Mega Merger Rumor

[justreading]

justreading,

You make some good points, but you have me a little confused. On one hand you say say the operators don't charge enough to cover their costs, and on the other, you complain they charge too much.

XOJET is brokering an open market charter for you and charging you a fee for doing so. I hate to be the one to tell you, but they really don't want your business on that trip. You say it's a round trip with a total of 2 hours flying. Nobody can make money on a 1 hour leg in a jet at least not with average hourly pricing. You want them to do two of them plus some standby time. The only reason NJA's pricing is better is because they can't charge you more for that trip because they charge by the hour. So, effectively someone else would be subsidizing your flying on those short trips. That's not the case with charter companies. They can charge you enough to make it worth their while or encourage you to go somewhere else.

If you're smart, you'll use several providers and solutions to minimize the cost of your flying and get guaranteed availability when you need it. NJAowner seems to have figured how to do it very well. Maybe he can help you do the same. It's a terrible business, but if you take the time to educate yourself and learn how to play the game, you can pay far less than your share on every leg by taking advantage of the different ways companies price trips.

Good Luck

Thanks.

I agree with you about best pricing is too work with serval groups and get the best pricing per flight. Sometimes I can be lazy and just want to book a trip quickly.

I hope the industry grows and creates more opportunities for the pilots in this forum. Direct interaction with pilots that love to fly is one of the benefits of private aviation that is rarely advertised. My kids love to watch you guys fly.

 

[NJAowner]

Fractional may not be a business model that makes a profit but it is not a Ponzi scheme. If you have time look up how a Ponzi scheme works.

 

[justreading]

Fractional may not be a business model that makes a profit but it is not a Ponzi scheme. If you have time look up how a Ponzi scheme works.

If you don't make a profit you are taking in new money to fly the previous hours promised. If new orders stop (see the current situation at Avantair), you can't fly the hours you just promised (see most recent Avantair lawsuit). Isn't that the definition of a ponzu scheme.

"A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors [new fractional, lease, or card holders], rather than from profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering higher returns [cheaper flight hours] than other investments[aircraft providers], in the form of short-term returns that are either abnormally high [low in the case of hourly rates] or unusually consistent. Perpetuation of the high returns [low houly rates] requires an ever-increasing flow of money from new investors to keep the scheme going."

 

[gunfyter]

Fractional may not be a business model that makes a profit but it is not a Ponzi scheme. If you have time look up how a Ponzi scheme works.

Both were started by Italian mathematicians though

To me it is like Fractional Reserve Banking...

On the busy days its like a run on the bank ... the Charter selloffs are like borrowing from the Fed. Core Fleet is like the Reserve.

 

[gret]

If you don't make a profit you are taking in new money to fly the previous hours promised. If new orders stop (see the current situation at Avantair), you can't fly the hours you just promised (see most recent Avantair lawsuit). Isn't that the definition of a ponzu scheme.

"A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors [new fractional, lease, or card holders], rather than from profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering higher returns [cheaper flight hours] than other investments[aircraft providers], in the form of short-term returns that are either abnormally high [low in the case of hourly rates] or unusually consistent. Perpetuation of the high returns [low houly rates] requires an ever-increasing flow of money from new investors to keep the scheme going."

I don't know what you call it, but it is a business model that befuddles most. The frac companies historically buy a/c at wholesale and then sell to the owners at retail plus. If a lot of new owners show up, you can generate some cash, if they don't, you are scrambling.

Operating the a/c doesn't normally make you money unless your name is Sokol. This guy was an absolute genius as he found a way to come in shortly after the Great Recession started and generated $200 million in operating profit for couple of years.with flight hours down 30%. Don't know how they define operating profit, but it sure sounds good. Heck, you can have $200 million in operating profit and lose $500 million on the bottom line and the loss is all due to restructuring charges.

Sokol was brilliant and still has people scratching their privates about how he could do something that nobody else achieved in over 16 years. He takes off due to some side deals in the stock market and the numbers aren't disclosed anymore so who knows what is going on.

 

[LAZYB]

David, is that you?

...Sokol was brilliant and still has people scratching their privates about how he could do something that nobody else achieved in over 16 years. He takes off due to some side deals in the stock market and the numbers aren't disclosed anymore so who knows what is going on.

 

[gunfyter]

Who said it was operating profit?


Losses to to devaluing aircraft ... then profits due to correcting the values upward is my guess.

" Nothing up my sleeve ... Presto!"

 

[jetlag7]

I think when management guys get furloughed they shave your head and give you a $ million per year pension ....

Now THAT is funny!!

 

[gutshotdraw]

Actually, NJI was operationally profitable every year of its existence except 2008. NOT including sales. It can be done. And it doesn't HAVE to be done Darth Sokol's way either.

 

[gret]

From BK's annual reports-

The reduction in combined "normal' pre-tax earnings from these businesses is due to reduced "normal" pre-tax earnings at FlightSafety of $34 million somewhat offset by improved results at NetJets where its pre-tax loss before write downs was $9 million in 2003 versus about $19 million in 2002.

NetJets, our fractional-ownership operation lost $41 million pre-tax in 2003.

NetJets earned a modest amount in the U.S. last year. But what we earned domestically was largely offset by losses in Europe. (2004)

NetJets' revenues in 2006 increased $759 million as compared to 2005 and pre-tax earnings in 2006 were $143 million compared to a pre-tax loss of $80 million in 2005.

"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." (2009)
​

 

[gunfyter]

Where does it say a profit was made on operations. Or that the losses were from operations. There is no indication of cashflow.

The huge losses were paper losses from the falling values of airplanes.

The debt was largely from buying back airplanes people cashed in when their stocks went down and margin called. As you know a loss is not recorded when a plane is bought back... it is recorded when the plane loses half its appraised value.

If the planes people cashed in went up in value instead of down... NJ would have recorded a profit ... even while accumulating the $1.9 billion in debt!

 

[imacdog]

You know what they say about assumptions, Sir!

I wish the pilots of AA good luck, but a gag order issued to employees and management stonewalling of people that actually own the airplanes while no flight operations are taking place for weeks is typically not the precurser of something good.

 

[imacdog]

From BK's annual reports-

The reduction in combined "normal' pre-tax earnings from these businesses is due to reduced "normal" pre-tax earnings at FlightSafety of $34 million somewhat offset by improved results at NetJets where its pre-tax loss before write downs was $9 million in 2003 versus about $19 million in 2002.

NetJets, our fractional-ownership operation lost $41 million pre-tax in 2003.

NetJets earned a modest amount in the U.S. last year. But what we earned domestically was largely offset by losses in Europe. (2004)

NetJets' revenues in 2006 increased $759 million as compared to 2005 and pre-tax earnings in 2006 were $143 million compared to a pre-tax loss of $80 million in 2005.

"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." (2009)
​

Don't forget the epilogue where Sokol was fired from BH for unethical practices. Gunfyter did an excellent job explaining what the last two paragraphs actually mean.

 

[gret]

A discussion of ?Generally Accepted Accounting Principles? (GAAP) is probably not warranted. However, you do record a loss when you buyback an a/c if the purchase is due to a contractual obligation and the consideration exceeds the value of the airplane. You don?t write the asset up if increases in value later, only when it is sold?which is a moot point as I can?t think of any a/c type that has gone up in value the past 5 years.

The losses generated from the write downs are real, they just haven?t been ?realized?. An example would be if the a/c has a book value of $2 million and a fair value of $1.5?a loss of $500K is recognized in the current period. If the a/c is sold a year later for $1.5 million, nothing more hits the income statement (i.e. earrings). If it is sold for $1.25 million, an additional loss of $250K is recorded. If it is sold for $1.75 million, a $250K gain is reported.

The debt balance doesn?t have any direct correlation with the write down of aircraft. It was used to fund operations and contractual obligations to acquire aircraft.

The fact is we don?t know the details of the losses generated and can only speculate the amount attributable to write downs, restructuring charges, and operations.

 

[justreading]

You know what they say about assumptions, Sir!

I'm guessing you were an employee. Please realize the owners didn't want this. I am sorry that you are out of a job and wish you the best.