![]() ![]() ![]() I will be looking at companies that service existing fleets, companies who sell upgrades to existing business jet fleets (along with new fleets), and companies who will benefit if the new corporate jet market rebounds as well. Companies begin replacing their aging fleets with new jet fleets.Older companies sell their current aging jet fleets to the next generation of companies.However, there are only a few possible outcomes from these trends: This could certainly be the way everything plays out. Hagopian: Buffett thinks that all of these trends will add up to an expanded market for rental corporate jets. Kam: Since you can’t follow Buffett by investing in NetJets directly, what are you looking at? Undoubtedly, Buffett is looking at these same trends, and has made one of his larger bets on this trend magnifying over the next few years. This catapulted NetJets to the largest private jet fleet in the world, consisting of over 700 private jets with firm orders for over 400 more in its plans. ![]() While Buffett has owned NetJets since 1998, it was not until recently that he made an enormous investment into the company to enable it to purchase nearly $18B of jets in 2012. Hagopian : Buffett owns NetJets, a fractional ownership company, which essentially sells shares (or partial ownership) of planes, which allow companies to use private jets without actually having to own and maintain their own fleet. Kam : Tell us about Buffett’s investment. As companies become more global, the ROI equation on owning/renting a corporate jet fleet will change pretty dramatically. As companies put more money into travel budgets, there will be a larger number of companies evaluating the benefits of either owning, or renting, a corporate jet. With Domestic air travel forecasted to rise 50%, and International air travel forecasted to double, there will likely be more aircraft in the skies in the future. There are a few things that are virtually certain though. If key employees are concerned about the trend in business air travel cost/demand, renting corporate jets could be a much easier ROI discussion than replacing a fleet of aging corporate jets for millions of dollars. Buffett is making his rental corporate jet bet based on the assumption that most corporations run large cost projects using 2-4 year payback calculations, whereas a corporate jet is a 25+ year investment. The price of oil is not as big of an input as the overall amount of travel that companies will be forecasting over the same time period. As they make these decisions, they will be looking at 50% more flights in the future, at dramatically higher prices due to the projected increase in oil prices. Hagopian : The reason the longer-term forecasts are so important in this space, is that businesses will be evaluating these potential jet fleet purchases using a 25-35 year life for a business jet. How important is this forecast for your investment thesis? Kam : Predicting the price of oil in 2036 is very difficult. With all of these predictions, one can bet that more corporations will be relying on corporate jet use in the future, whether they are renting jets, or purchasing new/used corporate jets. That pales in comparison to how fast international air travel will grow over the next twenty years (forecasted to more than double). For example, the FAA is predicting $150 oil by 2036, at the same time that they are predicting that Domestic air travel will increase over 50% over that span. ![]()
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