Ride-Sharing With the Rich
How fractional jet owners get out of flying coach.
- By David Freed
- Air & Space magazine, August 2011
A Dassault Falcon 2000, a Maybach luxury auto, and freshly swept stairs: NetJets set up this publicity shot in Switzerland, but for fractional jet owners, such fantasy is the reality.
Markus Herzig
(Page 5 of 5)
Wall Street investment banker Richard Santulli saw plenty of room for growth. In 1986, two years after acquiring EJA, Santulli was credited with conceiving what remains today the secret sauce of fractional jet ownership: All owners sign a "master interchange" agreement, allowing each to use any of the others’ jets, and vice versa. No longer wedded to one airplane—which can pose problems when you’ve got a big investor meeting in San Francisco on the same day your co-owner wants to fly his kids to Disney World—the fractional owner under Santulli’s model suddenly had at his disposal an entire harem of airplanes.
"That’s when everything took off like crazy," says NetJets’ president Noe.
By 1998, the list of fractional owners had grown to more than 1,000. One owner, Berkshire Hathaway chairman Warren Buffett, liked the arrangement so much he bought the company. Three years later, Executive Jet changed its name to NetJets, in part, says Noe, to distance itself from negative news reports that used the phrase "executive jet" anytime a private business aircraft was involved in a mishap.
Amid the Great Recession, NetJets and its competitors have struggled. As business travel in general dropped, so did fractional jet ownership. NetJets was forced to cut staff, furlough 495 pilots, and shift its headquarters from New Jersey back to Ohio. Santulli stepped down in 2009 and was replaced by one of Buffett’s top lieutenants, David Sokol, who resigned in March from Berkshire Hathaway and as NetJets’ chief executive officer under suspicion of ethics violations in stock trading. NetJets’ new CEO is Jordan Hansell.
The company these days averages 330 flights a day, up slightly from 2010, but still down from a high of approximately 400 three years ago, says Henneberry.
Banking on economic good times ahead, NetJets is building a corporate headquarters complex across the road from its present operations center in Columbus. It has also embarked on a plan to modernize its fleet: Last year the company announced that it will buy as many as 125 Phenom 300 light business jets from Brazilian manufacturer Embraer, a deal that could be worth more than $1 billion. Then in March, NetJets placed an order for up to 120 Bombardier Global business jets worth in excess of $6.7 billion.
Upgrading its air fleet may well help position the company for future success, but no gains, says Bill Noe, can ever be realized without the kind of Gumby-like flexibility that he believes allows NetJets’ employees to take on and solve the Rubik’s Cube-like challenge that running an airline on demand represents. Noe admits that the process, with all its unforeseen variables, can often prove baffling even to him."I know exactly what we do," Noe muses, "and sometimes, I don’t know how we do it."
David Freed is a screenwriter, instrument-rated private pilot, and former reporter for the Los Angeles Times, where he shared in a Pulitzer Prize. His first novel, Flat Spin — a mystery-thriller featuring Cordell Logan, a former Air Force pilot turned civilian flight instructor — will be published next April.
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Comments (2)
From a business perspective, fractional jet ownership is easy to justify,as opposed to owning company aircraft. Corporate jets are depreciating assets that have significant attendant costs, such as maintenance and insurance. In addition, the company must retain staff to operate them in a day and age when many firms are trying to minimize labor costs.
Fractional ownership, on the other hand, offers an easy way to get the majority of executive jet ownership benefits in a cost-controlled fashion. Your article does a great job of pointing out why the executive transportation paradigm has shifted so quickly.
As shareholders hold corporate exec's feet to the fire in a quest for renewed profitability and governments bash corporations for “private jets” and wasteful spending (even if in fact, it is not), fractional ownership lets companies own their transportation without owning their aircraft; the perfect combination.
Steve Faber
Editor - All Money News
Posted by Steve Faber on July 15,2011 | 11:32 AM
Terrifically entertaining story. Thoroughly reported and well written. Given as impersonal and uncomfortable commercial airline travel has become, I only wish that someday I can have the kind of money that will allow me to zip around in style as a fractional owner. And I guarantee, I will not be ordering frozen Snickers!
Posted by Jordan Housemann on July 19,2011 | 09:34 AM