NetJets owner, Berkshire Hathaway, gains $1 trillion market value

While Warren Buffett has long said his multiple airline investments were a mistake, the owner of NetJets and Executive Jet Management this week saw his Berkshire Hathaway become the first non-tech company to gain a trillion-dollar market cap.

Per CNBC this morning:

Warren Buffett’s Berkshire Hathaway reached a $1 trillion market capitalization on Wednesday, the first nontechnology company in the U.S. to score the coveted milestone.

Shares of the Omaha, Nebraska-based conglomerate have rallied more than 28% in 2024, far above the S&P 500′s 18% gain. The $1 trillion threshold was crossed just two days before the “Oracle of Omaha” turns 94 years old.

The shares were up more than 1% to hit a high of $699,699 on Wednesday, allowing it to top the $1 trillion mark, per FactSet.

Other trillion-dollar companies include Apple, Nvidia, Microsoft, Alphabet, Amazon, and Meta.

In his annual report this year, Buffett wrote, “Occasionally, markets and/or the economy will cause stocks and bonds of some large and fundamentally good businesses to be strikingly mispriced…Occasionally, markets and/or the economy will cause stocks and bonds of some large and fundamentally good businesses to be strikingly mispriced.”

Last year, Berkshire Hathaway chalked up $364 billion in total revenues and $75 billion in investment contract gains.

Berkshire Hathaway doesn’t break out NetJets’ revenues or profits.

However, in the most recent quarter, SEC filings revealed lower earnings “attributable to increased maintenance, personnel, and fuel costs, as well as higher depreciation expense.”

At the end of 2023, NetJets had 8,349 employees, or 2.1% out of 396,440.

Buffett and Airlines

In 2017, amid another round of airline investments, Buffett told shareholders, “You couldn’t pick a tougher industry.”

He also reprised his famous 2007 quote, “If a far-sighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”

After his first airline investment in 1989, Buffett wrote, “In the case of our commitment to USAir, industry economics had soured before the ink dried on our check. As I’ve previously mentioned, it was I who happily jumped into the pool; no one pushed me. Yes, I knew the industry would be ruggedly competitive, but I did not expect its leaders to engage in prolonged kamikaze behavior. In the last two years, airline companies have acted as if they are member of a competitive tontine, which they wish to bring to its conclusion as rapidly as possible.”

Oxford defines a tontine as an annuity shared by subscribers to a loan or common fund, the shares increasing as subscribers die until the last survivor enjoys the whole income.

Buffett and NetJets

The private aviation business has proven to be as fierce and challenging to make a buck as the Part 121 airlines.

Berkshire Hathaway bought NetJets in 1998 for $711 million.

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.”

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.

For the industry’s dominant player, it put an exclamation point on what is one of aviation’s biggest turnarounds.

Earlier this year, NetJets and its pilots agreed to a new contract.

It will grant cockpit crews an extra $1.6 billion compensation over five years.