Billionaire Warren Buffett has placed the largest ever order for private jets as his company, NetJets, anticipates rising demand from companies and the growing number of wealthy individuals around the world.
NetJets has agreed to buy up to 425 planes from Bombardier and US rival Textron, which makes the Cessna jet. The order is valued at $9.6bn (£6.2bn) and is the third significant order NetJets has made in the last two years.
Although aviation analysts said the sheer size of the order will have secured Mr Buffett a hefty discount on the prices the jets are listed at, it is still a bold bet on an industry that was devastated by the financial crisis and subsequent global recession. NetJets, which is owned by Berkshire Hathaway – Mr Buffett’s holding company, would have collapsed without Berkshire’s support in the months after the crisis.
The company is making the order because it is “prudent to take a stand now and make a decision now to be sure that we’re well positioned to compete over the longer term,” said Jordan Hansell, the chief executive of NetJets.
The order includes 75 of Bombardier’s Challenger 300 models, which seat nine people and are widely used for flying across the US. There are also 25 orders for the Canadian manufacturer’s Challenger 605, which hold 12 people and can fly longer distances. NetJets, which made $227m of pre-tax profits last year, is expanding into China to tap demand in the world’s fastest-growing major economy.
Mr Buffett, who acquired NetJets two years after it was founded in 1986, used his annual letter to shareholders earlier this year to lavish praise on Mr Hansell for helping to turn around a company that he said had been his biggest worry.
“Jordan is now delivering steady profits from a well-controlled and smoothly-running operation,” the 81-year old billionaire said. David Sokol, a former top lieutenant of Mr Buffett’s at Berkshire, has also been credited with helping to revive NetJets before he left the company last year.
NetJets’s business model is based on what is known as fractional ownership in which an individual or company leases a stake in a particular jet based on how many hours they anticipate flying during a given year. They are then charged extra for the pilot and other services.
Demand from emerging economies such as China have been the chief driver of demand for private jets in recent years, according to Joseph Nadol, an analyst at JP Morgan Chase.
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