August 30, 2024
Increases in aircraft and flights hours at NetJets boosted revenues, while higher maintenance, labor, and fuel costs hurt the bottom line.
Revenues from aviation services at Berkshire Hathaway – NetJets, Executive Jet Management, and Flight Safety and their related businesses – increased 10.4% in the second quarter and 9.5% in the first six months, year-over-year.
In its Q2 financials, the company attributed the gains to “increases in the number of aircraft in shared aircraft ownership programs and an increase in flight hours across NetJets’ various programs, higher training hours at FlightSafety, as well as higher average rates.”
Flight hours at NetJets and EJM were up 8.1% in 2024’s first six months.
However, earnings from Warren Buffett’s aviation companies declined 8.0% in the second quarter and 9.1% in the first six months compared to a year ago.
The profit squeeze was “attributable to increased maintenance, personnel and fuel costs, as well as higher depreciation expense.”
NetJets has also been investing in its ground facilities.
Service group revenues increased by $30 million in the second quarter and declined by $138 million in the first six months of 2024 compared to 2023.
The changes were 0.6% and 1.3%, respectively.
Service group pre-tax earnings declined $191 million (23.2%) in the second quarter and $437 million (26.3%) in the first six months of 2024 compared to 2023.
Pre-tax earnings as a percentage of revenues fell four percentage points in the first six months of 2024 compared to 2023.
The Services Group rang up $5.2 billion in revenues in Q2 and $10.4 billion in H2 024.
NetJets and FlightSafety are the largest businesses in the group.
It also includes TTI, a distributor of electronics components and IPS, a provider of facilities construction management services.
Dairy Queen, Business Wire, a television station in Miami, Florida, WPLG, a lease transportation equipment provider, and third-party logistics services in the petroleum and chemical industries are also included.
Berkshire Hathaway does not provide company-specific numbers.
In 2023, the late Charlie Munger told shareholders at Berkshire Hathaway’s annual meeting, “NetJets has been remarkable. You can argue it’s worth as much as any airline now.”
American Airlines, the least valuable major airline at the time, was valued at around $9 billion.
Berkshire Hathaway bought NetJets in 1998 for $711 million.
For the industry’s dominant player, it put an exclamation point on what is one of aviation’s biggest turnarounds.
In 2010, Buffett wrote, “Even though NetJets was consistently a runaway winner with customers, our financial results, since its acquisition in 1998, were a failure.”
Buffett told shareholders that in his first 11 years of ownership, the private jet company incurred an aggregate pre-tax loss of $157 million.
Debt went from $102 million to $1.9 billion.
At the time, the legendary investor noted, “Without Berkshire’s guarantee of this debt, NetJets would have been out of business.”
Earlier this year, NetJets and its pilots agreed to a new contract that will grant cockpit crews an extra $1.6 billion in compensation over five years.
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