Atelier 11, article 9

© Berry James :
IHT, March 29, 2001

                                  High-Flying Buffett: Pitchman for a Niche Market 
                                                                by  Barry James

                                  FARNBOROUGH, England Who is that vaguely familiar
                                  rumpled man with a Cherry Coke in one hand a basket of
                                  crackers in the other luxuriating in a large chair of buttery cream
                                  leather aboard a $48 million Boeing business jet?

                                  It's Warren Buffett, the incredibly wealthy but parsimonious
                                  investor with the Midas touch, otherwise known as the sage of

                                  Mr. Buffett might be risking his homespun image by riding around
                                  in such opulence, but it is all part of a plan by one of the richest
                                  men in the universe to add an extra few million to the bottom line.
                                  Mr. Buffett is using the modified Boeing 737-800 to fly to six
                                  countries in three days to persuade the Croesus set to part with
                                  some of its cash for a time-share in a business jet operated by one
                                  of the many companies he owns.

                                  He argues, with himself as a prime example, that planes like this
                                  are productivity-enhancing business tools rather than royal barges
                                  for idle playboys. This trip "would never have made sense," Mr.
                                  Buffett said, "if I'd had to fly commercial." He owns the company,
                                  Executive Jet Inc., that operates a network of "fractionally owned"
                                  aircraft called NetJet, in which customers or corporations buy
                                  shares in corporate jets and then trade them to fly anywhere and
                                  anytime they want.

                                  They are guaranteed that a plane identical to the one they partly
                                  bought or better will turn up at the closest airport within a few
                                  hours' notice. The interior design in all NetJet aircraft is cloned and
                                  then tailored to the carefully catalogued whims of customers
                                  before takeoff, so that they get the impression they are always
                                  flying on the same plane, even though there are hundreds in the
                                  fleet that are switched around with frightening mathematical

                                  For a man whose every word is followed for an indication of
                                  where the stock market is headed, Mr. Buffett offered little as he
                                  relaxed on a 45-minute flight from Farnborough, near London, to
                                  Paris this week. He agreed that the U.S. economy was slowing
                                  down but said he did not care for stock values as much as the
                                  underlying performance of the companies he buys.

                                  He said his furniture and jewelry businesses had suffered declining
                                  sales for the past two months, "but we haven't seen anything like
                                  that" at NetJet. It was possibly picking up business from
                                  dot-bomb victims who might have bought an entire jet a year ago
                                  but are happy to own a piece of one now.

                                  "Buffett took a great idea and applied it," said Jeffrey Lenorovitz,
                                  president of the InfoWEST Group, an aviation consulting company
                                  in Vienna, Virginia. "The rate at which the business jet market is
                                  expanding is phenomenal."

                                  In fact the chief danger to Mr. Buffett, other than a recession,
                                  could come from copy-cat ventures coming onto the market, none
                                  of which approaches Executive Jet in size. Mr. Lenorovitz said
                                  corporations like the time-sharing concept, even though it does not
                                  come cheap, because they can buy all the convenience of a
                                  business jet without the hassle of finding a hangar, maintenance
                                  and crew for a plane they own themselves.

                                  Even some of the manufacturers, like Bombadier and Raytheon,
                                  are offering part shares in corporate jets. For the industry, NetJet
                                  offers a huge market. But Mr. Lenorovitz said manufacturers might
                                  be concerned about being too tied to a single large customer, just
                                  as the manufacturers of commercial aircraft worry about the
                                  collective might of the large leasing companies.

                                  In the past five years, NetJets has acquired about 40 percent of all
                                  business jets produced, for an investment of some $14 billion.

                                  The buyer of an eighth share in the Boeing will have to pay $6.2
                                  million as an up-front payment, giving him the right to fly around
                                  for 75 hours each year in a plane capable of carrying 145
                                  passengers but now decked out with polished walnut and
                                  inch-deep carpets to accommodate 19 passengers in luxury.

                                  Co-owners also have to pay a monthly management fee that
                                  covers maintenance and the crews' salaries, plus the operating
                                  costs for the time they are actually using the aircraft.

                                  Of course, there are cheaper options. The NetJet network
                                  includes 338 planes, ranging from seven-passenger Cessna
                                  Citations to the Boeing, with 449 on order. The beauty of the
                                  system, as far as Executive Jet is concerned, is that it is the
                                  customer rather than NetJet that bears the financial burden. The
                                  company does offer to buy back shares at fair market value,
                                  although this typically happens when an expanding company wants
                                  to trade in its shares and buy a larger aircraft type.

                                  Mr. Buffett's Berkshire Hathaway Group acquired Executive Jet in
                                  July 1998 for $725 million, adding to a quilt of investments that
                                  brings in an estimated revenue of almost $30 billion a year. Mr.
                                  Buffett is famed as a stock picker, but actually he makes most of
                                  his money by buying old-economy corporations, which in the past
                                  year included insurance, shoe, jewelry and carpet businesses.

                                  He avoided technology stocks, which resulted in a steep drop in
                                  Berkshire Hathaway's stock price. But when the bottom dropped
                                  out of dot-coms, the stock came roaring back to more than
                                  $70,000 a share, an increase of 26.6 percent in the calendar year.

                                  It has sometimes been said that the easiest way for a very rich man
                                  to become a very poor man is to buy either a newspaper or an
                                  airline. It therefore fits with Mr. Buffett's contrarian reputation that
                                  he has bought into Washington Post Co., which jointly owns the
                                  International Herald Tribune with The New York Times Co. Mr.
                                  Buffett also is on the board of directors at the Washington Post

                                  He also owns a major aviation outfit, which he adds is nowhere
                                  near as risky as the commercial airline business. He's owned airline
                                  stock in the past and, he said, "I'll take off my shirt and show you
                                  the scars on my back, if you like."

                                  Buying Executive Jet was "a very simple decision, when you work
                                  it out," he said, adding: "You have to decide, is there a huge
                                  untapped market for the product? The answer is 'yes.' Is the
                                  company a leader in its field? The answer is 'yes.' Does it make
                                  money? The answer is 'yes,' and that's the end of it for me."

                                  Exactly how much profit is made by NetJet, which has sales of $2
                                  billion a year, Mr. Buffett was unwilling to disclose.

                                  All he would say was this: "It's smaller than an elephant and bigger
                                  than a breadbasket."

                                  Long established in the United States, NetJet is now seeking to
                                  expand in Europe from its base in Portugal - one of two countries
                                  in the European Union along with the Netherlands, that will register
                                  the co-owned planes - and in the Middle East.

                                  Expansion in the Far East and South America is planned later. So
                                  far the European program includes the Cessna Citation VII,
                                  Raytheon Hawker 800XP and Dassault Falcon 2000 models, but
                                  not the Boeing business jet.

                                  Richard Santulli, Executive Jet's chairman, said he was confident
                                  that the program would rapidly expand as companies and wealthy
                                  individuals realized the benefits of being able bypassing busy

                                  Mr. Buffett reasoned that a company could actually save money
                                  by buying time on a jet, since it could locate near an airfield in a
                                  remote area where labor costs are low, rather than near a big city
                                  airport. Or it can save time for executives by avoiding crowded
                                  hubs and air traffic delays.

                                  But many NetJet users are simply the fabulously rich, like
                                  Hollywood stars and sports idols, or people like Mr. Buffet
                                  himself and his friend Bill Gates, who enjoy calling for a plane as
                                  easily as most people call for a taxi.

                                  When Mr. Buffet and Mr. Gates shared a flight some time ago, the
                                  plane was virtually spit-polished, and the food was an Epicurean's

                                  But the pair stopped at a fast-food restaurant on the way to the
                                  airport, and munched Egg McMuffins throughout the flight, a
                                  NetJet veteran recalled.

                                  Although he could if he wanted to fly off whenever he wanted to,
                                  Mr. Buffett said he seldom decided on a whim.

                                  "My wife is more of a whim type than I am," he said, reporting that
                                  she has made some 700 trips on NetJet planes. But he does use
                                  the jets to drop in on many of his dozens of scattered businesses,
                                  and he is happy to let their managements buy NetJet time shares if
                                  he thinks it will improve their productivity.

                                  Mr. Buffett has a reputation for buying companies with healthy
                                  earnings and then leaving them alone, but he is always willing to
                                  lend a hand if they need his help, as he is clearly doing by acting as
                                  NetJet's chief salesman in Europe. He enjoys the role.

                                  Aerospace, for sure, is more interesting than brick-and-mortar
                                  businesses, he said, adding: "When I wake up in the morning, am I
                                  thinking about bricks? The answer is no."