Boston Sunday Globe Magazine
September 29, 2002

Flying high

Enron's air fleet was a celestial playground for company bigshots, and according to one pilot, chairman Ken Lay was the biggest abuser of all.

By Robert Bryce

Robin Lay wanted to come home. The sand and the sun and the beautiful people were fun, but Robin had been in the south of France long enough. It was time to go back to Houston to be with her mother, Linda Lay, and her stepfather, Kenneth L. Lay, Enron Corp.'s then chairman. So sometime in mid-1999, Ken or Linda Lay made a few phone calls, and a few hours after that, an Enron jet was dispatched - empty, except for the pilots - to fetch Robin.

Never mind the cost. Never mind the squadrons of commercial airliners that fly from France to Houston every day. Never mind that Robin was an adult in her 30s who should have been able to fend for herself. At Enron, what mattered to the Lays was what mattered. So a crew of pilots clambered aboard one of Enron's Falcon 900s and launched the plane on its 12-hour flight from Houston's Bush Intercontinental Airport to Nice.

The Falcon 900 is a lovely airplane. Capable of cruising at 560 miles per hour, it has three engines that can propel the 23-ton plane cross-country from San Jose, California, to New York in less than five hours. Its wide leather chairs and suave couch make first-class seats on a commercial jetliner look shabby. For creature comforts, the plane, which can accommodate 13 passengers, comes equipped with a lavatory, a full kitchen, and, of course, a bar. In the universe of private jets, it's hard to beat.

But all that luxury comes with a hefty price tag. Enron's internal billing system estimated the cost of flying the Falcon 900 (a new one costs about $30 million) at $5,200 per hour. That means Robin Lay's excursion from the Cote d'Azur to the Cote de Smog cost Enron a cool $125,000.

No other part of Enron's business better reflected its out-of-control egos and out-of-control spending than the aviation department. As other parts of the company were burning through cash at record rates, Enron executives were cruising 5 miles high in ultraluxe style. By spring 2001, Enron had six jets in its fleet: two Falcon 900s, three Hawker 800s, and a Falcon 50.

True, big companies, particularly companies like Enron that have far-flung operations, need planes that can transport people quickly and efficiently at a moment's notice. And Enron's operations were certainly far-flung. Its international operations included power plants in China, pipelines in Argentina, oil wells in the Indian Ocean, and offices on five continents. But it was also obvious that during the era when Jeffrey Skilling was at the helm as Enron's president and chief operating officer, the skies became a high-altitude playground for the company's bigshots.

Car races in Canada, shopping in New York, vacations in Cabo San Lucas (an upscale Mexican resort town on the tip of Baja California), a "business" trip to London - all were taken on Enron jets, at Enron expense, by Enron's most senior executives, and not a thought was given by them to how much all of it was really costing.

"The biggest abuser of the planes was Ken Lay and his family," says one longtime Enron pilot, who lost more than $2 million in retirement and deferred compensation after the company's bankruptcy last December. Whether the destination was the Lays' mansion in Aspen, Colorado, or a quick trip to Cabo San Lucas, Ken and Linda Lay always flew in the newest Falcon 900 in the Enron fleet. It didn't matter whether a smaller, cheaper plane was available. Nor did it matter whether the Lays were using the plane for personal reasons. Enron's aviation department officials understood that a Falcon 900 should be available for the Lays at a moment's notice. Sometimes, the Lays needed two jets: a his and a hers.

"Several times, Mr. Lay was going to New York, but Mrs. Lay could not leave at the same time," says one former member of the aviation team. "She'd have something to do, so she'd have to leave an hour or two later. So we'd fly him to New York and then follow that plane with another one. Then, the airplanes would have to deadhead [return empty] back to Houston. It was extravagant. It was a waste of money. It'd happen eight or more times a year." Where Mrs. Lay was concerned, the former employee says, "We always had to make something available for her. We had to do everything possible to accommodate her."

The Lay family used the planes as their personal pickup trucks. When Robin Lay moved to France, Ken and Linda wanted to visit. And since there seemed to be plenty of room in the Falcon 900, they decided to take Robin's bed with them. "We were supposed to take a king-size bed, but we couldn't get the box spring through the door," says one pilot. "I said, `Unless you want me to cut it in half, it's not going.' So we left it in the hangar. We ended up taking the mattress and the headboard and the side rails." A few months later, when Robin moved back to the United States, the Enron planes were used to carry her furniture, including the bed, to Houston.

According to Enron's proxies, the Lays' use of company planes grew steadily between 1998 and 2000. In 2000 alone, the cost of Ken Lay's personal plane use was estimated at $334,179. However, what it actually cost Enron was far higher. The $334,179 figure is what Enron reported to the Internal Revenue Service as a perquisite provided to Lay. And Lay was only required to pay the income tax on that amount. The total cost of the plane use was absorbed by Enron, and that cost was probably several multiples of the $334,000 figure.

Here's why: If Ken and Linda Lay used the Falcon 900 to fly from Houston to London for personal use, Enron's aviation department used IRS mileage guidelines, called the standard industry fare level, to calculate the taxable value of the trip. So, even though the Lays' trip, one-way, cost Enron about $52,000, the IRS required Lay to pay taxes only on about $5,800 - the federally approved value of the perquisite Lay was receiving.

Ken Lay is probably in the highest tax bracket, which means when all is said and done, the real cost to the Lays for a quick hop to London to see the hottest show in the West End was a tax bill that was higher by about $2,320. No wonder they never flew commercial.

The travel costs associated with Enron's aviation department weren't limited to airplanes. Nearly every executive who flew on the planes expected to be picked up by a limousine at the airport. That limo would then be on standby during the executive's visit to his destination.

A few - very few - Enron employees worried about costs when it came to using the airplanes, according to sources within Enron's aviation department. The thrifty ones were the old-school people from Enron Oil and Gas (the profitable exploration and production outfit that Enron sold in 1999) and the pipeline folks. The oil and gas people seldom used the corporate fleet because they felt it was too expensive. Instead, they flew commercial.

The comments about the pipeline guys are revealing. Throughout the Skilling era (1997-2001), the pipeline business, while always profitable, was ignored. But pipeline executives are, as a general rule, cheap. Skilling's predecessor as Enron president, Rich Kinder, was a pipeline guy. And he didn't like the corporate airplanes. "Every airplane bought during Kinder's era was bought over his objection," says one high-ranking executive who worked with Kinder. "But the fleet kept growing and growing. Ken Lay wanted to have the best toys."

During the Kinder era (1990-1996), Enron flew five planes, which included two Cessna Citations. The Citation is a small but economical jet. It can carry six passengers at about 400 miles per hour and is a relative bargain at around $1,500 per flight hour. It's a functional jet for trips from Houston to either coast or almost any location within the United States. Whenever Kinder flew, he always took the smallest airplane available, which usually meant the Citation.

In short, Kinder was cheap, and many people at Enron appreciated that about him. One source, an executive who worked at Enron for nearly two decades, says, "The joke within the company was `When Rich leaves, let's see how many planes Ken buys.' " It didn't take long. Within a few weeks of Kinder's departure from Enron in late 1996, the company sold the Citations. In their place, Enron bought two Hawker 800s, at a cost of about $10 million each. The Hawkers are nice airplanes. They are big enough to stand up in. They're equipped with microwave ovens, coffee makers, a toilet, and big, comfortable leather chairs. They are also faster than the Citations and can seat eight passengers instead of six. They also cost - at $4,200 per hour - nearly three times as much to operate.

With Kinder gone and the Citations tossed overboard, personal plane use by Enron's executives taxied for takeoff. "Kinder was a control person; he kept a lid on everything," says one pilot. "When Skilling took over and the executives found out they could use the planes for personal use, they went nuts."

There was a final bit of aerial nuttiness that occurred in Enron's aviation department. And to fully understand the nuttiness requires a bit of knowledge of the world of superexpensive aircraft. Among the world's ultrarich, owning a big, luxurious airplane is the closest thing there is to a penis-measuring contest. Jets are maximo macho. They represent freedom. They are the super-first-class ticket that ferries the extremely well-heeled to their mansions and yachts. And the bigger and more expensive the jet, the bigger - and presumably more potent - your manhood.

The big rich own Falcon 900s. The really big rich prefer the G-V, or G5. That's short for the Gulfstream V, one of the newest designs in corporate aircraft. Capable of flying nonstop from New York to Tokyo, a G-V is the ultimate status symbol. Nathan Myhrvold, former technology chief for Microsoft, owns a G-V. So do New Economy whizzes Larry Ellison of Oracle and Steve Jobs of Apple. If those guys had G-Vs, Ken Lay surely needed one, too.

Sure, the Falcon 900s were nice. But when Lay was flying from Houston to Europe, the Falcon had to stop in Gander, Newfoundland, or somewhere on the East Coast for refueling before crossing the Atlantic. The G-V didn't. So on March 27, 2001, near the end of a quarter in which Enron's cash flow from operations would be negative to the tune of $464 million, at a time when the company's debt load was soaring and analysts were raising doubts about the company's ability to sustain its phenomenal growth, Enron bought a new G-V. And the spiffy toy - with its list price of $41.6 million - was promptly reserved for Ken and Linda Lay.

"Everybody knew that Mr. Lay wanted the G-V. He was the one who took it before the board," says one aviation employee familiar with the issue. "A lot of us felt we didn't need the G-V. So what if you have to stop in Gander?" But Ken Lay believed Newfoundland was for losers. Real men flew nonstop to Europe. And the company's new G-V allowed him to really stretch his legs. The plane seated 16 passengers, had two toilets, a DVD player, a 10-disc CD player, and three 18-inch LCD monitors.

Lay justified Enron's fancy fleet by telling a reporter that "all these planes give my CEOs something to aspire to." The G-V was Lay's aspiration, the symbol of his success. With the G-V, the son of a poor Baptist minister was arriving in the highest possible style.

Robert Bryce is a former reporter for The Austin Chronicle. This article is excerpted from Pipe Dreams: Greed, Ego, and the Death of Enron, copyright © 2002 by Robert Bryce. Used by arrangement with PublicAffairs, a member of the Perseus Books Group.

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