Amex, NetJets, and Johnny Soprano.

[gunfyter]

Warren relies on people who can't count. He's been saying that he pays less taxes than his secretary for years

Shut up Warren and just write a cheque

Wait till he asks you for Concessions so you can pay a lower rate than he does.... My illustration confirms we are in the usuary,,, errr uh,,, I mean banking business.

 

[mtnrunner]

"Air-oholic..."

Let's do the quick math.

Approximately 275 sold whole aircraft equivalents in shares with approximately 385 registered aircraft.
Approximately 40 whole aircraft equivalents in sold cards with approximately 58 registered aircraft.
Won't bother with Europe for the purposes of this exercise but its Europe is a net negative with approximately 100 sold whole aircraft equivalents in shares and cards with just under 150 registered aircraft.
More than 100 aircraft "disposed of" from the US fleet.
Revenue flight demand is down double digits year over year.
Operational efficiency (Utility) is trending the historical low range.
Fleet availability (aircraft airworthiness) is trending the historical low range.
Number of employees per sold aircraft equivalent is trending historical high range.

Approximates are used because different technical issues can change specific numbers but the round numbers and trends are clear. In addition, it makes it clear this is all publicly available data that the industry, industry associations (such as GAMA, NBAA, NATA) and government agencies (such as FAA, NTSB, BLS) use and not an internal bookkeeping shell game.

Therefore, Top Line revenue is down dramatically YOY during the past three years (if you don't included the unprecedented disposal of assets, that Berkshire booked an unprecedented write-off with in 2009). Why? Sales, average sale price, and sales margins are in a steady state of decline (gross number of whole aircraft equivalent card and share sales remain at all time lows and new vs used aircraft values and margins are on the historical low end of the range). Number of total sold aircraft equivalents and aggregate Monthly Management Fees are in a steady state of decline. Total number of aircraft and the aggregate number of revenue flight hours are in a steady state of decline. Operational efficiency (Utility) is trending the historical low range.

When any conglomerate says X company made X dollars and doesn't list where or how, always ask where or how. More importantly, ask yourself if a company didn't make real money (cash), why is any CEO unnecessarily posting a profit only to pay taxes on said "earnings" against the shareholders interests.

I don't think history will be as kind to Warren once he's gone as it has while he is alive. He knows this. There are many stories that will surface when he no longer has some much influence over the national and business press. His failures in corporate governance and hypocrisy when it comes to corporate transparency will unfortunately be his last chapter. What is clear is that its all impacting the Berkshire shareholder today. Berkshire has never traded lower and with a company that doesn't pay dividends stock price is everything.

What does it all mean for the average Joe? Not a damn thing. But if you truly believe any fractional company is making cash while in a steady state of decline, and I mean real cash, you probably shouldn't be in a cockpit.

Eventually, years possibly or decades from now, some ceo will have to breakup Berkshire Hathaway. The bottom line is today Berkshire is not as valuable as a whole as it is in pieces. To maximize shareholder value it must be broken up. Sadly, this is where history won't be kind to Buffett. And where Buffett originally missed it, that's where DLS would have taken it. Buffett finally figured that out.

Until that day, I guess you can bank on the below... and let the make believe numbers make Buffett feel just a little bit better.

http://www.berkshirehathaway.com/letters/2011ltr.pdf
"Berkshire’s newer shareholders may be puzzled over our decision to hold on to my mistakes. After all, their earnings can never be consequential to Berkshire’s valuation, and problem companies require more managerial time than winners. Any management consultant or Wall Street advisor would look at our laggards and say “dump them.”

That won’t happen. For 29 years, we have regularly laid out Berkshire’s economic principles in these reports (pages 93-98) and Number 11 describes our general reluctance to sell poor performers (which, in most cases, lag because of industry factors rather than managerial shortcomings). Our approach is far from Darwinian, and many of you may disapprove of it. I can understand your position. However, we have made – and continue to make – a commitment to the sellers of businesses we buy that we will retain those businesses through thick and thin. So far, the dollar cost of that commitment has not been substantial and may well be offset by the goodwill it builds among prospective sellers looking for the right permanent home for their treasured business and loyal associates. These owners know that what they get with us can’t be delivered by others and that our commitments will be good for many decades to come.

Please understand, however, that Charlie and I are neither masochists nor Pollyannas. If either of the failings we set forth in Rule 11 is present – if the business will likely be a cash drain over the longer term, or if labor strife is endemic – we will take prompt and decisive action. Such a situation has happened only a couple of times in our 47-year history, and none of the businesses we now own is in straits requiring us to consider disposing of it."

All said it's just one more person's opinion. Time will tell.

 

[gunfyter]

The problem with this analysis is that it says revenues are down YOY... But Warren says NJ revenues are UP! And costs are DOWN!

The question is asked, yet not answered ... why would a CEO report profits that do not exist just to pay taxes on them?

If revenues are down compared with pre-financial crisis days ... Wasteful spending is also down. Apparently much more.

 

[mtnrunner]

He also said they sold "new" aircraft. Can you list those "new" aircraft tail numbers for me?

It's ok to believe in magic. It does make things more fun and exciting. I like to believe in magic also, but magic and business don't mix.

I did point out you should remove the revenue from aircraft disposals. Its a one time "benefit." Disposing of 75 plus planes a year is not the type of revenue any experienced management team is looking for simply because you will run out of airplanes to dispose of, therefore, destroying the business. And, the margin or "profit" generated from disposals is because assets were significantly written-down in 2009 and then traded-in in 2010, 2011, 2012, and 2013 at, lets just say, unusually high trade-in values. And, the company books the benefit today.

But, if it makes us all sleep better at night knowing more than 20 whole aircraft equivalent shares departed the program; more than 125 aircraft have been disposed of over the past 2 years; no new aircraft have been sold; another 125 aircraft disposals are being queue'd up for 2012 and 2013; for the first two months of 2012 at least one whole aircraft of shares has continued to leave the program; BUT, Berkshire could post $200 plus in profits while overall debt increased more than the posted profits... Then I am on your side as long as it's with the reality and not the wizard of oz.

It's worth pointing out the sales declines have noticeably accelerated since KD has moved on. The company sold almost as many shares in 2009 with the world in crisis as it did in 2011 with the much talked about "recovery." DOW 6,500 or DOW 13,000? What else does one need to know?

So to review... it's not a state of crisis but it is a state of steady decline. No if, ands, or buts about it. Where will it bottom? Time will tell. Since Buffett and Berkshire have publicly agree to eat their decisions... enjoy the ride... what else is there to do?

 

[BentOver]

A few things..

#1) NJA planned to lose atleast 100 a/c.... Luthi communicated that to the furloughees in a FWG leter back in early 2010... So the fact that NJA shrunk should be no suprise.... Well maybe it comes as a suprise when Luthi appears shocked that 100 a/c have left.. Guess he forgot what was communicated to him by the EMT back in '09...

#2)As important as the pilots think NJA is, it is not nearly as important to Buffett. (in the grand scheme of his businesses.) What reason would he have to inflate the gains of a business in his "other" category? And to follow that, in other quarterlies he has said negative things about NJA vs. the income of entities such as FSI. So it's not like he is afraid to report negative results from NJA.

#3) Citationaire is closing their fractional business. According to Luthi, the competition was whooping NJA EMT's butt. It is quite obvious that simply was not the case. It becomes quite obvious that no fractional is doing superbly. Avantair is hiring, but if you look at their quarterlies, they are not exactly a financial windfall. So it not just a Netjets problem.

According to NJA, they had an 85% retention rate for 2011. In 2012, 900 contracts are up. (contracts that could have been cancelled back in 2010 for those that needed the $$ quick).. With anywhere close to 85% retention in 2012, NJA would need to acquire 130+/- new owners to keep the status quo. Not exactly an alarming number with an improving economy....

It is easy to say, stock market is doubled, where are sales etc.. But we all should know that a somewhat vibrant stock market doesn't mean the economy has recovered. NJA, specifically Sokol (as much as I hate that guy) predicted 2011 would be another very tough year, and it was difficult. When someone makes a educated prediction and it comes true I don't see how anyone can be shocked when the results are posted.


The sky is not falling at NJA. There has been no reduction in workforce, flight demand is somewhat steady. New planes are being ordered/built. Bids are out for those aircraft, shares have been sold in those aircraft. There has been and always will be disposals, a/c leaving the fleet to make room for new ones. It should be no suprise when a few a/c leave.

 

[gunfyter]

Revenues from aircraft Disposals should not add to Profit. So it is not counted. If you have an airplane worth $5 million and you trade it for $5 million in cash ... you have not generated a profit. Your net worth is unchanged. Not part of the $227 Million. Disposing of aircraft has no effect on profits. We are smaller we need to get rid of these planes. So I see it as positive, not a negative.

New aircraft. My understanding Globals and Phenoms shares that have not been delivered yet were sold. Nope don't know the tail number.

Its not about Revenues ... its about revenues minus expenses. Apparently expenses are down more than revenues. That would be an improvement. These reports have always been vague enough to prevent anyone from calculating the cash flow. Its not just been since 2009.

We are $227 million richer than we were 12 months ago ... Again...according to Warren Buffett. Is Warren the next Bernie Madoff? Lying to his investors?

 

[mtnrunner]

The customer retention rate is mid 80% (again public data).
Share size retention rate is mid 60% (public data).

A lot of customers are sticking around. Many are going with smaller share sizes and smaller planes while using other solutions. Big customers have been moving back to their own airplane with small shares for back up.

Fractional is now a portfolio solution. It was for many customers pre DLS & JH the sole source solution. The Club is all but gone.

I hate to say it but NetJets is more block charter now with an older fleet than true young fleet fractional ownership. That is what CA, Cessna, and TEX concluded as well.

Watch TPG - they know aviation very well. They have endless money like Berkshire. Rumor has it DLS tried to pitch TPG and TPG concluded what CA, Cessna, and TEX concluded - call it what you want but post DLS it's all just "block charter now."

But back to the original suggestion of its just a bank - more true than not when you think of the manipulation of assets to post "profits" more so than taking a cut of the spend rate.

 

[mtnrunner]

Revenues from aircraft Disposals should not add to Profit. So it is not counted. If you have an airplane worth $5 million and you trade it for $5 million in cash ... you have not generated a profit. Your net worth is unchanged. Not part of the $227 Million. Disposing of aircraft has no effect on profits. We are smaller we need to get rid of these planes. So I see it as positive, not a negative.

New aircraft. My understanding Globals and Phenoms shares that have not been delivered yet were sold. Nope don't know the tail number.

Its not about Revenues ... its about revenues minus expenses. Apparently expenses are down more than revenues. That would be an improvement. These reports have always been vague enough to prevent anyone from calculating the cash flow. Its not just been since 2009.

We are $227 million richer than we were 12 months ago ... Again...according to Warren Buffett. Is Warren the next Bernie Madoff? Lying to his investors?

They are selling, you a buying.
Top line is all revenue. Yes all including disposals. When and asset is written down to $3mill and traded-in for $4.5mill it can be booked, at a profit, when the contract is signed.
All standard GAAP accounting. Sorry but true. Furthermore, if an asset is written down it can later be readjusted for a gain.

Never confuse "operating income," "pretax earnings," or "profit" with "cash." You're are suggesting profit and cash-flows are the same. Thay are not. If Buffett said it was cash-positive $50mill I would grease my pants. I will take $50mill cash positive over $200mill pretax profit 9 times out of 10.

What would you think NetJets BV is? I'm comfortable saying less than my personal BV.

But think what you wish. But clearly they are selling and you are buying.

 

[gunfyter]

We know from the Financial Crisis that banks are crooks....

So I think my Johnny Soprano comparison is appropriate.

You could be totally right and Berkshire is lying to everyone. The data presented does not lend itself to calculating the cash flow involved.

If they are not lying (which I think is a reasonable assumption. Noted that some do not agree. I can only go with what is reported.), IF they have figured out how to get $200 million in profits with zero net sales, then my Amex, Soprano's comparison is what I think they have achieved. They have figured out how to take a small percentage of whatever cash flows through the business.

++++++++++++++++++++
BTW,
NJ did not post losses on the money the paid to buy back airplanes in 2009. therefore they should not post gains on the sale of same aircraft.

The losses posted were write down on the value of the aircraft purchased. If there were no loss in value ... no loss would have been posted in 2009.

If an aircraft you say was bought in 2009 for $3 million sold in 2011 for $4.5 Million... IF the aircraft was worth $4.5, I believe it would have to be valued as such and a $1.5 million gain posted *** whether the plane is sold or not***. that would be consistent with what they did in 2009.

 

[mtnrunner]

I'm only suggesting a closer look and eyes wide open stance. I do believe it's all legal. But there is a lot of latitude within the law.

In the end Buffett said the Berkshire shareholders will eat it all - and like it. So it's time to defend what's there and enjoy the ride.

If they are up $227mill then raises across the board! The numbers should only get better!!