Berkshire's NetJets to Buy up to 120 Bombardier Planes on Travel Rebound

NetJets Inc., the business-jet operator owned by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), said it placed a record order for as many as 120 Bombardier Inc. (BBD/B) planes in anticipation of a rebound in luxury travel.

The agreement, worth more than $6.7 billion at list prices, comprises 50 firm orders and 70 options, according to a statement. How much Columbus, Ohio-based NetJets would pay for the aircraft, which will be delivered starting in the fourth quarter of 2012, wasn’t disclosed.

NetJets, which also ordered 125 Embraer SA (ERJ) jets in October, said it expects the planes’ arrival to help meet increasing demand following what will probably be a “difficult” 2011. The unit made a profit last year after David Sokol, named by Buffett to lead a turnaround in 2009, fired staff and wrote down plane values.

“NetJets is probably positioning themselves for a pickup in demand next year,” said Julius Yeo, a Singapore-based aerospace consultant at Frost & Sullivan Inc. “The business-jet market in the U.S. still hasn’t really picked up yet.”

The firm orders include 30 of Montreal-based Bombardier’s Global 5000 Vision and Global Express XRS Vision aircraft, which will be delivered starting next year. The deal also includes 20 firm orders for Bombardier’s new Global 7000 and Global 8000 jets, which will be handed over starting in 2017.

‘Difficult’ 2011

“Although we anticipate 2011 to be another difficult year, when Bombardier begins to make deliveries of these aircraft, we will be ready to satisfy the market’s demand,” Sokol said in the statement.

Bombardier climbed 52 cents, or 8.5 percent, to C$6.66 at 10:05 a.m. in Toronto Stock Exchange trading. The shares have gained 33 percent this year.

Class A shares of Berkshire Hathaway, which also has units running railroads, offering insurance and making consumer goods, climbed $195.99 to $128,246 in New York Stock Exchange composite trading.

NetJets has a fleet of more than 800 business jets, including ones made by Dassault Aviation SA (AM), Textron Inc.’s Cessna Aircraft Co. and General Dynamics Co.’s Gulfstream Aerospace Corp., according to the statement. The company operates a fractional-ownership model that lets customers buy flight-hours across a fleet of jets.

The order was NetJets’ first from Bombardier, Hamzah Mazari, a New York-based analyst with Credit Suisse AG, said in a note to clients. He has an “outperform” rating on the shares.

“We believe Bombardier beat out Gulfstream,” Mazari said. “One of the clear advantages in getting the order was the diversity of the high-end product line Bombardier has both in terms of range and cabin size.”

The order may have been “in the pipeline for some time, with one of the key catalysts for it to materialize being the management change at NetJets,” Mazari said.

Buffett installed Sokol to run the unit, which the billionaire called Berkshire’s “major problem” for 2009, after reductions in corporate-travel spending amid the global recession damped demand for business-jet flights.

NetJets made a $207 million pretax profit in 2010, helped by a 7 percent increase in sales, compared with a loss of $711 million a year earlier, according to Berkshire’s 2010 annual report. It posted an aggregate pretax loss of $157 million in the 11 years through 2009, according to the report.

The unit had 6,238 employees, about 1,000 less than a year earlier, according to the report. Berkshire bought NetJets in 1998, according to the jet operator’s website.

To contact the reporters on this story: Neil Denslow in Hong Kong at ndenslow@bloomberg.net; Chan Sue Ling in Singapore slchan@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net.

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