Berkshire Letter to Shareholders

[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?

 

[gunfyter]

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?

I think he is probably right about Recession proof.

Just not financial collapse-proof.

 

[gunfyter]

http://www.berkshirehathaway.com/2011ar/2011ar.pdf

Jordan Hansell took over at NetJets in April and delivered 2011 pre-tax earnings of $227 million. That
is a particularly impressive performance because the sale of new planes was slow during most of the
year. In December, however, there was an uptick that was more than seasonally normal. How
permanent it will be is uncertain.
A few years ago NetJets was my number one worry: Its costs were far out of line with revenues, and
cash was hemorrhaging. Without Berkshire’s support, NetJets would have gone broke. These problems
are behind us, and Jordan is now delivering steady profits from a well-controlled and smoothly-running
operation. NetJets is proceeding on a plan to enter China with some first-class partners, a move that
will widen our business “moat.” No other fractional-ownership operator has remotely the size and
breadth of the NetJets operation, and none ever will. NetJets’ unrelenting focus on safety and service has paid off in the marketplace.

Revenues of our other service businesses were approximately $7.9 billion in 2011, an increase of $579 million (8%) over 2010. The revenue increase was primarily attributable to stronger demand for electronic components (TTI) and pilot training (FlightSafety) and from higher revenues at NetJets. TTI revenues increased 12% as revenues increased rapidly during the first half of 2011, and then moderated over the second half. FlightSafety’s revenues increased approximately 8% due primarily to
increases in training demand within the business aviation and regional airline markets, partially offset by lower revenues from government customers. The comparative revenue increases of NetJets reflected revenues related to aircraft operating cost increases that are passed through to customers (with little or no margin), and slight increases in rates. Revenue hours flown in 2011 were essentially unchanged from 2010.

The increase in earnings was driven by higher earnings of FlightSafety, NetJets and TTI

The improved results were significantly driven by improved operating results of NetJets and TTI. NetJets generated pre-tax earnings of $207 million in 2010 compared to a pre-tax loss of $711 million in 2009, which included $676 million of asset writedowns and other downsizing costs. The
asset writedowns were primarily related to excess aircraft that have been subsequently sold or are expected to be sold for cash consideration approximating their written down values.

 

[G4dude]

Part of the mess was caused by executives who made foolish and/or extravagant decisions. They were replaced when NJ got a new CEO.

I think the mess was caused by the Great Recession, which was caused by the Feds requiring mortgage companies to approve loans to unqualified people, to help poor and minority buyers get houses. Wonderful intentions, ludicrous reasoning, and dreadful results.

 

[doh]

I think the mess was caused by the Great Recession, which was caused by the Feds requiring mortgage companies to approve loans to unqualified people, to help poor and minority buyers get houses. Wonderful intentions, ludicrous reasoning, and dreadful results.

Aaaaaaaaaannnnnnnnnnnd we have a winner!!

 

[BuckMurdock1]

I think what NetJetsWife said does have a bit of merit, though. During my short 'career' at NJA (was one of the last pilots they hired), I noticed organizational waste which I knew existed in other industries..but had no idea it existed in aviation. In the first few days of indoc, they threw up multiple slides (because all wouldn't fit on just one) of VPs of this and that..WAYYY more than necessary. Middle-mgmt seemed a bit overdone as well.
Now I realize that RTS was very much a 'loyalty guy'...as in 'you stand by me in lean times and I'll take care of you when times get better'. Alot of that was in accordance with that philosophy I suppose.
I also, however, noticed a bit of organizational arrogance as well..even when my indoc took place in the opening days of the 'Great Recession'. This was when Lehman Bros./Morgan Stanley fell. All of us newhires..most of which had left relatively stable regional jobs with decent seniority.. started worrying about furlough--yes after only days on payroll. One of the office staffers in CMH overheard some of us mentioning furlough as a possibility and said "we're NetJets! the 'F' word isn't even in our vocabulary". 15mo. later...well- we all know the rest.

 

[Hawkered]

I think people should just shut-up and let the corporation be run by people employed to do so. This message board is mainly contributed to by idiots who have no idea how to run a company and can't keep their mouths shut!

 

[OPECJet]

I think people should just shut-up and let the corporation be run by people employed to do so. This message board is mainly contributed to by idiots who have no idea how to run a company and can't keep their mouths shut!

That's laughable....

Those "employed to do so" have little stake in the company. We have a large one. If we see ways the company can improve the business we'd be remiss not to bring those ideas to management's attention. Any good management team would agree, recognizing those in the trenches may have the answer to win battles. Bet G4 even agrees with this one....

 

[G4dude]

I think people should just shut-up and let the corporation be run by people employed to do so. This message board is mainly contributed to by idiots who have no idea how to run a company and can't keep their mouths shut!

Good post! I love it when union rank and file members suddenly become experts on managing companies.

 

[nordo_2]

I think people should just shut-up and let the corporation be run by people employed to do so. This message board is mainly contributed to by idiots who have no idea how to run a company and can't keep their mouths shut!

Those employed to do so, are like parasites. On to the next host. Very little vested in any one company.

 

[CRAWDADDY]

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?

Back where you first saw him. At KOSU instructing in a 152

Seriously!