News

Nortel Networks Corp. has clients from Santiago to Siberia, but the most popular destination on the chief executive officer's map during the most critical 12 months in the company's history has been a small city 60 kilometres north of Chicago called Waukegan.

This is where Mike Zafirovski, using the company jet, flew almost weekly in the months of financial crisis leading up to the bankruptcy protection filing by the 114-year-old Canadian tech icon.

The Waukegan Regional Airport is a reliever airport for Chicago's massive O'Hare International. It is just a 25-minute drive from the CEO's home in Lake Forest, Ill., on the shore of Lake Michigan.

Corporate jets are usually a combination of perk and tool for most top executives. Mr. Zafirovski has racked up hundreds of thousands of dollars worth of personal travel at Nortel's expense since joining in 2005.

Such usage is common practice at many large businesses, and Nortel discloses in filings what it deems the "incremental cost" of those sojourns.

What's not so clear is how effectively Mr. Zafirovski has used the $17-million (U.S.) Challenger 604 jet as a tool.

Nortel would not comment on how much business the aircraft was used for, how frequently family and friends utilized the aircraft, and what the plane cost the company to operate.

"We have grounded the jet and are working to dispose of it as soon as possible. Past use was disclosed in public records in great detail. Future use will be zero," the company responded in a prepared statement.

The twin-engine aircraft flew into Waukegan 41 times between Jan. 24, 2008, and Jan. 20 this year, when Nortel grounded the aircraft following publicity about the expense.

Flight records show the jet made 204 trips in the past year, suggesting that one in five flights ferried Mr. Zafirovski or members of his family to the Chicago-area home, at an estimated cost of $5,000 or more for each one-way ride.

Some of these trips may also have involved visits to large customers in the Chicago region. Walgreen Co., Johnson Controls Inc., Motorola Inc., Hewitt Associates Inc. and United States Cellular Corp. are all within an hour's drive of Waukegan. But no other region in the world got so much attention, and most destinations out of Toronto were to the U.S.

"Meeting with customers and assuring them of our commitment to innovation and business relationship is Mike's top priority," Nortel spokesman Jay Barta said. "He has often flown commercial for these meetings in the past, and now does so exclusively given the current environment."

When Mr. Zafirovski accepted the helm at Nortel after stellar careers at Motorola Inc. and General Electric Co., Nortel said he would relocate with his wife to Toronto.

He has maintained his Illinois home, however, and flight records show that during the lead-up to Nortel's most challenging moments over the past year, the CEO had the plane parked up the road at Waukegan.

Corporate jets have come under great public scrutiny recently as many Fortune 500 companies react to the recession by slashing their work forces. General Motors, Ford, Chrysler and Starbucks are among the growing list of corporations grounding their planes. Last week, Citigroup cancelled delivery of a $42-million Dassault Falcon 7X jet.

In Nortel's case, there has always been a strong business argument for being able to fly the CEO or other top executives to destinations around the globe, privately and efficiently.

About 93 per cent of the telecom equipment maker's revenue comes from outside Canada.

Rivals in the industry see their CEOs rack up air mileage to meet personally with major customers, often to clinch a deal or massage concerns.

In the four weeks leading up to Nortel's bankruptcy filing on Jan. 14, the jet sat in Waukegan for more than two weeks, from Dec. 19 to Jan. 5.

Over the next several days, the twin-engine Challenger made two hops down to Oakland County International Airport in Waterford, Mich., a short distance from a factory of Nortel's largest supplier, Flextronics International Ltd. Flextronics was the only supplier to receive a guarantee that it would continue to receive payments from Nortel during bankruptcy protection.

In the 48 hours following the filing, Mr. Zafirovski had set himself the goal of personally contacting 50 large customers to reassure them that Nortel planned to stay in business. Those connections were made by phone, and at 3:59 p.m. on Friday, Jan. 16, the Nortel jet left Toronto and took its passengers back to Waukegan for the Martin Luther King Day long weekend.

The company declined to provide any information about who has used the plane or at what cost over the past year.

Robert Kokonis, president of airline consulting firm AirTrav Inc., estimates that for a typical Challenger 604, such as the one leased by Nortel from Skyservice Business Aviation Inc., annual aircraft chartering costs could be at least $1.5-million or roughly $4,500 for each hour flown.

Nortel's utilization rate was a relatively low 322 flying hours over the year. It would be usual practice in the industry for a company such as Skyservice to have negotiated a minimum guarantee of 50 hours flying time a month, which would push the price up to $2.7-million or more, said Mr. Kokonis, who helped analyze the Nortel records from tracking service FlightAware.

The upper price range would include special items such as meals served by a concierge on longer flights, he said.

In a 2007 public filing, Nortel made clear that the aircraft is a perk for its CEO, who is authorized to use it for business travel, commuting and limited personal travel.

Business travel on the Nortel jet in the past 12 months has included trips to conferences in Las Vegas, Dallas and Barcelona, as well as visits to Nortel's operations in Raleigh, N.C., and customers in New York.

Other travel over the past 12 months has included a flight in April to the Masters golf final in Augusta, Ga.

Family and other guests are allowed to use the aircraft, as long as the travel is approved in writing by the CEO or his designee.

All usage and costs of the aircraft are to be tracked by the vice-president of global compensation and benefits to ensure they are in line with company policy, the filing states.

Nortel calculated the incremental cost of Mr. Zafirovski's personal travel on the company plane (and commercial airlines), which it described as "principally related to commuting" as $136,262 in 2007, the latest year for which Nortel has disclosed the amount.

While Nortel suppliers who have not been paid, along with hundreds of terminated staff who have not received their severance payments, may bristle at the cost of the company jet, others say corporate planes have unfairly become symbols of excess during the recession.

The aircraft help keep key executives at the top of their game by transporting them directly to locations and allowing them to maximize their time, said Judson Macor, co-owner of Calgary-based AirSprint Inc., which sells "fractional ownership" of aircraft to executives and other clients.

"Are you going to sit them in a terminal and waste seven or eight hours of their day for a single commercial flight?" he said.

"The opportunity cost of that time is extreme, so business aircraft make a ton of sense."