Fractional ownership company NetJets is laying the groundwork to streamline its fleet and bring in the next generation of business jets with last week’s announcement that it will buy up to 125 Embraer Phenom 300s valued at more than $1 billion. The order, announced Oct. 18 at the National Business Aviation Association Annual Meeting and Convention in Atlanta, includes 50 firm orders and 75 options for the Phenom 300 “Platinum Edition,” which includes enhancements designed specifically for NetJets. Delivery of the firm orders are to begin in 2013 and run through 2015, but David Sokol, chairman and CEO of NetJets, says it’s his hope to exercise all of the options.
The announcement comes as good news to a manufacturing industry battered by more order losses than new orders. Large orders from NetJets had almost become a staple at NBAA conventions. But in the past few years, NetJets had been cancelling rather than placing billions in orders.
NetJets is estimated to have cut between $4-$5 billion from the combined backlogs at Hawker Beechcraft and Cessna. NetJets cancelled orders at a number of the manufacturers.
This came as NetJets had lost $711 million in 2009, and company debt had soared to close to $2 billion by the middle of that year. “I don’t think anyone in private aviation hasn’t suffered,” Sokol notes. “NetJets has suffered.” The mounting losses reached the point that Warren Buffett, chairman of NetJets parent Berkshire Hathaway, in February declared the fractional ownership provider “the major problem for Berkshire last year” and called the losses “staggering.”
Sokol, who a little more than a year ago took over for fractional ownership pioneer Richard Santulli, faced the task of stemming the losses and turning the company around financially. The order cancellations were among several changes the company implemented to weather the economy. The company also had a significant management shakeup that led to the departure of a number of senior and long-time NetJets executives. The company also consolidated some operations.
The turnaround came within months—the company returned to profitability by the end of the first quarter of this year—and Sokol says that the company should have a net positive number of new owners this year. Moving forward, the company is re-evaluating its fleet, narrowing the number of aircraft types in each category to just a few. He brought in former Piper chief Chuck Suma to help lay out the long-term plan for the fleet.
Sokol stressed that while the Phenoms are not replacing any specific models, the company will be cycling older aircraft out of the fleet. NetJets still will have removed more aircraft from its fleet this year than taken in.
Even so, NetJets has some $2.9 billion of aircraft on order, Sokol notes, and says the company is still taking delivery of aircraft such as the Citation Sovereign. The NetJets fleet likely will grow slightly next year, he says. Long-term, the goal is to narrow the range of models. At the light end, NetJets will build its offerings around two models—the Platinum Edition Phenom being one of the them.
Sokol notes that the company reviewed several competitive bids, and concedes that Embraer’s price was the best for the aircraft they are delivering. But a key factor in the decision, he says, is Embraer came to NetJets, asked them what they needed for a future fleet, and designed an aircraft to meet those needs. NetJets owners want “creature comforts,” Sokol says, citing baggage space, digital capability and inflight entertainment. “There are a lot of very strong feelings about cosmetics,” he says. Embraer did not provide specifics about the Platinum Edition, saying only that it is exclusive to NetJets.
As for the second light jet, Sokol indicated that the company likely would stick with the Cessna Citation Excel/XLS. “It’s a good airplane,” he says.
NetJets also is making decisions on its medium and large jets, and Sokol says he expects to make an announcement on new orders for those in the next couple of years.
But for now, the fact that NetJets is ordering aircraft again may have brought a glimmer of hope. “It’s been a tough 2-3 years,” Embraer President and CEO Frederico Fleury Curado said last week. “Today’s announcement is not only important for Embraer, but the whole industry.”
Photo credit: Embraer