NetJets: Losses Run Deep

Aviation International News recently reported some staggering facts on NetJets’ performance over the last couple of years:

• NetJets lost $711 million in 2009.

• NetJets revenues dropped last year by $1.465 billion-or 32 percent-versus 2008 due to a 77-percent fall in aircraft sales and lower flight operations revenues.

• In the 11 years that Berkshire Hathaway has owned it, NetJets has recorded an aggregate pre-tax loss of $157 million.

Here's another factoid: Aircraft manufacturer, Hawker-Beechcraft, recently announced that NetJets has canceled its order for "a significant number" of aircraft that were to have been delivered over several years, starting in 2011. The cancellations represent 90% of NetJets' orders with Hawker Beechcraft. In an apparent response to these setbacks and a shake up of senior management, NetJets has been taking a much harder line with its customers in all areas--contract terms, customer service, share buybacks, etc.

Intensified Commercial Security Screenings Make Private Aviation Even More Appealing

The web is buzzing with discussion about the Transportation Security Administration's (TSA) ordering of significantly more intrusive and time consuming passenger screening measures following the attempted bombing on a US-bound Northwest Airlines flight on Christmas Day. (See this recent article in The Washington Post on the new security procedures at U.S. airports.) In addition to the use of full body scans at more US and international airports, TSA will begin randomly swabbing U.S. travelers' hands and baggage for explosives.

By contrast, TSA recently nixed plans to impose new intrusive security screenings on private jet travelers. Currently, about 15,000 private aircraft are subject to these unnecessary procedures. By reducing the size of aircraft subject to these regulations to exclude most private jets, TSA will significantly reduce that number. In addition, instead of mandating that all passengers aboard private planes be checked against terrorist watch lists, name checks could be left to the discretion of pilots. These actions are in recognition that such intrusive procedures simply don't increase security in the context of private jets.

Discretion and fewer security hassles have long been a draw of private aviation - particularly post-9/11. With pressure mounting to tighten security on commercial flights even further, and with more intrusive searches on the rise, commercial travelers (or travelers who might have left private air travel for financial reasons), are likely to turn (or return) to private aviation. (See this recent article in The Wall Street Journal - "When Security Takes Longer Than the Flight" by Scott McCartney.)

As I've said before, with private aviation, you know who’s on board the aircraft, what’s in the luggage and who’s in the pilot's seat. That sense of control provides peace of mind which, in today’s world, is priceless.

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Looking for some fun in the sun close to home? Naples, Florida is a great beach and golf destination. We highly recommend the La Playa Golf and Beach Resort.

Just minutes from the Naples and Fort Myers airports, La Playa offers excellent accommodations on the beach, excellent restaurants and superior service. The La Playa Golf Course is highly rated and also is the home of the David Leadbetter Golf Academy.

What's Up With Flight Options?

Given the economic downturn, common sense tells you that the fractional jet business must be down. Unfortunately, common sense is largely all we have to go on because the major fractional companies don't publicly report their programs' results of operations.

Another clue to look at is how a fractional provider is handling the repurchase of shares from existing fractional owners. With share sales slow, these companies likely must utilize existing capital or lines of credit to fund many of these repurchases.

In this regard, Flight Options' recent business practices give one pause. To be sure, in the past Flight Options has consistently low balled its owners on the value of their shares. I know this because, for over ten years, I have been fighting on behalf of Flight Options' (and other jet company) share owners to get them fair value for their shares. It's no surprise to me that this practice of low balling owners on share valuations continues. What's new is that now Flight Options is trying to delay share repurchases in direct contravention of its contractual obligations. It's excuse? In a recent letter it claimed that, "[T]he current market for used general aviation aircraft is illiquid, with very few transactions taking place making it increasingly challenging to establish market value." This claim is disingenuous at best. A liquid market does exist and values can be reasonably determined.

One wonders how financially strong Flight Options is if it's trying to delay share repurchases and offering flight credits in its JetPass program in lieu of cash. As we continue to do battle with Flight Options, we'll let you know.

Making the Case: Corporate Use of Private Jets

Without question, private air travel has taken a public relations hit over the last year. Media reports of executives from the Big 3 automakers traveling to Washington via private jets to testify at congressional hearings angered the public and resulted in some corporations selling their jets altogether. Have some executives likely abused the privilege of flying on the company jet? Probably. Still, when it comes to business travel, the case for flying privately vs. commercial, is a strong one.

Properly employed, private air travel is a net plus for many companies. It saves time and increases the productivity of senior executives. Indeed, many business travelers will tell you that they’re more productive on the aircraft than they are in the office. In what is now an incredibly fast paced business world, the ability to react and move quickly is essential. Even the most novice traveler knows that flying on the commercial airlines is a nightmare. Do we really expect that we'll be better off forcing senior executives of troubled companies to spend ten hours flying commercially, sitting in airports waiting out long delays, missing connections, etc. to take a trip that can be accomplished in two hours flying privately?

Pressuring companies into divesting their aircraft at this time will only hurt them. The market for private aircraft, like other markets, is down. With many sellers and buyers waiting for prices to fall further, forced sales no doubt will mean substantial losses for these companies. From a market perspective, this is exactly the wrong time to force companies to sell their aircraft.

Understanding and appreciating that there is a lot of resentment and anger in the country, the private aviation industry must make the case on the merits that private aviation works to the benefit of these companies. The industry and these companies must demonstrate that these aircraft are not boondoggles for spoiled executives, but rather are justified because they add to the bottom line in clear and demonstrable ways. To do that, these companies must institute travel policies that limit use of private aircraft to official company business and be transparent in implementing these policies.

Sidenote: In a recent Daily Finance piece, contributer, Jonathan Berr, defends corporate use of private aviation, arguing that public anger over it "misplaced." (Click here to read Berr's piece in its entirety.)

Considering a Year-End Private Jet Deal? Only Fools Rush In!

Towards the end of the year, you might find yourself flooded with offers from various fractional and jet-card companies that tout significant savings and other incentives. My advice? Do not rush into making such an important decision. You don't have to necessarily hold off on making a deal, but you must do your homework. This includes taking the time to thoroughly understand your needs and budget, identifying the best program for you, shopping around, understanding the cost and, of course, reading the fine print. The cost of making the wrong deal will far outweigh any year-end benefits and incentives.

For a more detailed look at year-end deals, download a PDF of my article, "“Year-End Private Jet Deals, Only Fools Rush In" here.

How Fractional Owners Can Ensure Hassle-Free Holiday Jet Travel

The holiday season is the time of year when many of our fractional-share clients get the most out of their private jet investments. That said, it pays to plan ahead to ensure that your travel is trouble-free and all that you bargained for.

Here are some tips from an article I wrote for Business Jet Traveler on getting the most out of your jet investments during the holidays and other busy travel periods:

Play the Slots — Some more popular airports have limited landing slots so your provider may require more advance notice for these flights. Work with your provider to give yourself the best chance of averting hassles.

Avoid Peak Travel Days — Many designated “peak travel days” fall on and around holidays. On such days, access to aircraft is more restricted and delays are more common. Whenever possible, schedule flights on nonpeak days. You’re much more likely to avoid a charter and to fly on your preferred schedule.

Take Advantage of Guaranteed Upgrades — Check your contract and if it so permits, consider upgrading to a larger aircraft to accommodate more travelers and extra luggage. Request the upgrade well in advance and avoid peak travel days.

Consider Simultaneous Use — When transporting family from multiple locations, Butler suggests asking your provider for use of two aircraft on the same day. This capability usually is granted to owners of larger shares on larger aircraft, but sometimes can be negotiated on smaller shares.

Say No to Charter — During busy periods, fractional providers rely more than usual on charter aircraft. If you’re averse to flying charter, let your provider know up front and insist that a note to that effect be included with your request. That way, when fleet aircraft are stretched thin, they’ll be more likely to send one to you and pass the charter on to the next guy.

Build a Relationship — Communicate your needs and concerns to your sales rep or a senior manager. He or she has a stake in making sure your trip goes well and so can be an additional voice advocating on your behalf.

Bottom line: An understanding of your contract rights as well as careful planning are essential ingredients in making the most of your jet travel — especially during peak travel periods.

For more advice on flying fractional during peak travel seasons, download a PDF of my article, "Beating the Holiday Rush," here.

Alert: FAA Computer Glitch Causes Flight Delays and Cancellations

An FAA computer glitch which caused several flight cancellations and delays across the country today has been resolved, but delays are expected to linger throughout the day.

Major flight delays were reported in Washington, New York, Philadelphia and Chicago. Some flights were more than two hours behind schedule. Some airports in the South reported delays as well.

According to David Demelio, director of Aviation for the Greater Rochester International Airport, it is possible that the failure could also could have a ripple effect and delay corporate jet and private flights as well.

NetJets CEO, David Sokol, on the Future of NetJets, Pilot Furloughs and More...

In a recent interview with CNBC, NetJets CEO, David Sokol, paints a picutre of a new and improved NetJets, meanwhile smoothing over their recent announcement that, effective January 15th of next year, they will furlough up to 495 pilots from its North American fractional operations. Many NetJets owners I speak with these days are understandably concerned about the future of NetJets and how their investments will be impacted by the upcoming changes. We will, of course, be watching this very closely and report back with any new information.

Finding the Right Jet Charter (Part II): Finding an Empty Leg

As I've mentioned before, the most important aspect of any flight is, obviously, safety. For most of our clients, the second most important aspect of any charter flight is cost. One way to achieve the lowest possible cost is to find an operator who is flying an “empty leg” that suits your itinerary.

What’s an “empty leg?” In most cases, when a private flyer books a charter for a trip that includes a stay at his destination of more than a couple of days, upon completing the outbound leg, the charter operator will fly the aircraft back to its home base, and then back again to pick up the flyer for his return flight. In so doing, the charter operator will charge the flyer for two round trip flights. However, the aircraft will be flying empty on two of the legs. In such a circumstance, the charter operator may be willing to charter these “empty legs” at a very favorable price.

Sounds good, right? How can you find an empty leg that’ll work for you? Here are a few tips:

• Flexibility is the Key. The more flexible you are, the more likely you are to find an empty leg. Be willing to depart at any time of day, or over a couple of days, and be willing to fly out of as many airports as possible. Also, be flexible as to the type of aircraft you’ll fly on. If necessary, accept a fuel stop in order that smaller aircraft can be included in your search.
  
• Do the Legwork. The more in depth your search, the more likely you are to be successful. Check with as many reputable operators as possible.
  
• Accept Uncertainty. Most operators don’t know whether they’re going to have an empty leg until a week or so before the flight, because that’s when most charter flights are firmly booked. Thus, get comfortable with the fact that you may not know whether an empty leg is available until the last minute.
  
• Make Sure Your Booking is Firm. Once you book the flight you’re entitled to know that the booking is firm and that the price will be honored by the operator. On the flip side, make sure you understand the cancellation policy in case your plans change.


• Safety Remains Your First Concern. Your flexibility in flying on the operator’s schedule is what gets you the lower price, not compromising safety. Insist upon satisfactory answers to the safety questions we discussed in our last post.

If you’d like to find an empty leg, but still want to fly your trip privately if you can’t find one, Shaircraft can help. We’ll book a charter flight for you while at the same time searching for an empty leg. That way, you have all your bases covered.

When we book a charter, our goal is to find you the best price for your flight with an experienced operator on a well maintained and appropriately equipped aircraft flown by top notch pilots, all with a spotless safety record.