Berkshire Letter to Shareholders

[dime line]

Guess he didn't change his view over the weekend regarding the company.

It is hard to believe, but the rumors persist that they are trying to package up the company for a sale. He can't sell NetJets as they're are no buyers. Too many unknowns and the outlook is horrible.

uh, uh, uh, never thought FLOPS would essentially buy RTA. Watching the world economy unfold, anything can happen.

 

[gret]

Partial Transcript from CNBC interview this morning-

BUFFETT: Yeah, he's doing it really well. The situation with NetJets, and this is true both in Europe and the United States, is the number of planes owned by our owners is down maybe 15 percent or so. Now it's stabilized in the last few months. I mean, the number of people that are getting rid of their fractional ownership is being matched by new ones. The interesting thing is, flying per owner fell off dramatically a little over a year ago. I mean, when the recession hit, our owners, even though they'd already--they were paying for the hours, they were paying the management fee, when Thanksgiving came, when Christmas came, whatever it might be, when the Kentucky Derby came, the--their flying fell off quite dramatically, maybe by 25 percent. And like I say, they were paying the management fee anyway. That has come back a fair amount in the last couple of months. Flying per owner has increased somewhat. NetJets is, actually, as I put in the report, solidly profitable now. What Dave has done there has been miraculous. I mean, he is--he went--he went in there of August of last year and in terms of getting the balance sheet straightened out, our debt is down $500 million in terms of getting our operating costs in line with revenues. In all respects, NetJets is working very well now. But you're right, there are--compared to five years ago, or four years ago, you know, we're not seeing the same demand as we did then. And like I say, it's about equal in Europe and the United States.

QUICK: Hey, Warren, just on that point, we have a note that came in from one of the shareholders, one of their questions from Jack Harris in Rome City, Indiana. It's number 42, guys, in the control room if you want to follow. On that point he says, "With NetJets losing about three quarters of a billion dollars last year, this company to me really doesn't fit the Berkshire mold. What's the future of NetJets? Is there a chance that in the future you would sell the company?"

BUFFETT: No, we will not sell the company. And it's true that our guarantee of their debt is what kept them alive last year, and--but I don't see any reason why NetJets, unless private aviation was banned in some way or something, but I see no reason--NetJets is going to make money and it makes money even during a period like this when sale of planes are not very high. So it is by far the dominant factor in the--in the business. It has--the value of its fleet is well over that of the next three competitors combined. So we own the business, in effect. We're--and it's a profitable business. It just got out of control a year ago and it has this huge loss. The year before that it was profitable.

 

[HazMat]

I am not a netjet hater I think netjets will be fine. Just saying he said those things about airways and then after he sold it called it one of his biggest mistakes. Only time will tell. I hope netjets does great it will only benefit the rest of the industry.

 

[gutshotdraw]

The Burlington railway deal is a far greater risk to Berkshire than Netjets. Mr. B referred to it as an "all-in" bet on the U.S. economy.

I think Mr. S is doing a great job but people in the company also know it wasn't tough to cut out the first couple hundred million in stoooopid spending that has been going on for a couple years. The Netjets showing for the rest of this year and 2011 will be the challenge. Personally, I like the odds.

 

[gunfyter]

I like the odds too.

I am ALL-IN.

 

[jppt2000]

The Burlington railway deal is a far greater risk to Berkshire than Netjets. Mr. B referred to it as an "all-in" bet on the U.S. economy.

I think Mr. S is doing a great job but people in the company also know it wasn't tough to cut out the first couple hundred million in stoooopid spending that has been going on for a couple years. The Netjets showing for the rest of this year and 2011 will be the challenge. Personally, I like the odds.

I think he got the company cheap.
To paraphrase one of his quotes,
When its raining gold you use buckets not thimbles.

 

[OPECJet]

Mr. S will be doing a great job when we're all back to work. Until then I look at my bank account and think of that son of a bitch along with Buffett and RTS.

Even after we get back I'll get to look at my retirement fund and savings as a souvenir of all this mess. Unless I can miraculously figure out a way to turn back time and stay out of aviation, this is going to have some permanent sting to my family's finances.

 

[HazMat]

Good luck to you OPEC hope it works out and you are back to work soon

 

[OPECJet]

Thanks Hazmat. The silver lining is playing with my son everyday. Seems like he learns something new daily and I get to see it. I think all the issues the furlough is causing is well offset. Sometimes I just need to take a step back and look at it!

 

[HazMat]

jppt2000 stated:

Just so you know:
Buffett made a nice profit on the preferred USAIR stock he held onto about 10 years later.

Another Netjets hater.
Maybe you should put on your tagline, Fly Avantair!

-------------------------------------------------------------------------------------------------------------------------------------



Warren Buffett, Airlines Hasn’t Always Been a Successful Marriage

Posted: Jan. 22, 2008

RESEARCH TRIANGLE PARK – Suffice it to say that Warren Buffett has had a love and hate relationship with airlines.

His NetJets fleet of private jets for the world’s elite is flourishing, and that airline could be moving major parts of its operations to North Carolina.

However, Buffett certainly will never forget the $385 million investment he made in US Air. In 1995, he wrote off 75 percent of that investment during one of the many upheavals that make airline investments adventures into the unknown.

http://www.airliners.net/aviation-forums/general_aviation/read.main/3810132/


I am not a NetJets hater at all and I apologize if that is how you interpreted my comments.

We should all want everyone in our industry to thrive and prosper because that equates to jobs and security for all of us.

When our peers at other operators are impacted by the current economic climate that we are operating in, it can and does affect all of us.

When a prospective Owner is reluctant to purchase any of our products due to negative news from any operator, it can impact all of our bottom lines, it's that simple.

I would hope that there isn’t anyone on this message board (already maybe one)that takes any pleasure in the misfortunes of others.

Like it or not, we are all in this together.

 

[jppt2000]

jppt2000 stated:

Just so you know:
Buffett made a nice profit on the preferred USAIR stock he held onto about 10 years later.

Another Netjets hater.
Maybe you should put on your tagline, Fly Avantair!

-------------------------------------------------------------------------------------------------------------------------------------



Warren Buffett, Airlines Hasn’t Always Been a Successful Marriage

Posted: Jan. 22, 2008

RESEARCH TRIANGLE PARK – Suffice it to say that Warren Buffett has had a love and hate relationship with airlines.

His NetJets fleet of private jets for the world’s elite is flourishing, and that airline could be moving major parts of its operations to North Carolina.

However, Buffett certainly will never forget the $385 million investment he made in US Air. In 1995, he wrote off 75 percent of that investment during one of the many upheavals that make airline investments adventures into the unknown.

http://www.airliners.net/aviation-forums/general_aviation/read.main/3810132/


I am not a NetJets hater at all and I apologize if that is how you interpreted my comments.

We should all want everyone in our industry to thrive and prosper because that equates to jobs and security for all of us.

When our peers at other operators are impacted by the current economic climate that we are operating in, it can and does affect all of us.

When a prospective Owner is reluctant to purchase any of our products due to negative news from any operator, it can impact all of our bottom lines, it's that simple.

I would hope that there isn’t anyone on this message board (already maybe one)that takes any pleasure in the misfortunes of others.

Like it or not, we are all in this together.

Track the USAIR stock price in the late 90's and early 2000, he made a mint on the sale of his preferred stock

 

[gret]

Track the USAIR stock price in the late 90's and early 2000, he made a mint on the sale of his preferred stock

NYT 5/24/2000-

"Another well-known investor who came to regret placing a bet on US Airways was Warren E. Buffett, whose Berkshire Hathaway invested $358 million in US Airways convertible preferred stock in 1989, when the stock was trading at around $53 a share.

That was widely seen as an anti-takeover move by US Airways, putting voting power in friendly hands. If so, it worked. The company was not taken over.

It was not a brilliant move by Mr. Buffett, although it worked out adequately in the end. The dividends were not paid for a couple of years, although they were eventually made up. Berkshire converted the shares to common stock in 1998 and sold most of them quickly, probably getting more than it would have if it had held on."

 

[jppt2000]

NYT 5/24/2000-

"Another well-known investor who came to regret placing a bet on US Airways was Warren E. Buffett, whose Berkshire Hathaway invested $358 million in US Airways convertible preferred stock in 1989, when the stock was trading at around $53 a share.

That was widely seen as an anti-takeover move by US Airways, putting voting power in friendly hands. If so, it worked. The company was not taken over.

It was not a brilliant move by Mr. Buffett, although it worked out adequately in the end. The dividends were not paid for a couple of years, although they were eventually made up. Berkshire converted the shares to common stock in 1998 and sold most of them quickly, probably getting more than it would have if it had held on."

All of the stock?

 

[jetlag7]

I am not a NetJets hater at all and I apologize if that is how you interpreted my comments.

We should all want everyone in our industry to thrive and prosper because that equates to jobs and security for all of us.

When our peers at other operators are impacted by the current economic climate that we are operating in, it can and does affect all of us.

When a prospective Owner is reluctant to purchase any of our products due to negative news from any operator, it can impact all of our bottom lines, it's that simple.

I would hope that there isn’t anyone on this message board (already maybe one)that takes any pleasure in the misfortunes of others.

Like it or not, we are all in this together.

Well said.

On another note, I feel I should remind everyone here that US Airways is an AIRLINE --- NetJets is a Fractional Operator. If it weren't for the fact both companies employ pilots and fly jets, you might as well be comparing ships to submarines. (kinda' similar, but still very different)

Before everyone gets carried away with the "Buffett lost his shirt in aviation once before" rhetoric, let's keep this in mind.

 

[gutshotdraw]

Numbers for NJA, NJI, and NJE aren't out yet but EJM is showing marked improvement over a year ago. Flight demand is up across the board and that is a good indicator for ALL of us.

 

[wacoflyr]

Great news, Gutshot.

 

[gunfyter]

Numbers for NJA, NJI, and NJE aren't out yet but EJM is showing marked improvement over a year ago. Flight demand is up across the board and that is a good indicator for ALL of us.

EJM ...

I would expect this as several management companies went tits up in the last 18 months ... People dialed 1800 NETJETS to get their plane on the EJM certificate.

 

[CRJFlyer]

Well said.

On another note, I feel I should remind everyone here that US Airways is an AIRLINE --- NetJets is a Fractional Operator. If it weren't for the fact both companies employ pilots and fly jets, you might as well be comparing ships to submarines. (kinda' similar, but still very different)

Before everyone gets carried away with the "Buffett lost his shirt in aviation once before" rhetoric, let's keep this in mind.

Lets also keep in mind that whether or not he lost his shirt, he is still the top 1 or 2 riches people in the world depending on the month...I doubt he would care what we think of his investment strategies or his portfolio. And for that matter I doubt he cares what we take from his quarterly reports. We could analyze it all we want. Fact remains, none of us are as smart as he or his managers are when it comes to $$....simple fact

 

[gutshotdraw]

EJM ...

I would expect this as several management companies went tits up in the last 18 months ... People dialed 1800 NETJETS to get their plane on the EJM certificate.

True enough. Used aircraft have been so cheap the last 18 months that a number of people who weren't devastated by the turndown and had the cash have picked up cheap jets. Many of them have turned to EJM to manage the aircraft which is good for the company. But charter sales have also increased dramatically which is a good sign for the industry as a whole.

 

[SFR]

Letter Comments-

The major problem for Berkshire last year was NetJets, an aviation operation that offers fractional ownership of jets. Over the years, it has been enormously successful in establishing itself as the premier company in its industry, with the value of its fleet far exceeding that of its three major competitors combined. Overall, our dominance in the field remains unchallenged.

NetJets’ business operation, however, has been another story. In the eleven years that we have owned the company, it has recorded an aggregate pre-tax loss of $157 million. Moreover, the company’s debt has soared from $102 million at the time of purchase to $1.9 billion in April of last year. Without Berkshire’s guarantee of this debt, NetJets would have been out of business. It’s clear that I failed you in letting NetJets descend into this condition. But, luckily, I have been bailed out.

Dave Sokol, the enormously talented builder and operator of MidAmerican Energy, became CEO of NetJets in August. His leadership has been transforming: Debt has already been reduced to $1.4 billion, and, after suffering a staggering loss of $711 million in 2009, the company is now solidly profitable.

​

Financial Statement Notes-

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. NetJets owns more planes than is required for its present level of operations and plans to dispose of selected aircraft over time provided that prices are reasonable. We do not believe at this point that further downsizing will be required. We also believe, as a result of actions taken to date, that NetJets is likely to operate at a profit in 2010, assuming there is no further deterioration in the U.S. economy or negative actions directed at the ownership of private aircraft.
​

I just remember Richard Smith coming to my class at Ohio State back in 1999 and saying that Executive Jet (now Netjets) was a recession proof company and will always be strong. He was a little cocky and arrogant, too bad he was wrong.

Where is he now btw?