NJ and Cessna??

NJAowner

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The following is from a consultant called "the Fractional Insider". Interesting.


Firstly, it seems obvious that a bold move will be needed. Netjets income, from monthly and hourly fees, is limited by the thousands of share and card contracts they already have in circulation. Many share owners have contracts that can be extended for five or more years, so it’s safe to assume that changing their fee structure would have little financial impact for quite some time. In my opinion, this is probably an unacceptably-long timeframe for Berkshire Hathaway. Improved share & card sales would help, but when might that happen?



Given this Gordian knot, I borrowed some crayons from my son, and went to work scribbling options on a sketchpad, together with pros, cons, and likely impact on Berkshire Hathaway (owner of Netjets) and fractional and card users (my customers). There are many potential moves that
could be made. Options might include buying Avantair, Flight Options or PlaneSense, or purchasing a company like Hawker Beechcraft (an option I quite like, in many ways). While all of these options are possible, it seems more likely that Berkshire Hathaway would seek a higher-impact move. Such moves might include purchasing, or partnering, with Bombardier or Textron. Of these two options, I consider Textron to be more probable, largely because Textron needs Berkshire Hathaway more than Bombardier.
Textron have been struggling for a couple of years. Their stock has been recovering (above $18 today, off of a 52-week low of under $4 but nowhere near the $73 of two years ago).

Partnering with Berkshire Hathaway would provide Textron with much-needed stability, and financial resources, in addition to greatly enhanced credibility in their dealings with the capital markets. From a business aviation standpoint, there would be many attractions to this union. Over half of Netjets 695 aircraft are already Cessna Citations, making a closer relationship fairly painless for both. Netjets also need a light jet to replace their aging fleet of Citation V Ultras, and a better alternative to the Hawker 400XP (soon to be replaced), and their European based Citation Bravos (already out of production). The Citationjet 3 or 4 would do nicely.

Netjets also need to reduce the complexity of their fleet, and focus on a smaller number of aircraft types (Cessna CJ3/4, Cessna XLS+, Cessna Sovereign, Gulfstream 250 would be pretty good choices) which could be operated more profitably than current types. Operational profitability is the only way for Netjets to generate decent financial returns, long-term, in my opinion. Cessna are well-placed to help with any fleet renewal. Embraer would also be great, but won’t have their programs (Phenom 300, Legacy 450/500) available quickly-enough, aside from lacking other benefits. A partnership with Berkshire Hathaway would eliminate Citationshares (75 aircraft, all Cessna products) as a fractional and card competitor. Increased sourcing of Cessna aircraft would almost certainly damage the outlook for Hawker Beechcraft, who need their Netjets backlog. High-volume aircraft orders from Netjets could be used to underwrite new aircraft programs for Cessna, something they need in their light and super-light segments if they are going to reduce the medium-term threat posed by Embraer. Berkshire Hathaway already own the largest pilot simulator training company in the world, Flight Safety, whose competitive position could only benefit from such a union. And, in a market where financing has become a major irritant for aircraft buyers and builders, a combined Textron and Berkshire Hathaway would likely help Cessna maintain market share as the business aviation market recovers. Netjets could even continue to source larger jets from Gulfstream and Dassault, without any impact on Textron.

How would the above impact consumers? It is obvious that the fractional business model is struggling. And, for all of their formidable size, Netjets don’t seem to have made particularly good use of scale economies to improve their fortunes. Such a move might create a steroidlaced
eight hundred pound gorilla, but I don’t think consumers would benefit. Choice would be stifled, and this combination of business aviation powerhouses (Flight Safety, Cessna and Netjets) would not exactly foster competition in several key market segments. Consumers
would still have options, but would also continue to have almost no leverage with service providers: an issue that will likely persist, regardless of any consolidation moves...

Of course, my scribblings might be complete hogwash, but I don’t see an easy route back to profitability for Netjets, unless they do something unexpected, and on a large scale. How should such a move be timed? Sooner (this year) could be better than later, when consumer confidence, stock markets, and the business aviation market all shuffle towards recovery.

© Copyright Michael Riegel - All Rights Reserved



 
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CA1900

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Interesting reading.

I don't see Berkshire buying or partnering with HawkerBeechcraft because they simply don't have a compelling product available. The 4000 is going to be obsolete before we ever start flying them, if that even happens. The 400 has been a disaster for us. The Hawker 800/900 has been a fairly good product, but that's not enough for a deal like that to make sense.

I guess the question for Berkshire is whether further investment in the business aviation sector makes sense or not. Short-term, clearly not. But long term is how BRK makes its money; this could get interesting!
 

Jetz

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Of course, my scribblings might be complete hogwash,

© Copyright Michael Riegel - All Rights Reserved



Definitely complete hogwash.
 

G200_PILOT

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It's an interesting viewpoint.

I wouldn't rule anything out at this point. The last few months have been full of surprises and I don't expect that trend to stop anytime soon.

I'm just sitting back and waiting to see what happens. I suggest some of you try doing the same. I'm seeing a lot of frightened pilots out there on the road. Being cautious is a good thing but running around in a panic is not healthy and productive in any light.
 

flagshipper

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It's an interesting viewpoint.

I wouldn't rule anything out at this point. The last few months have been full of surprises and I don't expect that trend to stop anytime soon.

I'm just sitting back and waiting to see what happens. I suggest some of you try doing the same. I'm seeing a lot of frightened pilots out there on the road. Being cautious is a good thing but running around in a panic is not healthy and productive in any light.

Easy for you to say
 

Coool Hand Luke

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Interesting, but unless I missed it, he forgot to mention that Textron is also already part owner of Citaiton Shares.
 

ArtVandalay

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This is dumb. There is no reason for netjets to buy them out.
 

BoilerUP

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This is dumb. There is no reason for netjets to buy them out.
The author didn't say Netjets would buy Cessna, he said Berkshire Hathaway (NJA's parent) could take an equity or majority stake in Textron (Cessna's parent) and that Cessna & Netjets could partner together for each company's mutual benefit.

And that such a union would end CitationShares as a competitor.

When you think about what the author suggests he makes financial sense; BRK/NJA could simplify their light/midsize fleets with Cessna products which would reduce costs and end competition from CS, while Textron/Cessna could use guaranteed orders for new aircraft to 1. get them through economic downturns and 2. get those aircraft to market faster. There would be no impact to the super-mid and large-cabin fleets.

Its mearly speculation of course...but at least its researched, highly educated speculation.
 

7on7Off

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while Textron/Cessna could use guaranteed orders for new aircraft to 1. get them through economic downturns and 2. get those aircraft to market faster.
Remember NJA has canceled all Cessna orders to the end of 2011. Not sure what guaranteed orders you are talking about.
 
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Sparse

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Anyone considered Cessna and Citation Air by Cessna as doing the same thing? If there was any measure of truth to what the article suggest, why would CS, with Cessna's help, be going through a rebranding, a redefining, and relaunch of the company?
 

Coool Hand Luke

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Anyone considered Cessna and Citation Air by Cessna as doing the same thing? If there was any measure of truth to what the article suggest, why would CS, with Cessna's help, be going through a rebranding, a redefining, and relaunch of the company?

Well it's not like the executives up in Providence are going to call down to Wichita and say: "Hold up on this rebranding thing with CS, we are currently talking with BH about taking a majority stake in Textron". But, the time to buy Textron was 8-months ago, share price has more than tripled since then.
 

Sparse

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Well it's not like the executives up in Providence are going to call down to Wichita and say: "Hold up on this rebranding thing with CS, we are currently talking with BH about taking a majority stake in Textron". But, the time to buy Textron was 8-months ago, share price has more than tripled since then.
Actually it has gone up by a factor of five. I saw it as low as the mid threes and now it is pushing 18. Even with that it is still down about three hundred percent.

OOps, make that a factor of six. It is up to almost twenty today.
 
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Newkem

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Actually it has gone up by a factor of five. I saw it as low as the mid threes and now it is pushing 18. Even with that it is still down about three hundred percent.

OOps, make that a factor of six. It is up to almost twenty today.
Buy on the rumor - sell on the news.
 

BoilerUP

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7on7Off said:
Not sure what guaranteed orders you are talking about.
...the ones NJA would make if BRK bought a big piece of Textron...
 

AvroJockey

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If it happens, it won't be the first time BH has done something were we say, "WTF?"

Interesting: What should we do to the fractional model to maintain profitability or (minimize losses) during time such as these. What else can be done to restore operational profitability without a change in demand?

The author suggests close ties with a particular manufacture...it's worked for Southwest. Now we won't ever have a single type, but Southwest doesn't own Boeing. Imagine if NetJets had some control of the products Cessna was making, that could directly impact the NetJets product. This could produce economies of scale advantages if unit cost goes down (especially when most of NJA's $$$ is made through aircraft sales), and increased infrastructure advantages with mission specific assets. Ponder, if you will, an 'Aspen' specific aircraft, or an 'Aspen' modified aircraft.

Discuss...
 

AeroBoy

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Avro, I think you hit the nail on the head about what author Mike Reigel meant: BRK takes enough of a share in Textron where it gets say-so in engineering of new Cessna Citations to better meet fractional operations needs. Remember that Reigel worked for Flexjet when Flex was given a lot of input into the then-in-development Bombardier Challenger 300. I'd actually be interested in hearing Flex pilots' view of the Challenger 300 as it relates to this conversation.
 

jonjuan

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Avro, I think you hit the nail on the head about what author Mike Reigel meant: BRK takes enough of a share in Textron where it gets say-so in engineering of new Cessna Citations to better meet fractional operations needs. Remember that Reigel worked for Flexjet when Flex was given a lot of input into the then-in-development Bombardier Challenger 300. I'd actually be interested in hearing Flex pilots' view of the Challenger 300 as it relates to this conversation.
http://www.ainonline.com/news/single-news-page/article/fractionals-evolution-in-action/


Further, Riegel is disappointed that the fractionals haven’t used their clout to force business aircraft manufacturers
to make products that are better suited for the fractional environment. “The fractionals need to inject themselves into an aircraft’s development stage. If they did, the resulting aircraft would be paradigm shifters,” he noted.

However, Riegel did praise Embraer for its Phenom 300, which he believes will be a great fractional airplane due to its performance and expected regional-airliner reliability. “Embraer’s approach to the market is good for fractional operators. It is targeting interesting segments, and the Phenom 300 will set the standard for fractional aircraft. This should be a real wake-up call for the established business aircraft OEMs.”
 

clydefastly

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http://www.ainonline.com/news/single-news-page/article/fractionals-evolution-in-action/


Further, Riegel is disappointed that the fractionals haven’t used their clout to force business aircraft manufacturers
to make products that are better suited for the fractional environment. “The fractionals need to inject themselves into an aircraft’s development stage. If they did, the resulting aircraft would be paradigm shifters,” he noted.

However, Riegel did praise Embraer for its Phenom 300, which he believes will be a great fractional airplane due to its performance and expected regional-airliner reliability. “Embraer’s approach to the market is good for fractional operators. It is targeting interesting segments, and the Phenom 300 will set the standard for fractional aircraft. This should be a real wake-up call for the established business aircraft OEMs.”

I heard NJ did have some pull with cessna when it came to aircraft design. I thought cessna didn't put auto throttles or auto spoilers on the X because NJ didn't want to wait any longer for the development of such a system, or something like that. I tought that NJ would have the most pull or influence of any Frac company on aircraft design, and they have left their mark on a few models from Cessna. I could be wrong, but I think that is what I have heard at Flight Safety or Simuflite.

Also.. Cessna never seems to make an airplane that is designed to fly more than about 300 hours a year, so their dispatch reliability is weak.
 
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