Warren Buffett's NetJets proposal to government

By Kamil Tchorek

NetJets, the business jet provider owned by billionaire investor Warren Buffett's Berkshire Hathaway, has made an offer to the Polish government to service its air transportation needs. If accepted, the arrangement will end uncertainty surrounding the future of government air travel and will further strengthen the growing bonds between the Polish and U.S. air industries.

The proposal was made during an American aviation delegation visit to Poland last week. Representatives of eighteen leading American aerospace industry companies - including Boeing and Raytheon - met Polish counterparts and members of the government to discuss air investment opportunities. The NetJets development was a visible highlight, with many of the more than eighty meetings remaining strictly confidential as precursors to possible partnership and investment deals.

NetJets' offer is welcomed by the government as a cost effective way of providing a modern flight service for its top officials. Earlier this year, the government announced a tender for six small jets to replace its aged fleet of Soviet-built Yakovlev Yak 40 aircraft. According to some air industry commentators, a bid from Dassault seemed to have been "pre-cooked" and other competitors for the tender dropped out in protest. Under Polish law, the tender had to be cancelled once there was only one remaining applicant.

Due to unexpected budgetary changes this year, the government has chosen not to re-launch the tender. Commercial flights have been considered as an alternative option, but are stated to be a higher security risk and far less flexible than the type of service NetJets provides.

"There are around sixty commercial airports in Europe but NetJets has access to around eight hundred," says Mikael Malmberg, Vice President of NetJets. "We can get a jet to any size of military or civilian runway within six hours of it being requested. This also adds far more security than a commercial flight."

Since the establishment of the company in 1986 it has pioneered "fractional ownership" whereby instead of acquiring entire aircraft, companies - or governments, in this case - can buy a share represented by a number of annual flying hours. "The fliers who use our service will not notice any difference to having a private jet service," continues Malmberg, "...except that it will be cheaper and the aircraft will never be left idle."

NetJets is the world's largest provider of executive jet aircraft and was purchased by Warren Buffett in 1998. In 2003, NetJets aims to fly at least 250,000 flights in at least 145 countries. NetJets has earmarked $1.8 billion for new aircraft to service the emerging European market, where only 10 percent of its worldwide fleet is permanently based. This growth will in part be fed by an increased size and/or number of Polish production bases, U.S. delegation officials have suggested.

If the government goes ahead with the deal, it will be the second Berkshire Hathaway subsidiary to assume a presence in Poland this year, after Cal Energy which - in cooperation with FX Energy - is currently prospecting for a major natural gas discovery in Western Poland.