Chowing on salads and sipping San Pellegrino water at the Santa Monica, California, airport two weeks ago, a well-heeled group of travelers compared notes on a fleet of spiffy Hawkers, Gulfstreams and Citations that NetJets, which peddles fractional ownerships in private jets, had assembled for their inspection.
Lee Iacocca, the 81-year-old former chairman of Chrysler, and Howard Grossman, a principal at GLWG Inc, a business and wealth management firm in Los Angeles, were among those reviewing the fleet and deciding whether to spend, say, US$406,250 to own a 16th of a Hawker 400XP or US$2.625 million for a 16th of a Gulfstream 550. Convenience and speed sell, of course, but Grossman spoke more directly about one of the other primary lures of having a high-priced airsteed at one's beck and call -- even if only on a part-time basis.
"It is a status symbol," he said. "It's the best toy known to man."
NetJets is also one of the best toys known to Warren Buffett, the storied Omaha, Nebraska, investor, whose holding company, Berkshire Hathaway, bought it from the maverick entrepreneur Richard Santulli in 1998. Buffett, who became a multibillionaire and one of the world's richest men by ferreting out undervalued companies, acquired NetJets on the assumption that demand for part-time jets would take off among the rich and famous who were desperate to avoid commercial flights and enamored of jet travel's luxurious perks.
As has so often been the case, Buffett's hunch, inspired by Santulli's own early appreciation of jet ownership, was prescient. Demand for part-time jet ownership has boomed over the last several years. Along the way, however, NetJets itself has endured a bumpy financial ride, calling into question the company's prospects for delivering the growth that Buffett expected -- and illustrating the frustrating vagaries faced by many small companies that get an early and seemingly insurmountable head start in a promising field.
Buffett has a long-standing and successful penchant for buying companies run by managers who can exercise nearly monopolistic control over prices in their markets. Although NetJets is by far the leader in its industry, the company lost US$80 million last year, after scratching out a profit of US$10 million in 2004 (it also lost money in 2001, 2002 and 2003, according to the company).
Buffett declined an interview, but he noted in his most recent letter to Berkshire Hathaway shareholders that while he had thought that NetJets would be profitable last year, he had been "dead wrong."
Santulli, the chairman and chief executive of NetJets, who agreed to be interviewed, had a more colorful observation of his company's problems last year -- induced, he said, by haggling over a new pilots' contract, increasing and budget-busting demands on its domestic fleet, and a number of ongoing problems in its efforts to build a presence in Europe.
"It was horrible, horrible," Santulli said. "I was embarrassed."
Still, ever the optimist, he also said he saw clearer skies ahead.
"We will have an excellent year and we will make money this year," he said. "We have the critical mass we need."
But some analysts and shareholders are not as sanguine as Santulli and voice concerns about NetJets' ability to turn itself around. "They can't charge enough to where they can make money on the ongoing part of the business," said David Strauss, an airline industry analyst at UBS Securities.
"And complexity is overwhelming the benefits of size. They have a lot of model types and a lot of different customers," he said.
SCHEDULE: The delegation is due to meet with President Tsai Ing-wen this morning and witness the signing of an MOU on bilateral health cooperation in the afternoon US Secretary of Health and Human Services (HHS) Alex Azar yesterday arrived in Taipei aboard a US government plane at the head of a delegation that is the highest-level visit by a US official since Washington switched diplomatic recognition to China in 1979. Azar’s flight landed at Taipei International Airport (Songshan airport) at 4:48pm, nearly one hour earlier than scheduled, the Ministry of Foreign Affairs said. The apron where it landed is reserved for military aircraft, the Songshan Air Force Base Command said. The members of Azar’s delegation included HHS Assistant Secretary for Preparedness and Response Robert Kadlec, HHS Chief of Staff Brian
ALEX AZAR: The first visit by a head of the Department of Health and Human Services would strictly observe the CECC’s special regulations, the Ministry of Foreign Affairs said US Secretary of Health and Human Services (HHS) Alex Azar is to lead a delegation to Taiwan — the highest-level visit by a US Cabinet official since the two sides cut formal relations in 1979. The plan was announced yesterday morning by the US Department of Health and Human Services and confirmed by the Ministry of Foreign Affairs (MOFA). Beijing has expressed its concerns to Washington, Chinese Ministry of Foreign Affairs spokesman Wang Wenbin (汪文斌) said later yesterday. Taiwan and the US only issued statements saying that the visit would happen “in the coming days.” MOFA said that due to security concerns, it would
‘CROSS-STRAIT CONSIDERATIONS’: Groups said that the Ministry of Education’s policies excluded Chinese and students should not be blocked over political issues The Taiwan International Student Movement yesterday said it would protest today outside the Ministry of Education in Taipei against a policy that excludes some Chinese students from returning to Taiwan amid the COVID-19 pandemic. Since June 17, the ministry has allowed foreign students from 19 “low risk” and “medium-low risk” countries and regions to enter Taiwan. On July 22, it announced that it was relaxing restrictions to include students from all countries and regions who are graduating this semester and on Wednesday it further expanded entry to students enrolled in degree programs. A letter sent by the ministry on Wednesday to universities did
The military last week sent “no small number” of Marine Corps officers to the Pratas Islands (Dongsha Island, 東沙群島) following reports of a Chinese People’s Liberation Army (PLA) drill targeting the islands scheduled for this month. In an interview with Hong Kong’s Bauhinia Magazine published on Saturday last week, PLA National Defense University professor Li Daguang (李大光) confirmed that the Chinese army was planning to stage a simulated invasion of the Pratas Islands in the South China Sea this month. The islands comprise three atolls, with Pratas Island, at 1.74km2, being the largest. They lie southwest of Taiwan proper in the South