Why Warren Buffett Is Making A $5 Billion Bet On Private Jets

It’s no secret that private jets are a lightning rod for climate campaigners, facts be damned. However, the industry is getting a powerful endorsement from the person behind its biggest player.

Last Saturday in Omaha, Nebraska, Berkshire Hathaway Chairman Warren Buffett, speaking at its annual shareholders’ meeting and responding to a question about See’s Candy and NetJets, gave a lavish endorsement of Adam Johnson, the boss of his private aviation group.

Buffett’s views on aviation, in general, hasn’t always been glowing.

He wrote of the industry in Berkshire’s 2007 annual report, “Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”

Of the NetJets CEO since 2015, he said, “Adam Johnson has performed; you can’t believe what he’s done with the business.” He added, “It was a tough model for a long time, but [Johnson] has brought it where it is, and we should have a wonderful company forever.”

In fact, in 2009, hamstrung by the Financial Crisis, NetJets posted a $711 million loss. NetJets currently has a backlog of customer orders backed by nonrefundable deposits that stretch well into 2024.

Berkshire Vice Chairman Charlie Munger was as ebullient as Buffett. He told a global audience watching live on CNBC, “NetJets has been remarkable. You can argue it’s worth as much as any airline now.” The market cap for Delta Air Lines, for example, is just over $21.1 billion, while United is $14.6 billion, and American Airlines closed last week at $9 billion.

This week, Johnson showed his boss was serious. NetJets announced a deal for up to 250 Embraer Praetor 500 midsize jets valued at over $5 billion. First deliveries are expected in 2025.

The airplanes, which are a core offering of rival Flexjet, will fit between Textron’s midsize Latitude and super-midsize Longitude in the ever-growing NetJets fleet. It currently has 184 Latitudes and 41 Longitudes with plans to add around 100 aircraft per year.

The Praetor offers a coast-to-coast nonstop range with six club seats – there is a seventh seat, flush against the wall, facing the entry door. It will be the second type from the Brazilian OEM in the NetJets fleet. The fractional operator currently has 120 of its popular Phenom 300 and 300E light jets from 2010 and 2021 agreements. The next fleet move from the world’s largest private jet operator isn’t clear.

Jefferies analyst Sheila Kahyaoglu wrote of the move, “Textron had been expecting a follow-on order to extend the Latitude campaign, but it appears that NetJets has chosen to order Praetor 500s instead.”

However, in an email sent to NetJets fractional owners earlier on May 12, the company said of the Praetor 500, “This exceptional midsize aircraft is complementary to our existing fleet lineup and is positioned between the best-selling Citation Latitude and our Citation Longitude, both of which will continue to be a part of our fleet growth for years to come.”

Both could be accurate. Kahyaoglu notes: “NetJets had ordered up to 175 Longitudes in October 2018 with the first delivery in January 2020, so the order has several years of runway.”

The list price of the Praetor 500, according to Kahyaoglu is $19 million. That means buying a 1/8th share, good to fly 100 hours per year, would run $2.375 million. You also pay a monthly management fee, plus an hourly price for the time you are up in the air.

If you are worried about the cost of flying privately, the Oracle of Omaha spoke to that point as well during what’s dubbed Woodstock for Capitalists.

As Buffett told the audience, “Your heirs are paying for it…Find me anybody whose estate came in less than zero because of what they spent on NetJets…let me know. I haven’t seen a case yet.”