In 1989, Warren Buffett spent $6.7 million to purchase a corporate jet for Berkshire Hathaway that he named The Indefensible, perhaps being somewhat embarrassed by an expense that nearly any company the size of Berkshire had long justified as essential for doing business productively. In 1995, Buffett purchased his first share of a NetJets aircraft and in 1998, he purchased the entire company.
I have followed the fractional aviation industry for many years mostly because of Berkshire Hathaway’s ownership of NetJets (click here for a recent article regarding private aviation) . Most investments in aviation related businesses have ended in tears over the past century so what would make Buffett interested in a business like NetJets? The answer has to do with the fact that fractional aviation allows businesses of any size to harness the advantages of private aviation in a very efficient manner.
While the direct costs of a NetJets share is not going to compare favorably to commercial air travel, the benefits often outweigh the costs when the indirect costs of commercial aviation are taken into account. Debates on executive compensation aside, when you agree to pay executives the kind of sums common these days in larger corporations, it makes little sense to have these executives hampered by the infuriating delays and inefficiencies of commercial air travel.
In a lengthy CNBC interview, NetJets founder, Chairman, and CEO Richard Santulli comments on the challenges facing his company today along with prospects for the future. Santulli has often been mentioned as a potential future CEO of Berkshire Hathaway which is an additional reason to pay attention to his comments. (As an aside, those interested in a good overview of Berkshire Hathaway CEO candidates should read The Warren Buffett CEO: Secrets from the Berkshire Hathaway Managers by Robert P. Miles.)