NetJets Europe banks to the east

By bne IntelliNews March 5, 2012

Nicholas Watson in Prague -

With Warren Buffett's annual letter to investors in February highlighting plans to expand the NetJets private jet franchise into China, the European sister company NetJets Europe is also looking to the region's emerging markets like Russia to shore up its business in these difficult times.

NetJets is the world's largest provider of business jets, selling part-shares in planes and also renting them on a per-use basis, but inevitably the private jet is one of the first expense items to be junked by individuals and companies looking to cut costs during any economic downturn. The 2008 crash brought the company to the brink of collapse, prompting Buffett's Berkshire Hathaway, which purchased NetJets in 1998, to call it "the major problem" in 2009.

But a restructuring that shrank the fleet by 20% over the past four years and a budding economic recovery in the US has resulted in 2011 pre-tax profits hitting $227m after a $711m loss in 2009, and now the firm is looking to launch a Chinese business by the end of this year. "NetJets is proceeding on a plan to enter China with some first-class partners, a move that will widen our business 'moat'," Buffett wrote in his annual letter. The Chinese partners have not been identified.

Turning its attention to still-buoyant emerging markets like China makes sense, say analysts - and is one that NetJets Europe, a Lisbon-based European sister company that's responsible for 20% of NetJets' revenue, is also following as part of its attempts to revitalise its business.

Like the US parent, NetJets Europe has also managed to turn around the business that was hammered by the double whammy of customers cutting back on flying privately, and some of those also needing to sell their shares in the aircraft to raise cash. NetJet Europe guarantees to buy within 90 days clients' part-shares in the aircraft. "In 2009, the number of flights fell 20% versus 2008, which put us at a loss that year," Vadim Horiszny, senior vice-president of NetJets Europe for the CEE region, tells bne.

The company has developed a 10-year cost-saving restructuring programme, which helped the company back into a modest operating profit in 2010 and it expects to make another modest operating profit in 2011. "We have growth here in Central and Eastern Europe and the Balkans, but not in Italy, UK or Spain. It's from 2014 we will really start to see some growth," predicts Horiszny.

To and from Russia with love

Russia is, unsurprisingly, a priority market for NetJets Europe. Blessed with a growing economy full of dynamic companies that are growing at a decent clip, Russia boasts a wealthy capital city with a lot wealthy people who are suckers for the trappings of wealth, like private jets. NetJets Europe started operating into and out of Russia in 2004 and performs an average of 2,000 flight movements a year.

In February, Netjets Europe launched a product specifically designed for the Russian market, which gives customers who purchase 50 or more flight hours a 20% discount on flights over three hours out of Moscow and St Petersburg to all destinations within Europe. "Russia is a very attractive market for NetJets Europe and one where we see real growth potential," said Eric Connor, the new chairman and CEO of NetJets Europe. "We have created a product that is designed to make flying with NetJets Europe more cost efficient... Starting from €319,000, we think this new product will be attractive for customers and prospects."

Central Europe and the Balkans are also interesting markets for NetJets, since some like Poland and Romania have economies that are expected to grow relatively strongly this year (latest EU forecasts have Poland as the fastest growing economy in 2012). Furthermore, Horiszny points out these markets have a lot of room to grow. "In every major city there are people who fly private, but not as much as in western cities, for example if you compare Stuttgart and Warsaw," he says.

NetJets Europe is already seeing this increase in demand, for both private and leisure; in Prague, NetJet Europe's movement in private aircraft increased by 10% in 2010 after a similar increase in 2009. "We are flirting around 1,000 movements," says Horiszny.

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