In a recent interview with The Columbus Dispatch, NetJets Chairman and CEO David Sokol predicts that the company will be profitable this year and no further staffing reductions will be required “barring any major shifts in the global economy.” In November, Mr. Sokol made positive comments about prospects for NetJets in 2010 and stated that a break-even year would be likely. Since taking over at NetJets last August, Mr. Sokol has made a number of management changes and has imposed budget discipline designed to trim costs. NetJets is a subsidiary of Berkshire Hathaway.
2009 Loss: $720 million
The Columbus Dispatch article states that NetJets posted a $720 million loss for 2009 with the majority of the loss resulting from aircraft write-downs. Through the end of the third quarter, NetJets had reported a $531 million pre-tax loss of which $436 million was attributed to asset writedowns and downsizing costs. NetJets was profitable on an operating basis for the last two months of 2009 according to Mr. Sokol.
The article also states that Mr. Sokol has been approached by a number of smaller competitors that may be interested in selling their businesses to NetJets. However, only one potential deal is in the pipeline at this time. The company is not interested in taking on additional debt for large acquisitions and instead is planning to reduce debt by $300 million in 2010.
The Political Factor
One clear headwind for NetJets going forward involves a growing populist sentiment against private aviation. No intelligent executive in today’s political climate would dream of taking a private plane to Washington D.C. if called to testify before a Congressional committee. However, the problem extends beyond symbolism.
Populist sentiment is increasing in general and the fractional aviation industry must do a better job of communicating the tangible economic benefits associated with their product. It is likely that populist sentiment will recede once the benefits of the current economic recovery are more widely spread through the country. Until then, this is an additional negative factor for the industry in general.
The author owns shares of Berkshire Hathaway.