Oct. 19--NetJets, which expects profit to replace losses this year, announced yesterday the purchase of up to 125 new jets valued at more than $1 billion from Brazilian manufacturer Embraer.
The Embraer Phenom 300 planes -- which will start being delivered in 2013 and could extend to 2018 if all options are exercised -- will replace older planes.
The customized Platinum Edition for NetJets will seat up to nine people and will feature a highly efficient engine and the capability for "next generation" navigation.
NetJets, the world's largest private-jet operator with a fleet of more than 800 planes, made the announcement at the National Business Aviation Association conference in Atlanta. The company employs about 1,300 people in Columbus.
The move comes a year after NetJets canceled orders for 200 aircraft, mostly small planes from Hawker Beechcraft along with some Cessna and Gulfstream jets. It signals that parent company Berkshire Hathaway has confidence in the "fractional ownership" concept, a business model NetJets pioneered more than 20 years ago.
NetJets also has about 60 large and mid-size cabin jets valued at $2.95 billion on order from Cessna, Falcon and Gulfstream.
The announcement is a step toward NetJets reducing the types of aircraft it operates, part of an efficiency drive Chairman and CEO David Sokol has undertaken since being appointed to run the private-jet firm last year by Berkshire chief Warren Buffett. NetJets lost more than $700 million last year.
Mike Riegel, an industry veteran and owner of the Nevada-based consulting firm Aviation IQ, which specializes in fractional ownership, predicted last year that NetJets would need to reduce its aircraft types. He said yesterday's announcement was a good step, but just one of several the company must take.
"What Sokol has done up to now have been stopgaps," Riegel said. "The real problem is operational profitability. He'll need to take steps to replace other older, inefficient aircraft. ... This is something they should've done 10 years ago. The (commercial) airline industry did the same thing -- waited too long while doing short-term fixes."
Riegel said NetJets at this point "has no choice other than to do what they're doing. You can't sell a business that's been very erratic like this, nor can you shut it down. You have several thousand of the wealthiest people in the world as your customers, so that would be ill-advised. ... They have to move forward aggressively and be able to achieve profits."
Meanwhile, NetJets is keeping a lid on costs. Sokol said the there are no plans in the near future to rehire any of the nearly 500 pilots who were furloughed last year as the company struggled to regain profitability.
"We're the size we should be in this situation," he said.
NetJets remains on target to post a profit of $200 million this year.
Sokol said that after losing customers last year as owners bailed out of their fractional shares, NetJets has managed a net gain of 69 owners for the year to date. Owners' aircraft use for the third quarter was up 8 percent over the same period last year, though usage remains 20 percent off the high of 2007.
Sokol said he expects to promote late next month a current NetJets executive to president to take over much of the day-to-day work of running the company. He said he would likely retain the CEO title along with the chairmanship for the near term as he continues to divide his time between NetJets and other Berkshire businesses.
Since taking the helm of NetJets, Sokol has frequently been mentioned as a possible successor to Buffett at Berkshire.
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