Berkshire Enters Loan Business for Luxury Planes as Buffett Boosts NetJet
Berkshire Hathaway's David Sokol
Jonathan Fickies/Bloomberg
David Sokol, chairman of Berkshire Hathaway Inc.'s MidAmerican Energy Holdings Co
David Sokol, chairman of Berkshire Hathaway Inc.'s MidAmerican Energy Holdings Co Photographer: Jonathan Fickies/Bloomberg
Warren Buffett’s Berkshire Hathaway Inc. will make loans to clients of its luxury air-travel unit after sales declined during the financial crisis.
The financing minimum is $100,000 and the loans are available only to commercial customers, according to a statement today from Omaha, Nebraska-based Berkshire’s NetJets business.
NetJets returned to profit this year with pretax earnings of $158 million through September. Buffett is trying to help a unit he called Berkshire’s “major problem” for 2009, when the credit crunch prompted cash-strapped clients to give up their accounts. NetJets Chief Executive Officer David Sokol, who took over in August of last year, has fired pilots and sold aircraft to cope with the slump in demand.
“There are a number of efforts to jump-start this market -- none of them looks terribly promising,” said Richard Aboulafia, an aviation analyst with Fairfax, Virginia-based Teal Group. “The market is what the market is, and right now it’s still treading water.”
NetJets clients share ownership of a fleet of planes operated by the Berkshire unit. The so-called fractional jet ownership allows wealthy individuals and companies that don’t maintain executive planes to arrange private flights. The Columbus, Ohio-based unit will make the loans through NetJets Finance LLC.
NetJets rival Flight Options will be offering a financing option for its customers for the Embraer Phenom 300 plane starting in the first quarter of 2011, CEO Michael J. Silvestro said. He declined to give details, saying Cleveland-based Flight Options wasn’t ready to make an announcement.
‘Critical Component’
“I think that aircraft financing and its availability has always been a critical component in our industry,” Silvestro said in a telephone interview. “Anytime you can have access to capital you certainly have an opportunity to do more business.”
Flight Options expects to have 12 Phenom 300 planes by the end of 2011 and plans to make financing available to both individuals and businesses, said Christopher Mittendorf, a spokesman for the company.
Buffett, Berkshire’s 80-year-old CEO, bought NetJets in 1998 and bankrolled the company’s expansion under founder Richard Santulli. In 2009, the unit lost “a staggering” $711 million, Buffett told shareholders in February. That brought its aggregate pretax loss over Berkshire’s 11 years of ownership to $157 million.
Financial Difficulty
“We had a whole number of customers who had gotten into financial difficulty,” Sokol, also Berkshire’s top energy executive, said in an August interview. The credit crunch “caused a lot of people who couldn’t afford to be flying privately to step back away.”
Sokol cut debt at Columbus, Ohio-based NetJets to $1.4 billion at the end of December from $1.9 billion in April 2009, when Santulli was in charge. Buffett, in his annual letter to shareholders, praised Sokol’s work.
Credit approval for loans may take “as little as a few days,” NetJets said. The loans have fixed rates of 6 percent and terms as long as five years, the company said.
“Owners are able to structure a payment solution that exactly meets their needs,” Sokol said in the statement.
To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Juliann Neher in Washington at jneher1@bloomberg.net.
To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net
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