Warren Buffett referred to NetJets as “the major problem for Berkshire” in 2009 when reporting yearly results in his annual letter to shareholders. NetJets posted a $711 million loss in 2009 and posted aggregate pre-tax losses of $157 million during Berkshire’s eleven years of ownership. David Sokol became CEO of NetJets in August 2009 and took steps to cut costs and reduce debt.
According to a recent article in the Columbus Dispatch, cost cutting efforts have begun to pay off. NetJets will report a profit of $50 million for the first quarter of 2010. Here are a few excerpts from the article:
The company, owned by Warren Buffett’s Berkshire Hathaway, made a profit of just more than $50 million compared with a year-ago first-quarter loss of $126 million, Sokol said. For all of 2009, NetJets lost $711 million, much of that because of write-downs on the value of its aircraft.
Flight activity for the first quarter was up nearly 9 percent year-over-year, still below first-quarter 2008 levels but “still very positive,” Sokol said. NetJets also got a “significant” gain in fractional-share sales to new owners during the first quarter after losing owners last year, he said.
Employment at NetJets, which took a hit last year, is expected to be stable locally. Sokol laid off about 800 workers after taking the reins of the company in August. He said he reassured employees this week that there are no additional layoffs planned, after rumors of more pilot furloughs circulated. “I hope by the end of the year we can start growing the business,” Sokol added.
David Sokol previously predicted a profitable year for NetJets in 2010 and it looks like the company is on track to deliver. While clearly some of the recovery in NetJets must be attributable to general improvement in the economy, the cost cuts and restructuring put in place by Mr. Sokol should help to ensure that NetJets will deliver reasonable results for Berkshire over a full economic cycle.
The operating results of NetJets are included in Berkshire Hathaway’s “Other Service” segment which we cover in The Rational Walk’s Berkshire Hathaway 2010 Briefing Book along with material on Berkshire’s other reporting segments.
Disclosure: The author owns shares of Berkshire Hathaway.