Warren Buffett NetJets Investment. Why Warren Buffett invested in NetJets. This Warren Buffett investment is one of Warren’s favorites; flying on jets is one of his few ‘guilty pleasures’.
Buffett acquired NetJets for $725 million in 1998, with 50% in cash and 50% in stock, after having been NetJets’ customer for three years. The company pioneered the notion of ‘time sharing’ of corporate jets, allowing customers to own fractions of business jets. This lowers the cost of the plane by reducing the opportunity cost of idle time. Under this scheme, NetJets profits in two ways: first, it purchases steeply-discounted planes from manufacturers and sells them to customers at retail price; second, its customers pay NetJets fees to manage the time sharing. NetJets’ fleet includes jets of three major cabin sizes: light, midsized and large. Its fleet has about 340 jets.
Warren Buffett Investment in NetJets
NetJets has been an excellent investment for Buffett, who has also been a fervent unpaid salesman for the company. NetJets has a strong international presence and counts among its customers such public figures as Roger Federer, Carrie Underwood, Wayne Gretzky, Arnold Schwarzenegger and Sylvester Stallone.
Prior to purchasing the company, Buffett had been a satisfied customer for three years. He thus could testify to how well-managed and well-run the company was. NetJets had also built a strong brand name with its promise of quality service, safety and security.
As the first-mover in the fractional ownership market, NetJets was able to establish its name early and gain relatively significantly competitive advantages that allow it to generate significant return on invested capital for its shareholders and owners.