The following is from a consultant called "the Fractional Insider". Interesting.
Given this Gordian knot, I borrowed some crayons from my son, and went to work scribbling options on a sketchpad, together with pros, cons, and likely impact on Berkshire Hathaway (owner of Netjets) and fractional and card users (my customers). There are many potential moves that
Firstly, it seems obvious that a bold move will be needed. Netjets income, from monthly and hourly fees, is limited by the thousands of share and card contracts they already have in circulation. Many share owners have contracts that can be extended for five or more years, so it’s safe to assume that changing their fee structure would have little financial impact for quite some time. In my opinion, this is probably an unacceptably-long timeframe for Berkshire Hathaway. Improved share & card sales would help, but when might that happen?
Given this Gordian knot, I borrowed some crayons from my son, and went to work scribbling options on a sketchpad, together with pros, cons, and likely impact on Berkshire Hathaway (owner of Netjets) and fractional and card users (my customers). There are many potential moves that
could be made. Options might include buying Avantair, Flight Options or PlaneSense, or purchasing a company like Hawker Beechcraft (an option I quite like, in many ways). While all of these options are possible, it seems more likely that Berkshire Hathaway would seek a higher-impact move. Such moves might include purchasing, or partnering, with Bombardier or Textron. Of these two options, I consider Textron to be more probable, largely because Textron needs Berkshire Hathaway more than Bombardier.
© Copyright Michael Riegel - All Rights Reserved
Textron have been struggling for a couple of years. Their stock has been recovering (above $18 today, off of a 52-week low of under $4 but nowhere near the $73 of two years ago).
Partnering with Berkshire Hathaway would provide Textron with much-needed stability, and financial resources, in addition to greatly enhanced credibility in their dealings with the capital markets. From a business aviation standpoint, there would be many attractions to this union. Over half of Netjets 695 aircraft are already Cessna Citations, making a closer relationship fairly painless for both. Netjets also need a light jet to replace their aging fleet of Citation V Ultras, and a better alternative to the Hawker 400XP (soon to be replaced), and their European based Citation Bravos (already out of production). The Citationjet 3 or 4 would do nicely.
Netjets also need to reduce the complexity of their fleet, and focus on a smaller number of aircraft types (Cessna CJ3/4, Cessna XLS+, Cessna Sovereign, Gulfstream 250 would be pretty good choices) which could be operated more profitably than current types. Operational profitability is the only way for Netjets to generate decent financial returns, long-term, in my opinion. Cessna are well-placed to help with any fleet renewal. Embraer would also be great, but won’t have their programs (Phenom 300, Legacy 450/500) available quickly-enough, aside from lacking other benefits. A partnership with Berkshire Hathaway would eliminate Citationshares (75 aircraft, all Cessna products) as a fractional and card competitor. Increased sourcing of Cessna aircraft would almost certainly damage the outlook for Hawker Beechcraft, who need their Netjets backlog. High-volume aircraft orders from Netjets could be used to underwrite new aircraft programs for Cessna, something they need in their light and super-light segments if they are going to reduce the medium-term threat posed by Embraer. Berkshire Hathaway already own the largest pilot simulator training company in the world, Flight Safety, whose competitive position could only benefit from such a union. And, in a market where financing has become a major irritant for aircraft buyers and builders, a combined Textron and Berkshire Hathaway would likely help Cessna maintain market share as the business aviation market recovers. Netjets could even continue to source larger jets from Gulfstream and Dassault, without any impact on Textron.
How would the above impact consumers? It is obvious that the fractional business model is struggling. And, for all of their formidable size, Netjets don’t seem to have made particularly good use of scale economies to improve their fortunes. Such a move might create a steroidlaced
eight hundred pound gorilla, but I don’t think consumers would benefit. Choice would be stifled, and this combination of business aviation powerhouses (Flight Safety, Cessna and Netjets) would not exactly foster competition in several key market segments. Consumers
would still have options, but would also continue to have almost no leverage with service providers: an issue that will likely persist, regardless of any consolidation moves...
eight hundred pound gorilla, but I don’t think consumers would benefit. Choice would be stifled, and this combination of business aviation powerhouses (Flight Safety, Cessna and Netjets) would not exactly foster competition in several key market segments. Consumers
would still have options, but would also continue to have almost no leverage with service providers: an issue that will likely persist, regardless of any consolidation moves...
Of course, my scribblings might be complete hogwash, but I don’t see an easy route back to profitability for Netjets, unless they do something unexpected, and on a large scale. How should such a move be timed? Sooner (this year) could be better than later, when consumer confidence, stock markets, and the business aviation market all shuffle towards recovery.
© Copyright Michael Riegel - All Rights Reserved
Last edited:
