Bombardier Sees NetJets Order Beginning Long Relationship

Berkshire Hathaway Inc. CEO Warren Buffett
Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc. Photographer: Andrew Harrer/Bloomberg

NetJets Inc.’s record aircraft order from Bombardier Inc. may begin a long-term relationship between the two companies just as the business-jet market begins to recover, the planemaker’s chief executive officer said.

NetJets, the business-jet operator owned by Warren Buffett’s Berkshire Hathaway Inc., agreed to buy as many as 120 planes from Montreal-based Bombardier.

“If you look at the fourth quarter, and then this order, these are good indications things are picking up,” Bombardier CEO Pierre Beaudoin said in a telephone interview. “Through this order, we are building a relationship that will be there for the long term.”

The agreement, valued at as much as $6.7 billion at list prices, comprises 50 firm orders and options for 70 more aircraft, the companies said in a statement.

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, and 20 new Global 7000 and Global 8000 jets, which will be delivered starting in 2017.

“It’s a confirmation that they feel we have the right product strategy,” Beaudoin said. “We’ve come up with a new airplane and they think it’s the most competitive product.”

‘A Good Start’

The order, Bombardier’s first from NetJets, shows confidence in both the market and the company’s new aircraft, particularly since NetJets typically orders from General Dynamics Corp.’s Gulfstream unit, said Joseph Nadol of JPMorgan Chase & Co.

“Last month, Bombardier reported a breakout quarter with 74 net new orders, more than the past nine quarters combined,” Nadol, who’s based in New York and rates Bombardier “overweight,” wrote in a note to clients today. “The NetJets deal carries that momentum into” the first quarter and “gets the new year off to a good start.”

Bombardier, the biggest business-jet maker, climbed 46 cents, or 7.5 percent, to C$6.60 at 4 p.m. in Toronto Stock Exchange trading. The shares have gained 32 percent this year.

Class A shares of Berkshire Hathaway, which also has units running railroads, offering insurance and making consumer goods, fell $650 to $127,400 in New York Stock Exchange composite trading.

Operators typically negotiate discounts on aircraft orders and NetJets, based in Columbus, Ohio, didn’t say how much it would pay.

‘Pickup in Demand’

NetJets, which also ordered 125 Embraer SA 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.”

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

‘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.

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. It 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.

“We’ve been very impressed with the quality of the team Mr. Sokol brought to Bombardier” to evaluate the aircraft, Beaudoin said. “We definitely see that as a long-term relationship.”

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