The Financial Times published a special report on corporate aviation in today’s newspaper which is also available as a PDF file download. The entire report is required reading for anyone following private aviation and particularly for those interested in trends within the European market.
NetJets Restructuring Yielding Results
Berkshire Hathaway’s NetJets subsidiary has a significant presence in the European market and has gone through substantial restructuring over the past year. Eric Connor was named Chairman and CEO of NetJets Europe in October 2009 following the resignation of Mark Booth from the Chairman position and Bill Kelly from the CEO position. Mr. Connor was previously a top executive at MidAmerican Energy where he worked for David Sokol. Mr. Sokol took over as Chairman and CEO of NetJets in August 2009 replacing Richard Santulli, the company’s founder.
In late April, Mr. Sokol reported that NetJets posted a profit of $50 million for the first quarter and expects a full year profit as well. Warren Buffett made similar comments based on reports of the question and answer session at the Berkshire Hathaway annual meeting on May 1. In his annual letter published in February, Mr. Buffett reported that NetJets had posted cumulative losses of $157 million during Berkshire’s period of ownership while debt increased substantially. Berkshire acquired NetJets in 1998.
“Quietly Optimistic”
According to the Financial Times article, Mr. Connor is “quietly optimistic”: “Generally speaking, for the first quarter of 2010 — and obviously one quarter isn’t a whole financial year — the indications are quite positive.”
Berkshire Hathaway’s acquisition model calls for companies to have management in place and it is rare for Mr. Buffett to order major changes in the management structure or internal operations of a subsidiary. Clearly, the situation at NetJets was out of control and prompted management changes last year that are now showing results. However, whether NetJets in particular and the fractional aviation industry in general can produce sustained profitability over multiple economic cycles remains an open question.
Disclosure: The author owns shares of Berkshire Hathaway and is the author of The Rational Walk’s Berkshire Hathaway 2010 Briefing Book which provides a detailed analysis of the company along with estimates of intrinsic value. NetJets is discussed in coverage of Berkshire’s “Other Service ” reporting segment.