NetJets
Company Overview
NetJets pioneered the fractional private aircraft ownership model — selling shares of specific jets to customers who share the aircraft but have guaranteed availability whenever they need it. Berkshire acquired Executive Jet (renamed NetJets) in 1998 for $725 million. The acquisition has had a complex history: early operational losses under Berkshire, a painful restructuring, and eventual sustainable profitability.
Investment Story
1998: Acquisition of Executive Jet (NetJets). Rich Santulli invented and built the fractional aircraft ownership concept from scratch, creating both a new asset class and an entirely new market for private aviation access. For $725 million, Berkshire acquired the world leader in this market — roughly 300 aircraft, operations in the U.S. and Europe, and the only brand large enough to guarantee availability globally.
1998–2009: Rapid growth and growing losses. NetJets expanded aggressively through Santulli's tenure — adding aircraft, entering Europe, and growing its owner base rapidly. The growth generated enormous losses, partly from the capital intensity of growing a fractional fleet and partly from operational inefficiencies that Berkshire struggled to contain. Annual losses sometimes exceeded several hundred million dollars.
2009: Leadership change and restructuring. David Sokol — then Berkshire's chief troubleshooter — replaced Santulli as NetJets CEO and undertook a dramatic restructuring. Aircraft were sold, routes were rationalized, labor agreements were renegotiated, and the cost structure was fundamentally rebuilt. The painful process took 18 months but returned NetJets to profitability.
2010–present: Sustainable leader. Under subsequent management including Jordan Hansell, NetJets has generated consistent profits while maintaining its dominant global position. The COVID pandemic was particularly significant: wealthy individuals who previously used commercial aviation switched to NetJets, expanding the customer base substantially.
Buffett's Own Words
I first heard about the NetJets® program, as it is called, about four years ago from Frank Rooney, our manager at H.H. Brown. Frank had used and been delighted with the service and suggested that I meet Rich to investigate signing up for my family’s use. It took Rich about 15 minutes to sell me a quarter (200 hours annually) of a Hawker 1000. Since then, my family has learned firsthand — through flying 900 hours on 300 trips — what a friendly, efficient, and safe operation EJA runs. Quite simply, they love this
I first heard about the NetJets® program, as it is called, about four years ago from Frank Rooney, our manager at H.H. Brown. Frank had used and been delighted with the service and suggested that I meet Rich to investigate signing up for my family’s use. It took Rich about 15 minutes to sell me a quarter (200 hours annually) of a Hawker 1000. Since then, my family has learned firsthand — through flying 900 hours on 300 trips — what a friendly, efficient, and safe operation EJA runs. Quite simply, they love this
NetJets® program, is larger than its next two competitors combined. FSI trains pilots (as well as other transportation professionals) and is five times or so the size of its nearest competitor. Another common characteristic of the companies is that they are still managed by their founding entrepreneurs. Al Ueltschi started FSI in 1951 with $10,000, and Rich Santulli invented the fractional-ownership industry in 1986. These men are both remarkable managers who have no financial need to work but thrive on helping th
Even faster growth awaits EJA (whose fractional-ownership program is called NetJets). Rich Santulli is the dynamo behind this business. Last year I told you that EJA’s recurring revenue from monthly management fees and hourly usage grew by 46% in 1999. In 2000 the growth was 49%. I also told you that this was a low-margin business, in which survivors will be few. Margins were indeed slim at EJA last year, in part because of the major costs we are incurring in developing our business in Europe. Regardless of th
A is in any way equivalent to true earnings are welcome to pick up the tab. Our NetJets® fractional ownership program sold a record number of planes last year and also showed a gain of 21.9% in service income from management fees and hourly charges. Nevertheless, it operated at a small loss, versus a small profit in 2000. We made a little money in the U.S., but these earnings were more than offset by European losses. Measured by the value of our customers’ planes, NetJets accounts for about half of the industry.
Investment Lessons
First-mover advantage in network businesses requires patient capital. NetJets' model requires an enormous fleet distributed across thousands of locations to guarantee that when an owner calls for an aircraft, one is available within hours. Building this network required years of upfront capital investment before the revenue base justified the costs. Berkshire's acquisition at $725 million bought the only player with sufficient scale to make the guarantee credible.
Luxury service businesses can create loyal, high-value customers. NetJets owners pay premium prices for guaranteed availability and consistent service quality. Once accustomed to private aviation, the return to commercial travel for time-sensitive trips is extremely difficult — creating very high customer retention. The COVID-era customer acquisition demonstrated this: new owners who experienced NetJets rarely cancel their ownership even when returning to partial commercial travel.