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Buffett's big play in private jet market

Billionaire Warren Buffett (L), CEO and chairman of investment company Berkshire Hathaway, attends the 25th anniversary dinner of the Economic Club of Washington in Washington on June 5, 2012. Berkshire Hathaway’s NetJets will buy $9.6 billion in new planes from Cessna and Bombardier.

Kai Ryssdal: One of Warren Buffett's companies made a big investment this week. And at first glance it seems -- as Buffett's investments sometimes do -- a bit counter-intuitive.

Berkshire Hathaway's NetJets, which sells slices of private jet ownership, is making the biggest buy in the history of the private plane industry: $9.6 billion on new planes from Bombardier and Cessna. Delivery is set for 2014 and 2016, by which time Berkshire Hathaway presumably anticipates that the global economy will have taken off again.

Marketplace's Mitchell Hartman reports.


Mitchell Hartman: Remember when corporate executives used to zip around the world in private jets, at shareholder expense, all the time? When rich lawyers and financiers bought planes so they could fly to their beach houses and ski chalets?

That was back in the ‘90s and early 2000s. And the private plane business was booming.

Richard Aboulafia tracks the aviation industry at the Teal Group. I reached him at Dulles Airport.

Richard Aboulafia: In the aftermath of the economic meltdown, 2008-2009, the industry has of course suffered a serious blow.

Private aircraft deliveries are down nearly 30 percent. Companies have cut their fleets. Some rich people had to sell their jets.

Planemakers are desperate for business, so a buyer like NetJets can probably get its new planes at a discount. The way NetJets operates, it can take advantage of a big, diverse jet fleet. Corporate clients purchase shares of its aircraft. Then they get to schedule their travel where and when they need it.

And it’s a high-end market, says aerospace analyst Michel Merluzeau at G2 Solutions in Seattle.

Michel Merluzeau: It is a tool for companies to move their executives in comfort, security and confidentiality, with a level of service during the travel and at arrival that would make most of the U.S. airlines blush in embarrassment.

Berkshire Hathaway is betting that this segment of the market will grow in coming years,  especially in Asia, Eastern Europe and the Middle East, where business barons and billionaires have no hesitation traveling in luxury-- and no trouble paying for it, either.

I’m Mitchell Hartman for Marketplace.

About the author

Mitchell Hartman is the senior reporter for Marketplace’s Entrepreneurship Desk and also covers employment.
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