Buffett Sees Gain From Dot-Com Woes With Partial Jet Sales
Columbus, Ohio, June 15 (Bloomberg) -- Warren Buffett, the
billionaire chairman of Berkshire Hathaway Inc., has discovered a
way to profit from rocky times for Internet companies -- through
selling shares in business jets.
Berkshire owns Executive Jet Inc., which sells part-ownership
in corporate jets, the prestige accessory of choice for the
recently minted millionaire and billionaires of Silicon Valley.
Until recently, many of them could afford the $32 million to
buy an entire Gulfstream IV. That changed after Internet shares
plunged since March.
``When the market tanked, there were quite a few Internet
people with orders for jets,'' said Richard Santulli, chief
executive of Executive Jet. ``Some of them decided that discretion
was the better part of valor, cancelled their jet orders and put
in fractional aircraft orders with us instead.''
Santulli said partial ownership doesn't interest customers
with Internet company shares worth $500 million, but it does when
the same shares are suddenly worth $80 million. ``We just make
more economic sense,'' said Santulli.
Executive Jet said it is adding about 50 new customers a
month, with its biggest source of new customers coming from
information-technology companies.
Bloomberg's Internet index halved from March 24 to April 14.
``That was a great three weeks for us,'' Santulli said.
`Not a Salesman'
Buffett, an enthusiastic backer of products made by Berkshire
investments such as Coca-Cola, has also been a tireless pitchman
for Executive Jet among technology executives young enough to be
his grandchildren.
The 69-year-old ``Oracle of Omaha'' last month joined an
Executive Jet charity auction in Silicon Valley. He raised
$650,000, auctioning off for a jet trip and round of golf with
Tiger Woods, another Executive Jet customer, with Buffett as
caddy. Buffett has also been a big source of customer referrals.
``I'm not much of a salesman, but I've had probably a dozen
so far,'' Buffett told reporters yesterday at the dedication of
Executive Jet's new headquarters in Columbus, Ohio. ``It didn't
require any more than an IQ of 60 to realize this is going to
grow.''
Fractional ownership lets buyers spend just a small
percentage of the capital costs for owning an aircraft while being
guaranteed use of the aircraft anywhere, anytime, with six hours'
notice.
Still, it isn't cheap. The cost for a 1/8 share of a Gulf
Stream IV, which comfortably seats 12 in a wood-paneled cabin
dotted with leather seats and a couch, runs $3.98 million, plus
$20,500 monthly maintenance and $2,890 per hour flying time.
Buffett, who named his first corporate jet ``the
Indefensible,'' first became enamored with the company five years
ago when he bought a one-eighth interest in a plane. He and his
family now fly Executive Jet about 550 hours a year.
Aunt Katie
Buffett bought a 1/16 share in a Hawker corporate jet for his
Aunt Katie, who turned 94th yesterday. She lives in Omaha,
Nebraska, but joined a country club 1,300 miles away in Palm
Springs, California. ``She couldn't do that otherwise,'' said
Buffett. ``It's changed her life.''
In keeping with Buffett's penchant for investing in companies
that make products he likes, such as International Dairy Queen
Inc. and See's Candies Inc., Berkshire bought Executive Jet for
about $725 million in cash and stock in August 1998.
Buffett said he hadn't been disappointed by his prediction
Executive Jet would be the fastest growing of any of the
businesses owned by Berkshire, an Omaha, Nebraska-based insurer
and holding company.
Revenue at Berkshire's flight-services business rose to $1.9
billion last year from $858 million the previous year, with most
of the increase attributable to Executive Jet, according to the
company's annual report.
Executive Jet is by far the largest purchaser of business and
private aircraft in the world, with ten types of aircraft in its
fleet of more than 280, including Cessna Citations and Gulfstreams
and Boeing Co. business jets Santulli said his dream is to add
supersonic jets to the fleet.
After losing 20 percent last year, compared with a 20 percent
gain in the Standard & Poor's 500 Index, Berkshire shares have
rebounded this year. Berkshire's Class A shares gained 3 percent
this year, beating the S&P 500 Index's flat performance.
Buffett's 36.6 percent stake in Berkshire makes him one of
the world's richest men. He was worth about $28 billion at its
current price of 57,800.
To celebrate his Aunt Katie's birthday yesterday, Buffett
sprung for a trip to Dairy Queen. ``Nothing's too good for her,''
he said.
--Tom Cahill in Columbus, Ohio, through the New York newsroom
(212) 318-2609/jdh |
