The Cost of Pfizer's Two Party Jets

The information in my post New Pfizer CEO's Party Jet for Kiddies appears to have sparked a debate within Pfizer about CEO Jeff Kindler's new fringe benefits. At least there's an interesting debate going on over at Pfizer's board on Cafe Pharma, with sales reps upset and someone who appears to come from management or a PR firm defending the perk.

Additionally, I learned in an e-mail from a subscriber that we can find out about Pfizer's corporate planes and he also posted that information on the thread above.

So I decided that it might might be fun to look closer at the cost of Pfizer's party jets. Those are G-Vs in the pictures, and Pfizer owns two of them, plus a helicopter.

But before we start looking closer at the cost of Pfizer's party jets, let's step back a second and correct all the Cafe Pharma misinformation about "nothing having changed with Mr. Kindler" and that "Mr. McKinnell also took his girlfriend on flights." Based on the information Pfizer has provided, Mr. McKinnell could bring family with him on the plane, when he was on the plane. Mr. Kindler has ensured that his family is required to always use the plane. Big difference.

The old rules at Pfizer were simple. According to Pfizer's proxy statement, "A spouse/partner was allowed to accompany the EC member on the aircraft for Pfizer business purposes;" so McKinnell could bring a spouse or partner and allegedly did so. It also says, "For tax purposes, as a result of the recommendations contained in an independent, third-party security study, the Board of Directors passed a resolution requiring that Dr. McKinnell use Company aircraft for personal travel. Under IRS regulations, if there is an independent, third-party security study, such personal use is valued at two times the Standard Industry Fare Level (SIFL) rates, as published by the IRS. "

So what is that? Let me explain. It means that if Kindler takes a pleasure trip from New York to Paris, a round trip distance of about 7270 miles, he would have a taxable benefit of about $2,250, which would be added on his taxable income. But since taxes are only about 40% of income, that means he doesn't actually pay more than $900 for this luxury, about the same cost as a regular, restricted coach ticket to Paris.

For calculation see here and IRS info here with a special exception rule cutting cost in half, here, since "the amount of income imputed to an employee for personal flights may be reduced if the employer requires the employee to travel on an employer-provided aircraft for all flights, both business and personal, and if a bona fide business-related security justification for such requirement exists."

We also know that McKinnell per Pfizer's recent proxy statement had a fringe benefit of $43,855 for air travel, so that's equivalent to a private trip for two on the corporate jet to Paris every month. Karen Katen spent twice as much.

But of course the cost to Pfizer's share holders is much more than these tiny amounts. A Gulfstream V, such as the one Mr. Kindler flies, costs about $30 million to buy. To get an idea of just how much it costs to operate such a jet, we can take a look at the pricing at Sentinet, which prices older Gulfstream IV jets at $8,200 per hour, for those who can't afford to buy one. That's about $150,000 for a round trip to Paris. But when you own the jet it has downtime, and we also haven't calculated cost of purchase and depreciation of the newer and larger Gulfstream V, so expect the cost for Pfizer share holders to easily reach $300,000. And for this benefit, Mr. Kindler pays less than 1% of the real cost, out of his pocket in taxes, $900.

Please also note that Mr. Kindler's contract differs from the information about Mr. McKinnell. In Kindler's new contract it explicitly states that "Mr. Kindler and his spouse and dependent children will be required [my italics] to use aircraft provided by the Company for air travel for security reasons."

So what does this mean?

It can't really mean anything but what it says, which is that contrary to when Mr. McKinnell's family came along on trips he took, the Kindler family expects to use the G-V aircraft anytime they fly, and Mr. Kindler doesn't have to be present.

After all, if they don't follow this requirement and other precautions in a comprehensive security package, the whole situation may be questioned by the IRS.

To learn about the security program the IRS requires, go here.

And since Mr. Kindler has an 18-year old daughter and a 20-years old son, one can only imagine how much fun they will have in the air, without daddy around, courtesy of Pfizer shareholders. After all they are required to take daddy's jet, part of the "security program."

No choice there at all.