NetJets Loss Is Its Gain

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It's a bright new day at Berkshire Hathaway subsidiary NetJets, which offers fractional shares in a variety of business jets. "NetJets generated pre-tax earnings of $143 million in 2006 as compared to a pre-tax loss of $80 million in 2005," according to a Berkshire Hathaway release. And the turnaround might not be so much about a marked increase in business as it is about management of that marked increase in business. Berkshire CEO Warren Buffett attributes NetJets' 2005 deficit to the company's struggles to cope with increasing demand. In 2005, increases in owner demand caused a shortfall of aircraft availability that NetJets addressed by subcontracting additional aircraft through charter services. Costs associated with subcontracted flights were not recovered in full from clients and led to $85 million in associated costs. An additional $20 million was added to fourth-quarter 2005 expenses due to compensation agreements made under a labor contract reached with pilots and flight attendants late that year. NetJets has now added aircraft to the fleet, allowing for a 23-percent increase in flight operations. "In 2006, occupied flight hours increased 19 percent and average hourly rates increased as well. The number of aircraft managed within the NetJets program over the past 12 months increased 13 percent," according to the company.