Best of the Best 2007: Fractional-Ownership Programs: NetJets

<< Back to Robb Report, June 2007
  • Michael Schulze

NetJets

Since 1986, when richard Santulli, a Goldman Sachs executive at the time, decided that he wanted to enjoy the convenience and flexibility of owning a jet without actually purchasing it, the company that he founded—NetJets—has led the industry that he invented. More than 6,500 people worldwide have purchased a fractional share in a private jet, and about 70 percent of them are NetJets customers. The company makes more than 370,000 flights to 150-plus countries each year. Lately, it has accelerated its expansion into Europe, assisted by a partnership with the Lufthansa Private Jet program, which operates through the Frankfurt, Munich, and Zurich hubs.

 

While customers legally own an equity share in a single jet, they effectively gain access to NetJets’ entire fleet, which numbers more than 660. Upon notification, the company strives to have a plane available within four to six hours—your jet, an identical one, or any of the other 13 jet types in the fleet.

NetJets’ rise to dominance has not been without bumps. In recent years, the company has struggled with revenue problems and a labor dispute with its pilots, and the popularity of its Marquis Jet Card program (see here) has forced it to charter aircraft to meet increased demand—to use supplementary lift, as they say in the private aviation business. NetJets regained its financial footing last year, but its very success has placed strains on the operation that have caused hiccups in service. Despite these setbacks, the firm remains the most imposing presence in its field, with a fleet more than four times the size of any other fractional player. It has the resources to overcome obstacles thanks to the deep pockets of its owner, billionaire investor Warren Buffett, whose Berkshire Hathaway investment firm purchased the company in 1998.

In the fractional business, the size of a share correlates to the maximum number of hours you can fly in a year, with a one-half share generally corresponding to 400 hours and a one-sixteenth share corresponding to 50. On the low end, NetJets offers a one-sixteenth share of a Raytheon Hawker 400XP for about $413,000; on the high end, a half share of a Gulfstream 550 costs $22 million. (Shares of Boeing Business Jets also are available, at variable prices.) The prices of medium-size craft such as the Cessna Citation Sovereign and the Gulfstream 200 begin at roughly $1 million for a one-sixteenth share.

At the end of a five-year contract term, share owners can renew their agreement or sell their equity back to the company. Because NetJets purchases desirable jets and maintains them well, it typically offers attractive buyback terms, often exceeding the industry average of about 70 percent of the purchase price.

NetJets, 877.356.0028, www.netjets.com

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