If one of the richest men in the US is based in Omaha, Nebraska, he must often have one thing on his mind – getting out of Omaha, Nebraska.
And Warren Buffett, the legendary investor, has found a neat way to do just that. The Berkshire Hathaway entourage landed in Europe in April, promoting NetJets, Buffett’s foray into the business of executive jet ownership.
He seized the opportunity in July 1998, and bought NetJets, Victor Kiam-like, for $725m. “I am now buying more planes than stocks,” Buffett said at a recent UK press conference. And it shouldn’t come as a surprise that he made an astute move – NetJets posted $1.8bn in gross revenues for 2000.
Global sales of executive jets are worth $10bn a year, and NetJets operates 40% of the world’s executive fleet.
NetJet’s offering, fractional aircraft ownership (FAO), enables corporates to buy a sixteenth, an eighth, or even a quarter of a jet, which doesn’t make too big a dent in the balance sheet. For that, you receive guaranteed service and aircraft stationed around the world are at your beck and call, all year round, at only four hours’ notice. Moreover, the size of NetJet’s fleet means it has aircraft to suit all business needs – whether you need to conduct a whistle-stop tour of Europe or negotiate a trans-Atlantic take-over.
But private aircraft don’t come cheap. Typical prices range from $375,000 for an eighth share of a cosy, six-seater Citation Bravo, up to $6.1m for an identical share in a Boeing Business Jet.
On top of this you pay a monthly management fee for the upkeep of your plane and an hourly fee. But there is always an emergency escape route if your stocks begin to slide and your executives are forced into economy class seats. NetJets will buy back your fraction at market rate. At the end of 5 years the asset value of a fraction is estimated at 82-84% of original outlay.
There is a slight snag for the European NetJets operation – air traffic control. “We operate in the US without slots but we have to contend with slots in Europe,” says Richard Santulli, NetJets founder. “So, in the US we give you 100 hours for a one-eighth interest. In Europe we give you 75 hours. We just can’t move aeroplanes as quickly.”
If you want your full 100 hours, the alternative may be to hire flight time from one of the many block charter operations. And when you charter you do not have capital costs or the maintenance charges associated with owning an aircraft.
However, NetJets are quick to highlight the downside of chartering. “When you charter you pay for all legs of the journey, whether you are on the aircraft or not,” says Kevin Russell, senior VP NetJets. “You pay for the aircraft to be moved to your location. You then pay for your flying time and the time the plane is flying empty afterwards.”
Markoss Aviation, one of the new boys on the chartering scene, disagrees.
It will transfer customers to the plane for free, rather than sending the plane to them at great expense. “We are trying to be slightly different by offering complementary helicopter time – 100 hours for every 400 hours of jet time booked,” says Chris Stepto, MD at Markoss. “You can use the helicopter for getting to the jet, or even on its own for business trips.
If you charter a helicopter it costs #1,000 an hour on its own. We are giving this away for free.”
Markoss operate an eight-seater Hawker 125 stationed at Biggin Hill in Kent – an eight-minute helicopter hop from central London. Stepto says this is convenient enough to outweigh the extra you pay for flying by executive jet. “It works about 25% more expensive than club travel in Europe,” he says. “And we are purely a hire company. If you want to take the jet off balance sheet, chartering is the only alternative.”
Of course, the Sage of Omaha has his own reasons for preferring FAO to chartering. “The upside of being in executive aircraft is that if anyone cancels a plane then I will know that the company will probably be in trouble in a year. It is great leading indicator,” Buffett says.
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