grew out of an I.R.S. inquiry, Jack Lansing, president of the Pacific Power and Light Company in Oregon, abruptly resigned and agreed to reimburse the utility by $15,157 for "improper" use of its plane for private travel. The sensitivity was evident at Bush Field and at Daniel Field, Augusta's general aviation airport, during the Masters week. Parties of casuallydressed visitors debarking the jets remained tight-lipped in the face of a reporter's questions about their identity and the companies they represented. "There's some stigma attached to bringing these planes around a recreation area," acknowledged a Lockheed representative who was displaying one of Lockheed's latest jets at the airport. The large Allis-Chalmers Corporation jet flew in with the Iranian Ambassador. The General Motors jet was there -as were jets from General Electric, Coca-Cola, United Technologies, Owen Corning Fivergalss, Owen - Illinois, Travelers Insurance, Uniroyal, Olin, the Williams Companies, Celanese, Martha White Foods, Provident Life and Accident Insurance, CBS, Time and the New York Times, among many other companies. As customary, the corporate planes bore no company names. Only by checking the Federal Aviation Administration "N" number,displayed on each aircraft against public F.A.A. records could ownership be ascertained. Flight Confirmed by Iranians Most of the companies, when contacted later, said their corporate jets The Travelers Corporation, for instance, said its president, Morrison H. Beach, and other executives flew down in its Gulfstream jet in connection with the Travelers' sponsorship of television coverage. General Motors, another TV sponsor, said it flew its Cadillac division executives there for the same rea son. The three news-gathering organizations CBS, Time and The Times-said. they dispatched their planes to Augusta for coverage of the tournament. Time's passengers were from Sports Illustrated, it said, while The Times's Citation carried three executives of the company-owned Golf Digest, a spokesman said. Some companies declined to comment. Allis-Chalmers, the Milwaukeebased motor and machine manufactur er, chose not to confirm or deny the trip of its British-built BAC-111 jet to August carrying the Iranian Ambasandor, Ardeshir Zahehi. The flight was confirmed by the Iranian Embassy in Washington. Similrly, the General Electric Company declined any comment a the presence of its jet at Augusta. At United Technologies in Hartford, a spokesman confirmed that a company Jet Star "stopped off" in Augusta, but declind to say who was on board. What makes the matter serious, ac cording to Lewis D. Gilbert, a corporate gadfly who often raises the issue consistently, is the heavy cost of keeping corporate jets. The purchase price may range from $945,000 for a Cessna Citation I and $1.7 million for a Gates Learjet to $5.5 million for a Grumman Gulfstream II. Inside, the planes are typically outfitted with swivel seats, comfortable tables, opulent carpeting, a bar, and a galley. Operating costs, including fuel, depreciation and other charges may run from $1.50 a nautical mile to $6. At a speed of 500 miles an hour, that worls out to between $750 and $3,000 an hour, or up to $12,000 for four hours of round-trip flying between New York and Augusta. By contrast, a round-trip ticket on a commercial airline costs $154. he aircraft for eIST Senator Ma ision by the olders should kes off with a If Tournament ent is involved Foted for the Los Hed so violentin but does not represent We are saving Insofar as whether it was at the expense of the shareholder, the taxpayer is in pocket by over $20 million Senator METCALF. Had it not been for that, the Lockheed people kept informing us, they would have gone bankrupt. And there would have been substantial Federal outlays, not only in the loss of defense contracts, but unemployment benefits and welfare benefits, and all of the things that happen when thousands of employees are out. Mr. KANAGA. Absolutely. That loan guarantee, and I have not been close to the Lockheed financial situation, that loan guarantee was made at a time when Rolls Royce went bankrupt holding up the entire program and was key to, I am informed, the survival of Lockheed and the continued employment of all those Lockheed employees. Senator METCALF. I want to thank for making your suggestions as to reforms needed in a very respected, honored and most important profession. I want to thank you for your continued cooperation. I hope that I have your assurance, as we have had from others, that you will go to these meetings and try to get the Cohen report implemented, as well as the other reports which you have mentioned. When Senator Percy and I hold some hearings to find out how you are getting along with your work, we will look forward to a progress report from you. Thank you for coming. Senator Danforth? Senator DANFORTH. Mr. Kanaga, are you familiar with the recommendations that were made by Price Waterhouse before this committee? Mr. KANAGA. Yes; I am, Senator. Senator DANFORTH. Are you familiar with the recommendations made by Arthur Andersen before this committee? Mr. KANAGA. Yes. I listened to them this morning. Senator DANFORTH. Do you view those-maybe you want to comment on them separately do you view those recommendations as being generally acceptable? Mr. KANAGA. I would say, Senator, that I agree with nearly all of the recommendations made by those gentlemen. I do disagree in certain significant respects; but they represent a minor proportion of the total recommendations in number that the gentlemen made. Senator DANFORTH. Where do you disagree with the Price Waterhouse organization? Mr. KANAGA. In two areas principally. The first is in the area of peer review of the profession. As I said in my prepared remarks, I think the profession has an inescapable and nontransferable responsibility. I served on the committee of the American Institute that initially considered peer review starting some 4 years ago. We ran into significant objections from the profession and from some of the major firms which I don't need to name. But the fact is that the profession did come around. It has taken us this period of time to get peer review in motion. As you know, our firm did the first major peer review of another major accounting firm a year ago. We believe that there should be a significant response in the private sector for assuring the quality work of our peers. I believe that the private sector is where that responsibility should remain. That is |