Just The Facts
How Our World Has Changed Since 2007
Since the 2007 Pilot Collective Bargaining Agreement, much has changed for our Company, the business aviation sector and the economy in general. Reviewing the facts provides an important backdrop for ensuring the long-term stability and success of NetJets in the current negotiations with NJASAP.
- Business/private aviation was one of the sectors most impacted by the severe economic downturn and financial markets meltdown of 2008.
- The economic crisis caused many Owners to request that NetJets repurchase their shares at fair market value pursuant to the terms of their ownership agreements. This resulted in a significant reduction in aircraft ownership. Although NetJets was able to withstand this exodus of Owners because of Berkshire Hathaway’s backing, the reduction in the number of aircraft under management and the corresponding reduction in flying resulted in a dramatic increase in NetJets’ unit costs.
- In August 2009, NetJets began to implement a number of measures designed to turn the business around and ensure that it would be sustainable going forward. The business sustainability plan included cancellation of aircraft orders, renegotiating vendor contracts to ensure that they provide a fair value for both vendors and NetJets, reductions-in-force for both crew and non-crew groups, pay freezes and introduction of health benefit cost-sharing for team members not covered by collective bargaining agreements, and many other significant cost savings initiatives. All of this was done without reducing our safety or service levels.
- Once foundational changes had been made, NetJets began to make several key investments designed to increase our service levels and enhance our value proposition. Among other things, NetJets entered flexible agreements to purchase state-of-the-art aircraft of all cabin sizes from Bombardier, Embraer, and Cessna. These purchase agreements were the largest single aircraft order in business aviation history and represented an investment of up to $17.6 billion in new aircraft over the next ten years. We also equipped our existing aircraft with Wi-Fi, dramatically increased the pace of aircraft refurbishments, equipped our pilots with Electronic Flight Bags, upgraded technology throughout the business, and became the first and only business aviation operator to achieve the FAA’s Level IV SMS safety rating.
- While NetJets has been profitable in recent years, Owners are more concerned about price and value than ever before, which is creating an increasingly competitive marketplace.
The Competitive Landscape
- While business/private aviation remains significantly down from its peak, over the past year our industry has experienced changes that have resulted in competitors leaving the business or merging.
- Flight Options’ parent company announced its intention to purchase FlexJet, which then announced several billion dollars’ worth of new aircraft orders. FlexJet appears to be seeking to position itself as the premium luxury company in private aviation.
- Former NetJets Vice Chairman Kenny Dichter launched Wheels Up, which is promising to offer customers aircraft spanning the entire private aviation spectrum. After launching with an order for up to 105 King Airs, Wheels Up recently announced that it had placed an order with Cessna for a number of Citation jets. Wheels Up has also extended its partnership with VistaJet and Jet Aviation to offer charter flights on Bombardier and Gulfstream business jets.
- The bottom line: NetJets is the number one target in the industry because we have the best safety record, best service, largest market share, and best team in private aviation. NetJets is constantly confronted by intensifying competition, assaults on our brand and business from a number of quarters, and a much more challenging landscape than ever before.
The New Normal
- To succeed in this highly competitive environment, NetJets must be responsive to the needs of our Owners and potential Owners, provide a great competitive value, and maintain the agility to respond to evolving market conditions.
- In short, although NetJets is committed to maintaining its position at the forefront of the industry in terms of compensation, benefits and work rules, everything we do, including negotiating new collective bargaining agreements, must promote extraordinary safety and service levels and support a high Owner value proposition.