If Warren sells NJA, is that a good thing?

[FamilyGuy]

Once again, you show a total lack of knowledge on just about anything Netjets. Luckily this time, what you wrote is a common misconception of how NJA remained alive in '08-'09 when it was losing money.

WB didn't inject anything. As a BH holding, NJA was able to BORROW from BH up to $2 billion. You'll probably tell me I'm arguing semantics, but I'm not. There's a very big difference between having money thrown at the company to keep it alive, as your post suggests, and borrowing money to do the same. NJA was borrowing to stay alive, but actually wasn't that near bankruptcy. Bankruptcy would occur if NJA couldn't borrow anymore AND lacked the ability to repay on its outstanding loans. The economy was bound to turn around, and NJA would return to making money and paying down its debt. And that's exactly what happened.

But if BH hadn't loaned the money, RTS had plenty of connections elsewhere to get loans to keep it going. As a BH holding we got preferrential interest rates, which I'm sure made borrowing from BH more attractive than other institutions, but wasn't the only option. Your foregone conclusion that Warren's benevolence is what kept us out of bankruptcy isn't correct.

You shouldn't denigrate someone when your own posts shows your complete lack of understanding on the issue.

NetJets would have gone bankrupt in 2009 if BRK wasn't guaranteeing its $1.6 billion in debt at the time.

NetJets essentially had a run on the bank, when the owners started turning in their shares to raise capital. The owners were under extreme financial duress and were looking to sell anything to raise cash. The NJ contracts allowed the owners to turn in shares for fair market value after they had been in the program for a certain period of time. NetJets was redeeming the shares but due to the debt load didn't have the cash to pay off the owners. That's where BRK's guarantee to backstop NJ came into play. If BRK hadn't guaranteed the debt, then NJ would have had a liquidity issue and wouldn't have been able to pay its bills.

Yes, its a temporary issue and the business makes money in the long run, but there have been plenty of companies in history that have been forced into bankruptcy by creditors due to cash flow issues.

Whether or not Santulli could have found alternate funds during that time frame is up for debate. I personally doubt it. Remember that GE, Dow Chemical, Goldman Sachs, and others were coming to WB for capital infusions at the time. Who in their right mind would back an aviation company on the verge of bankruptcy with their valuable capital. And at what terms?

 

[pilotyip]

You shouldn't denigrate someone when your own posts shows your complete lack of understanding on the issue.

NetJets would have gone bankrupt in 2009 if BRK wasn't guaranteeing its $1.6 billion in debt at the time.

NetJets essentially had a run on the bank, when the owners started turning in their shares to raise capital. The owners were under extreme financial duress and were looking to sell anything to raise cash. The NJ contracts allowed the owners to turn in shares for fair market value after they had been in the program for a certain period of time. NetJets was redeeming the shares but due to the debt load didn't have the cash to pay off the owners. That's where BRK's guarantee to backstop NJ came into play. If BRK hadn't guaranteed the debt, then NJ would have had a liquidity issue and wouldn't have been able to pay its bills.

Yes, its a temporary issue and the business makes money in the long run, but there have been plenty of companies in history that have been forced into bankruptcy by creditors due to cash flow issues.

Whether or not Santulli could have found alternate funds during that time frame is up for debate. I personally doubt it. Remember that GE, Dow Chemical, Goldman Sachs, and others were coming to WB for capital infusions at the time. Who in their right mind would back an aviation company on the verge of bankruptcy with their valuable capital. And at what terms?

Thank you, kinda reenforces the point there would have been a NJ BK without WB co-signing. No one else would risk loans in that markets for a failing aviation company. Even GE couldn't get loans and had to go to WB for backing.

They can crush us if they want. No one disputes that.

But do you really think a guy whose secretary pays higher taxes than he does really can live with her paying her pilots on discount airlines higher salary than he pays his private jet pilots?

I doubt his secretary pays more, but she probably pays at a higher rate. That is how the tax system works, I bet Buffet doesn't even draw a salary but lives off of Capital Gains which are at taxed a 15%

 

[realityman]

Family,

All you did was fill in the details for what I said. So I'd say I understand what happened just fine. Thanks for the economics lesson though. The only place you and I differ is in the bankruptcy thing. NJA is a BH held company, so of course the first source of loan came from them. A little like borrowing from your own 401K. As long as NJA recovered it was a huge windfall for BH. Profits from NJA AND interest paid on a huge loan. Where I disagree with you is that I think loans/additional banking could have been obtained from other sources had BH not loaned the money. But as it stood, RTS didn't have to seek out the additional funding because BH provided it.

 

[ExecJetCA]

There is a lot more to the story as why WB and BH opted to guarantee the returning of assets. There were three offers on the table to purchase the aviation investment of BH (NetJets & Flight Safety). The other three offers had an immense amount of aviation knowledge and expertise.

At the end of the day, it was a strategic business decision. BH received a good return on the loan amount. WB mind set is "Buy when prices are low, sell when prices are high". The combined ROI from the loan, operational profitability, and sales of airframes has given BH an ROI of over 60% based on the original purchase price.

 

[G4dude]

You shouldn't denigrate someone when your own posts shows your complete lack of understanding on the issue.

NetJets would have gone bankrupt in 2009 if BRK wasn't guaranteeing its $1.6 billion in debt at the time.

NetJets essentially had a run on the bank, when the owners started turning in their shares to raise capital. The owners were under extreme financial duress and were looking to sell anything to raise cash. The NJ contracts allowed the owners to turn in shares for fair market value after they had been in the program for a certain period of time. NetJets was redeeming the shares but due to the debt load didn't have the cash to pay off the owners. That's where BRK's guarantee to backstop NJ came into play. If BRK hadn't guaranteed the debt, then NJ would have had a liquidity issue and wouldn't have been able to pay its bills.

Yes, its a temporary issue and the business makes money in the long run, but there have been plenty of companies in history that have been forced into bankruptcy by creditors due to cash flow issues.

Whether or not Santulli could have found alternate funds during that time frame is up for debate. I personally doubt it. Remember that GE, Dow Chemical, Goldman Sachs, and others were coming to WB for capital infusions at the time. Who in their right mind would back an aviation company on the verge of bankruptcy with their valuable capital. And at what terms?

In 2009, we are very lucky we weren't threatened with dissolution if deep salary cuts were not agreed to, or an outright firesale. I am amazed Warren kept us afloat. I would not have done so in his position. And he now has a pretty obstreperous workforce trying to embarass him. Hmmm.
By the way, someone said we are "wildly profitable." I wish that were true.

 

[doh]

Are you sure that applies to a new owner, or just to another entity of NetJets or Berkshire? This is not my area of expertise, but I find it interesting that a buyer from the outside would be required to honor our contract.

Company A buys company B, are they still obligated to pay the bills company B accrued? Of course! Obligations to stockholders and creditors are in force even though ownership has changed hands. All contracts are still in force. You really didn't know this??

 

[imacdog]

I wouldn't worry too much about ol' G. The fud campaign has had its effect on him.

 

[pilotyip]

Company A buys company B, are they still obligated to pay the bills company B accrued? Of course! Obligations to stockholders and creditors are in force even though ownership has changed hands. All contracts are still in force. You really didn't know this??

unless of course it is an asset sale, like Lorenze (sp?) did with EAL assets to CAL. Sell at 10 cents on the dollar as a business decision and make the entity purchased worthless while building the other company he owned. All the EAL people became unemployed. A strike by ALPA had no effect on the liquidation of EAL. Read "Hard Landing" for further details

 

[ghostrider64]

Best thing that would happen after a sale, the evisceration of the current EMT. I'm all for it.

 

[FamilyGuy]

In 2009, we are very lucky we weren't threatened with dissolution if deep salary cuts were not agreed to, or an outright firesale. I am amazed Warren kept us afloat. I would not have done so in his position. And he now has a pretty obstreperous workforce trying to embarass him. Hmmm.
By the way, someone said we are "wildly profitable." I wish that were true.

I wouldn't go that far. Operationally the company was profitable. But we did have a liquidity crisis that could have forced the company into BK without WB's backing. WB tends to take the long term view and I think he knew it was still a profitable company in the long run.

Your point about NJ not being 'wildly profitable' is correct. NJ is a marginal business at best. Compare its results to the other companies in the BRK portfolio and you'll see that NJ is one of the weaker companies in BRK.

I've never had too many concerns about WB selling NJ. One of his principles and selling points to people looking to sell their businesses is that he will keep them for the long term. I've long thought that the more likely scenario for a sale is when someone replaces WB. That individual will want to show that they can deliver similar results to WB. One of the easiest ways to do that is to cull the herd and shed the weaker players in the portfolio.