How HP explains away the Gulfstream acquisition, cover up

RECENTLY we have been taking HP to task for buying executive jets at a time when they were bleeding money. Now, rather than write a friendly note asking us to explain their point of view, they covered it up, badly. I would usually say this would make the next three planes coming down the pike harder to trace, but judging from the sheer number of people inside HP telling me about the planes, I am pretty sure that before the champagne is first placed in the corporate silver ice buckets, we will hear about it.

There have been a raft of 'here is our version to tell the media when they call' memos floating about the planes, the official draft came out on the 22nd. We would have brought it to you a bit before, but we were at the Athlon64 launch, and net access before and after was a bit spotty.

Before we show you that letter, a few comments. The main one is the reason why HP bought these aircraft. The official 'reason' was to replace a couple of older planes. That is true. The problem is why these planes were replaced. An HP airplane maintenance technician has spilled the beans, and shortly thereafter moved to a remote village in Zimbabwe out of fear. The problem with the old planes was the ashtrays filled up, and HP could not deal with the problem, so they bought the planes, then outsourced them to a leasing company. Fair enough, that follows past HP corporate practice.

Without trying to nitpick the memo to death, let me point out a few things. The challenger planes that were replaced serviced who at HP? Who do the new ones ferry around? The dates they point out in the next paragraph are entirely correct, and we were not trying to imply that they happened recently. In fact, had they not tried to cover it up so stupidly, any onlooker could have seen that for themselves. Brilliant.

A bit later on, HP denies that there are more planes on order. We have had at least two different sources tell us that there are three more coming. We will leave it to the readers to decide which of us has more credibility in the area of planes. Any have serial numbers?

The rest of the points in the memo can be either supported or countered with common sense, so we won't bore you with details. That said, on to the memo itself, it is a dull read.

See Also
HP buys two new Gulfstream Vs
HP covers up Gulfstream buys
Flight attendant jobs going on INQUIRER Concorde fleet
HP Compaq merger on the road to nowhere

Qs and As: HP Gulfstream Acquisition
September 22, 2003

Is it true that HP has acquired two new Gulfstream jets?
Yes. The two new Gulfstreams -- which are being leased -- replace two older Challenger planes, which were inherited from pre-merger Compaq. One of the Challenger planes has been sold; the other is in the process of being sold. So, the new planes have not increased the number of aircraft in HP's fleet.

Given our third-quarter results and the overall economic climate inside and outside HP, why is the company making these acquisitions now?
As far back as May 2002 when the merger closed, HP's aviation department identified the need to replace the two older Challenger planes inherited from Compaq. Last December, HP had the opportunity to lease the two Gulfstreams at highly discounted prices, which were offered for a limited time only. The transaction became public record in late June 2003, when the company took ownership of the jets and began operating them. While media reports may lead readers to assume the transaction occurred recently, in fact, aircraft acquisitions require lengthy periods between the time the decision is made and the time the aircraft is ready for operation.

What is the business justification for upgrading from the Challengers to the Gulfstreams?
By replacing the older Challengers with the Gulfstreams, HP is able to gain a number of cost efficiencies.

How are we achieving these cost efficiencies?
By acquiring Gulfstreams, which are compatible with HP's existing fleet, we were able to gain cost efficiencies by leveraging the same parts inventory, pilots and maintenance crew. (Inheriting the Challengers from Compaq added a new type of plane to the fleet, which meant resourcing and training on a third kind of aircraft.)

We can also leverage bigger discounts from our suppliers on equipment and parts. In addition, having several of the same kind of aircraft helps ensure a consistent level of service to the company. The Gulfstream Vs offer state-of- the art technology and are more fuel efficient and cost effective to operate than earlier models.

In addition, the older Challenger planes inherited from pre-merger Compaq lacked sufficient range for longer-distance trips. With the new Gulfstreams, we can reach many further destinations without having to stop to refuel, which makes for more efficient, safer travel.

Many employees can't travel now due to the recent restrictions within HP. Why do our executives continue to travel?
HP executives must continue to travel to ensure that the company remains competitive, and continues to win and grow. It is essential to meeting the needs of our customers and partners -- both existing and prospective -- as well as our employees. That said, HP executives continually assess their business travel in light of the company's strategic objectives and make decisions accordingly. The company jets -- which are available to others in addition to the Executive Council (EC) -- are used when it makes business sense. HP leaders, including the EC, also travel frequently via commercial airlines.

How much use will the new Gulfstreams see?
HP Aviation foresees the new jets logging approximately 550-600 flight hours a year, which means that the aircraft will be maximized fully for travel. Like other planes in the HP fleet, the Gulfstreams are aggressively booked and HP Aviation regularly experiences a demand backlog.

Is it true that HP has additional planes on order?
No. HP has no additional aircraft on order.

Is HP planning to acquire more planes in the near future?
Evaluating the fleet relative to company needs is an ongoing process. As aircraft age, HP Aviation must consider replacing them with more efficient, technologically advanced models. HP's aircraft includes models from the 1980s, so we are continually assessing the safety and efficiency of the fleet.

How does HP compare with other companies in terms of its corporate fleet?
HP is very much aligned with other large companies in how it uses corporate aviation. It's common practice for Fortune 50 companies such as HP to use corporate aircraft to conduct business and to meet the needs of customers, partners and employees. Companies such as IBM also have long-established aviation departments.

It's not a new practice, by any means -- we have used company aircrafts for 30 years. Corporate aviation allows HP executives to travel in the most effective, efficient and secure manner possible, which is key to remaining competitive.