"...the frac model simply doesn't work "

[mtnrunner]

It's fair to say that there are various financial models tracking NetJets. This is for a number of reasons, the two most significant are the used aircraft market and OEM's.

Why?

Brokerage and Search Firms:
NetJets has a significant impact on used private jet prices. One of the reasons the used market is so depressed is the common knowledge NetJets has a significant used inventory where over one hundred have hit the market, another hundred are positioned to hit the market, and another hundred are being positioned to hit the market over the next two years. Ironically, by and large these aircraft are being refurbished to compete because that all these high time high cycle airframes being sold at crazy low prices are good for.

OEM's (All part of Fortune parent companies)
The OEM's know NetJets dumping large blocks of old aircraft on the market hurt the specific OEM's new aircraft backlog and used aircraft prices.

NetJets is under an industry-wide private aviation microscope and nobody believes NetJets is cash positive. Accountants can be as creative as they want and profits often reflect the finance departments creativity. But cash, positive cash-flow, and owners equity are the name of the game.

But from a pilot or labor perspective who cares? According to Berkshire and NetJets management NetJets is doing great! So every labor unit should expect to secure better job security, wages, and working conditions throughout the next cycle of bargaining.

If NetJets is truly posting net earnings of $200 plus million a year -- every unionized pilot, flight attendant, dispatcher, and mechanic should insist 10% - 20% increases in pay.

Not rocket science here but record profits don't produce labor concessions, record profits produce new standards in job security, wages, and working conditions.

NetJets is Warren's problem as a result of his own failures and nobody else's. Don't put it on your shoulders. Enjoy the ride as best you can! Worry more about steering the boat you're in, more so than redirecting the river you're riding... Its a much more productive energy.

Its been a fun ride - no doubt about it. Everyone should find a way to enjoy the ride to the end... :beer: ...tomorrow or decades from now!

 

[BentOver]

If NJA management was trying to leverage the pilots in any way they haven't exactly followed the old playbook...

--Posting profits

--Dispelling any furlough rumors

--generally claiming things are fine at NJA


All these (and some more) are not the usual, "we need a concessionary contract because we are going bankrupt" tactics....

I find myself slightly more positive about NJA's future

 

[gunfyter]

$200 Million is not much money ... for the amount of planes being operated... and the total number of employees....

How much would you pay for a business that you could expect to earn $200M per year, consistently? I would probably pay $1-2 billion. A 10% to 20% ROI. But I don't know much about investing in businesses otherwise I would be in the back rather than the front of the airplane.

I don't know how much BRK has invested in us.

 

[gunfyter]

Marquis Card.... Don't leave home without it?

Another way to look at it is as though BRK bought a Bank that issues credit cards. American Express charges some fee to the vendors who accept the AMEX card, I guess about 3%.

Look at NJA as a Merchant that has $5Billion in transactions mostly from people who have BRK A-shares. The $200M in profits that NJA makes on the $5Billion in transactions is 4%.

That's better than the 3% AMEX gets on their Card.

 

[gunfyter]

More like the playbook for a sale to another entity.

If NJA management was trying to leverage the pilots in any way they haven't exactly followed the old playbook...

--Posting profits

--Dispelling any furlough rumors

--generally claiming things are fine at NJA


All these (and some more) are not the usual, "we need a concessionary contract because we are going bankrupt" tactics....

I find myself slightly more positive about NJA's future

A sale price of $1-2 Billions (10-20% annual ROI) ... and a 4% profit of all cash flowing through NJA ....

Attractive Investment for sale?
​

 

[BentOver]

I took a glance at Controller Aircraft sales.. Didn't see a single Netjets a/c for sale..(didn't look super hard, just hit up some Beechjets/Falcons and Citation products...)

Probably means nothing, but thought it was interesting. Used to always see a couple in there over the last few years.

 

[t-bone]

I took a glance at Controller Aircraft sales.. Didn't see a single Netjets a/c for sale..(didn't look super hard, just hit up some Beechjets/Falcons and Citation products...)

Probably means nothing, but thought it was interesting. Used to always see a couple in there over the last few years.

We just took a handful of your old Hawkers off the market...

 

[surveypilot]

There has been several Citations coming through Landmark KSDL for the last year being refurbed.

 

[CALRepublic]

$200 Million is not much money ... for the amount of planes being operated... and the total number of employees....

I don't know how much BRK has invested in us.

We're turning a profit, but compared to other "Berkshire units" we're the red headed step-child. Burlington Santa FE, Geico, Mid American Energy, etc, they're all bringing in $600 million+ per quarter. Even Flight Safety, they reported a pretty good profit last year.

and here's Netjets, with what seems like an average yearly profit of $200 million/yr. I'm thinking, well at least we're profitable, and we're helping FSI report those healthy results, remember they do train 3500 NJA crew-members. If you add it up, pilots + F/As, U.S and NJE, its close to 3500 crew members they train twice a year.

We do help FSI's bottom line... maybe that's another reason for Mr. WB to keep us

 

[Pervis]

CAL, consider too the advantage other BKS companies have in closing deals with the ability to cross the globe with ease due to NJA. That ability increases profit potential for all BKS companies who fly QS tails.

 

[rajflyboy]

The frac business does work. Its a three part system.

Get profits from:

1. Monthly management fee's
2. Hourly fee's
3. Aircraft Sales

 

[surveypilot]

the frac business does work. Its a three part system.

Get profits from:

1. Monthly management fee's
2. Hourly fee's
3. Aircraft sales

+1!!!

 

[BentOver]

The frac business does work. Its a three part system.

Get profits from:

1. Monthly management fee's
2. Hourly fee's
3. Aircraft Sales

I agree

The model worked before it'll work again..... NJA and others didn't grow to all those airplanes out of coincidence..And it took the largest recession since the great depression to derail it short term.. Those that are down on the model saying it'll never be the same are short term thinkers.

Where are all the doom and gloom stock analists who predicted another recession worse than 2009... Far as I can tell we never revisited 6000. They were short term also

 

[gunfyter]

Keep in mind that I do not know anything about business. But it seems to me... Fractional will do exactly what Berkshire wants it to do.

1. Assume NJ has figured out how to make $200 Million profit operating NJ every year. And that BRK has $1Billion invested. That would be a 20% annual ROI.

2. $200 Million is about 4% of the $5 Billion in annual revenues. American Express is happy with 3% of the Cash that flows through their travel cards. Why shouldn't BRK be happy with 4%?

3. Berkshire is in the insurance business. They are good at evaluating risk. But you know they don't like volatility. So how much Risk and liability is there in running a large global fractional airline?

I am guessing there was a lot more than they wanted the way Santulli was running it.

So I think they will change the mix of Cards, Fractional, and EJM management ... Rate of growth and things I can't even imagine to create a stable ROI and cut in the cashflow. I think this means no rapid expansion.

 

[BentOver]

Keep in mind that I do not know anything about business. But it seems to me... Fractional will do exactly what Berkshire wants it to do.

1. Assume NJ has figured out how to make $200 Million profit operating NJ every year. And that BRK has $1Billion invested. That would be a 20% annual ROI.

2. $200 Million is about 4% of the $5 Billion in annual revenues. American Express is happy with 3% of the Cash that flows through their travel cards. Why shouldn't BRK be happy with 4%?

3. Berkshire is in the insurance business. They are good at evaluating risk. But you know they don't like volatility. So how much Risk and liability is there in running a large global fractional airline?

I am guessing there was a lot more than they wanted the way Santulli was running it.

So I think they will change the mix of Cards, Fractional, and EJM management ... Rate of growth and things I can't even imagine to create a stable ROI and cut in the cashflow. I think this means no rapid expansion.

I agree with you to a point.... Rapid expansion is not sustainable, especially for the size limitations of the market...

But on another note, I don't see NJA (or Berkshire) attempting to limit the amount of business that may (or may not) come their way when all this economy stuff turns completely to the positive.. (which it will do eventually, and then some years later we'll experience another recession floolowed by growth again. It's all cyclical)... It's not complete rocket science.....Have plane/will sell.... NJA recieves planes, sells shares, charges for it's use, crews, maintenance, and then eventually sells those planes for a hopeful profit... It just so happens that in 2009 and beyond we've hit a major speed bump... (but eventually the speed bump will be a thing of the past....)