Amex, NetJets, and Johnny Soprano.

[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!!

 

[gunfyter]

If they do ... we will be waiting till 2016 for those raises. A wise man on another board said The company will not be opening negotiations unless they are looking for concessions. Otherwise they will just take the option and extend the contract 3 more years. This makes sense to me...

 

[mtnrunner]

They absolutely did post losses on those airplanes in 2009, along with repurchasing. In fact DLS went even deeper to close 2009. That's where nearly all of the $700mill plus in 2009 losses came from per Buffett and Berkshire in the 2009 letter and financials.

A plane value can take a write-down to $3mill with a loss of X. Then later post a profit if it's sold for $4.5mill. Or if the market justifies backing out the write-down because of a market recovery. That's accounting, not generating reoccurring cash-flows.

Pilots want positive cash-flows from a net gain in new sales, monthly management, and flying. The rest is for the accounting department. Anything else is bad from a pilot perspective.

I bet you can increase your earnings if you sold all your cars. Then what? They are just selling the cars in the driveway. New planes please! More new planes added faster than old ones are going out the back door pretty please!!

 

[BentOver]

More new planes added faster than old ones are going out the back door pretty please!!

We can all agree with this....

You may know more than most.. But what was the delivery time frame for all those Cessna's and 4000's etc.. I was under the impression that most, if not all, new deliveries were slated for 2011 and beyond.. And the Falcon's weren't scheduled until 2014....

The way I'm looking at it is if the majority of deliveries weren't slated until 2011, then NJA simply took a year or two delivery delay... (and IMO not all that irresposible given the state of NJA and the industry)

 

[gunfyter]

The losses were MARK TO MARKET write downs on the value of the purchased planes. We spent way more than $700 Million buying back those planes. If we had written off what we paid for the airplanes it would have been about $1.5 billion. Aircraft values plunged by 40%... 40% of 1.5 Billion is $600 million. If the value of airplanes had remained stable ... there would have been no losses reported.

When you bought your house in 2007 for $400K ... you did not lose $400K. But when the housing bubble burst and the value of your home is now only $200k ... you are now $200K poorer. If you were a business you are required to write down the value of this asset. mark to mark accounting rules. the shareholders must be made aware of this loss of value.

NetJets produced a pre-tax loss in 2009 of $711 million compared to pre-tax earnings of $213 million in 2008. The pre-tax
loss at NetJets in 2009 included asset writedowns and other downsizing costs of $676 million compared to $54 million of such
charges in 2008.

What you see here is even in the terrible terrible year 2009 ... Excluding the write down losses ... we only lost $35 Million. Now that we do not have those Write down losses ... how hard it is believe we made $200 million? With 1000 fewer employees we probably have $100 to $200 Million less in Payroll and associated costs. as you know, that is not the only place we have seen cost cutting.
++++++++++++++++++++++++++++++++++++++
AliceSchroeder.com

Nearly 90% of NetJets losses

Nearly 90% of NetJets losses were one time aircraft value mark to market write-downs for 2009. Sokol accelerated and exaggerated losses to "Santulli's report card" so he could show greater "profits" for 2010 and Sokol's report card. Remove all the one time charges (restructuring costs, write-downs, etc) resulting from a financial crisis and major economic down turn and the "turn-around" you speak of is the tail wagging the dog.

see : Mark-to-Market Accounting Basics

 

[mtnrunner]

Customer Cutting vs Cost Cutting

Sales Revenues - fair to say down more than 30%
Sales Margins - fair to say less than 4% on reselling used aircraft. But when the company repurchases at FMV and resells at FMV margins should be nill.

Monthly Management Fees - fair to say more than 30% of shares have left the program or more than 150 aircraft. Add the crew and Mx cost increase due to seniority/longevity and aging fleet respectively. Therefore, MMF revenues decreasing and the two biggest ticket fixed line item expenses increasing.

Hourly Fees - fair to say "operational efficiency" isn't at an all time high. In fact it's trending the historical low range. With Utility in the low range there is little OHF margin. Data indicates revenue flight hours year over year are down more than 10%. And down more than 25% from its peaks.

Every revenue stream with the exception of sales from disposal is down equal to or greater than cost cutting. If my revenue is down as much as 30% from peak but I've cut 10% to 15% of my staff my margins get worse, not better, when you use a revenue to staffing level metric.

If I ran at 75% utility but now run at 65% utility my operational efficiencies got worse not better. Therefore, my margins are worse not better.

Name one metric that has improved under DLS/JH management? Just one.
Employees per sold airplane - no
Utility - no
Aircraft availability - no
Net new sales - no
Fewer owners per sold airplane - no
Larger plane size per owner - no
Larger plane size per employee - no
Higher sales margin per sold airplane - no
Decreased number of unsold airplanes to maintain without owners - sort of

I have one - disposals - they are good at trading in old planes for a maybe on future orders.

So when you say cost cutting is paying off, I ask, compared to what? Good at cost cutting would mean when 30% of my business leaves I have found a way to reduce 35% to 40% of my staffing.

We are all glad they suck at that. They aren't even down 20% on staffing.

But they did hit all the non-union employees on pay and benefits for a small "gain" to put towards the $227mill. And you know the owners are happy to hear they pay more for less so Berkshire can post a $227mill profit.

It's all just silly. Why say anything at all if you don't have to?

My 2cents anyway. I'm done. Just enjoying the annual letter release day. Rah - Rah - Rah Warren! You should have left while on top. Not while trying to write your own obituary.

Again, just enjoy the ride...

 

[BentOver]

We all know sales and the business is not what it was in 2007 or even 2008.... Neither is the entire country.. As much as I want a recall, I am ok with the fact that business is just not picking up as quick as they would have liked.......

And the books can be cooked any which way that Warren needs.. It's the same with every quarterly report from every business...No suprise that NJA's books can look fishy at times..

But I haven't seen one thing that has occurred that wasn't announced prior..

1)Shrinkage...announced

2)Aircraft orders cancelled...excuse ...given

3)Recalls.. Weren't slated to begin until mid 2012 at the earliest

4) crappy 2011....forecasted by sokol himself on CNBC... the idiot humself said,, "we see a difficult 2011"

But you have to also look at the positives to see some re-investing in the company....

1) New HQ
2)New a/c orders...appearing to atleast start arriving on time.. Unless you believe 1000 Bomb. employees would be duped into christining a Global 6000 that wasn't really a NJA plane.

3) Joint venture with Signature for elaborate PBI/VNY FBO's
4) In house Financing for corporate buyers
5) Wifi
5)Refurbs..(although I know they may be sprucing up the chickens for a sale)
6) Heck, they even brought back the more expensive Fiji water
7) Have not said one word about pay cuts or cried poor asking for any concessions other than scope.. (which is a big concession, but as far as pay and bennies, still very much intact)
8)Furloughs due to shrinkage that is supposed to happen....rumor has been absolutely debunked time and time again. As far as I know, everyone except the original 495 has kept their jobs for 2+ years with no furlough on the horizon.


With this huge loss of a/c that you and Luthi predict, I want to know when this furlough is going to happen... I mean if they're gonna dispose of 75 more a/c, you'd think they'd need 350+ less pilots

 

[mtnrunner]

All I have to say is they may want to be a little less obvious and sell some new planes. Not by 1's, 2's, or 10's but by 50's and 100's. Just an intellectual honesty thing. Other than that I don't care all that much. It all tends to work itself out eventually.

The way I look at it none of this matters to the over 55 or seniority higher than 1,500 crowd. At least not for 5 to 10 years. By then the landscape and players will be different.

 

[gunfyter]

I have to agree, there is no really good news here for people that want a recall or upgrade. Its a little good if you don't want to be furloughed.

I believe we have reported profits 9 out of the last 10 years. They can't lie every year.

Its not too hard for me to believe there are profits. We charge $10,400 per hour to ride on a Citation X. The 4% the company says they take is a measily $400.

 

[mtnrunner]

Can't disagree with that. 3% to 4%? Nearly all agree it's a less than ideal investment with high risk and a lot of energy for very low returns. Most look for 15% to 20% pretax. But some people much like WEB enjoy jets more than sex. The issue going forward is reinvestment and scale - do they reinvest, take all they can out and let it fizzle fast - or somewhere in between?

The next CEO of Berkshire will answer the NetJets beyond 5 to 10 years question. For now JH is there and he, like DLS, wasn't hired to inspire or make any friends. The good news is most of us already have enough friends, so we'll see what he's got.

 

[gunfyter]

My understanding is the 4% is on revenue, not on investment. I tried to illustrate that by comparing to Amex's 3 %. And Johnny sopranos 10 % vig.

I don't know how much Buffett is into NJ for. $1 billion? Then $200million is a 20% return. $2billion, a 10% roi.

I don't think it's more than $2 billion. If its more than that $200 million a year profit is not going to cut it... Understanding this all depends on my assumption that the annual report is telling the truth, which is questioned by some here.