NetJets to Buy 50-120 Jets from Bombardier
03-07-2011, 11:14 AM
#22
Line Holder
Joined APC: May 2008
Posts: 54
Originally Posted by UCLAbruins
I don't see much (or any growth) for a loooooong while. But that's not Sokol's fault, that's Santulli's. He grew Netjets too fast and too much that the buble burst... 495 of our guys left their jobs to come here just to get furloughed, but on Santulli's defense, how was he suppose to know that a reccesion was coming?
As far as recalls (provided we don't furlogh anymore), who knows... Like I said we have a ton of older and very senior guys getting fed up with all the changes, they're gonna call it quits soon... On the flip side the younger guys we thought might leave to go fly a "big plane" like Delta, Emirates and Qatar won't be going anywhere now with Globals on the way. This Global order will keep most of the new generation here
As far as recalls (provided we don't furlogh anymore), who knows... Like I said we have a ton of older and very senior guys getting fed up with all the changes, they're gonna call it quits soon... On the flip side the younger guys we thought might leave to go fly a "big plane" like Delta, Emirates and Qatar won't be going anywhere now with Globals on the way. This Global order will keep most of the new generation here
I agree with most of what you post on this forum. However, I disagree that Globals will keep anyone at NJA any more than the Gulfstreams would since those are their replacements. Without some major pay increase associated with this new aircraft along with movement among the ranks giving a promise of some kind of career potential the idea of staying for the Globals (or any other a/c short of a fleet of BBJ's) doesn't seem to strike me as any more appealing than flying it's equivalent at American Eagle. There is much to come to light over the next couple of years and anyone that thinks they have the picture of what NJA will look like in 10 years is kidding themselves as only the market will dictate that reality. It's in DS's DNA of changing the plan as you go to fit the market. But to say that many will stay for the promise of flying a Global doesn't add up for me as it all comes down to career potential. And as of this moment, that does not exist as anything but a potential. Just my opinion though which has been wrong more than right.
03-07-2011, 12:13 PM
#23
Gets Weekends Off
Joined APC: Aug 2006
Position: ANG
Posts: 276
Interesting article
Bombardier?s NetJets Order: Bigger issues at play involving NetJets & Bombardier - GLG News
Bombardier’s NetJets Order: Bigger issues at play involving NetJets & Bombardier
Monday, March 07, 2011
Analysis by: GLG Expert Contributor
Source: www.glgroup.com
Summary:
While the landmark order for the Global Express family of aircraft by NetJets can viewed from a product perspective (as Bombardier trumping Gulfstream) there are more important strategic considerations at play for both the Canadian airframer and the industry’s largest fractional ownership program.
Analysis:
Last week’s $2.8 billion dollar deal (potentially worth as much as $6.7 billion if all the options are exercised) was a major coup for Bombardier. Industry watchers were quick to comment about how Bombardier outflanked Gulfstream for this order. But this is less about Bombardier versus Gulfstream and more about how Bombardier’s product strategy lined up with NetJets' long term plan.
NetJets’ long term plan and Bombardier’s product line strategy
Let’s start with NetJets. Every turnaround strategy has two critical elements to it. The first is addressing the company’s cost component. NetJets’ new CEO David Sokol cancelled orders for new planes, laid-off staff, furloughed pilots, sold off ageing aircraft and reduced its serviceable debt by $600 million. Sokol also did away with some sacred cows like free trips on NetJets aircraft for celebrities and expensive junkets like their annual Las Vegas Poker Tournament for their high-end customers. As a result, Sokol managed to take NetJets from a $711 million dollar loss in 2009 to a pre-tax profit of $207 million in 2010.
The other critical element of NetJets’ long term plan is to address the growth component; and it’s here where Bombardier lined up better than Gulfstream, not because the new Global Express family was better than the G650, but because Bombardier has better midsize and super midsize offerings it could eventually provide NetJets….platforms the fractional provider needs to bridge the gap between the Phenom 300 and the G5000. A decision on mid range aircraft is expected to take place as early as this fall. At the risk of reading too much into a press release, Sokol’s comments on the Global deal centered around being “impressed with Bombardier’s product strategy vision.” But it would be a safe assumption that Bombardier provided Sokol a detailed look into their product strategy and he probably liked what he saw. In fact, he may have even had a few suggestions himself for Bombardier that centered on reliability and performance. And what better platforms could there be than the L85 or the expected upgraded CL300, arguably the best aircraft for fractional operations. Indeed, no one should consider it happenstance that NetJets has chosen suppliers such as Embraer and Bombardier, two airframers that know a little something about the adhering to the rigors of commercial airline operations. The CL300 in particular was built with the fractional model in mind i.e. a simple, high utilization, reliable aircraft with great ramp appeal. For NetJets, having one supplier over four (4) key segments (5 if you count Embraer’s Phenom 300s) could translate into significant discounts in the front-end purchase price for the aircraft as well as life cycle support and training costs. Even with Gulfstream expected to come out with their new large and super large family of aircraft fairly soon, competitive midsize and super midsize aircraft is something they simply do not have in the G150 and G250. In fact, in terms of NetJets correcting their disjointed fleet, Gulfstream, Dassault and Cessna essentially fell victim to NetJets’ shift from its old entrepreneurial culture to a more rational and deliberate long term planning philosophy.
The sizzle in the deal
The centerpiece of Sokol’s growth plan is tapping emerging international markets like China and India. This is where new demand will come from both in terms of customers and destinations. The Global Express deal will provide NetJets with the products, but how could they start mining these markets for customers? Capturing customers in these markets requires a demand vehicle and it seems that NetJets is looking to do it, in part, by securing premium commercial airline customers i.e. first class and business class flyers. The idea is to partner with airlines and offer their premium customers continued service on post hub travel using fractional ownership. Interestingly, Lufthansa Private Jets recently announced that they were closing down their Swiss Private Aviation subsidiary and returning back to the NetJets fold using a previous agreement the two companies had for block charter. (Korean Airlines currently has a similar deal with Flexjet). A logical extension of this strategy could be dusting off Bombardier’s Global Connector program which calls for Globals to be outfitted with 12 to 19 seats in commercial airline livery charging premium price fares and operated by NetJets. On the commercial airline side, they would be happy to lend their branding and hand over operational control of this service to NetJets in return for a sizeable share of the profits.
The future of Flexjet?
As for Flexjet, the NetJets order for Globals (and the prospect of a follow-on order from Bombardier a very real likelihood) does not look bode well for their future. It begs the question: what benefit would Bombardier have in sustaining Flexjet if they’re selling aircraft to other fractional providers? The answer is not much. Furthermore, if NetJets, the industry’s largest fractional provider was losing money from operations, it’s a safe bet to assume that Flexjet is not a major contributor to Bombardier Aerospace’s earnings whose current EBIT margin is mired at 5%. Flexjet also never lived up to the promise of migrating fickle fractional customers into traditional aircraft buyers (but to be fair, no fractional ownership provider did, including NetJets). It is therefore well within the realm of possibilities that a potential NetJets mid range aircraft order from Bombardier for L85s and CL300 could have Flexjet as a throw-in.
Conclusion
With Bombardier finally succumbing to the allure of selling to NetJets, the prospect of divesting or shuttering FlexJet is something Bombardier should consider. The margins from the current and potential NetJets orders (even if they are slim they are still incremental i.e. these are margins Bombardier would not have otherwise realized) coupled with the shedding of the costs of sustaining Flexjet will add significant margin to their bottom line. Throw in ceasing production of the poor selling L40XR and L45XR programs and marginal success for the C-Series and perhaps Bombardier finally realizes its long cherished goal of achieving an EBIT margin of 10 to 15% for its Aerospace Group, returning the stock back to when it was a critical holding of any major investment fund portfolio.
As for NetJets, their current long range plan is bold, to be sure. But let’s recap what Mr. Sokol has actually put in play. First, with last week’s Global order he’s procured a family of aircraft that is perfectly suited to capture demand in emerging markets becoming the only fractional provider with a truly international footprint. Furthermore, in dealing with Bombardier, NetJets could possibly have taken out a competitor in Flexjet as well (either by way of eventual acquisition or forced retirement). Domestically, in addition to streamlining operations, Sokol procured the same light aircraft model as the competition. Some fractional competitors boasted how NetJets “copied” them by selecting the Phenom 300 after they did. This should be a cause of concern rather than a badge of honor. If I’m a fractional prospect in the US that’s looking to buy into a Phenom 300 share, why would I opt to go with the #3 or #4 fractional provider over NetJets?
Sokol’s plan is more than a turnaround strategy for NetJets. It may actually be a prescription for the fractional business model. It’s going to test the basic tenets of the fractional industry such as operational efficiency, network coverage and the migration of concept buyers to whole aircraft sales. The only problem is that in Mr. Sokol’s world, there can only be one fractional ownership provider. The remaining fractional programs would do well to take notice that NetJets is gunning for their customers and surrender may be their only option.
Relevant Subject(s):
Aerospace & Defense
© 2011 Gerson Lehrman Group. All Rights Reserved.
Bombardier’s NetJets Order: Bigger issues at play involving NetJets & Bombardier
Monday, March 07, 2011
Analysis by: GLG Expert Contributor
Source: www.glgroup.com
Summary:
While the landmark order for the Global Express family of aircraft by NetJets can viewed from a product perspective (as Bombardier trumping Gulfstream) there are more important strategic considerations at play for both the Canadian airframer and the industry’s largest fractional ownership program.
Analysis:
Last week’s $2.8 billion dollar deal (potentially worth as much as $6.7 billion if all the options are exercised) was a major coup for Bombardier. Industry watchers were quick to comment about how Bombardier outflanked Gulfstream for this order. But this is less about Bombardier versus Gulfstream and more about how Bombardier’s product strategy lined up with NetJets' long term plan.
NetJets’ long term plan and Bombardier’s product line strategy
Let’s start with NetJets. Every turnaround strategy has two critical elements to it. The first is addressing the company’s cost component. NetJets’ new CEO David Sokol cancelled orders for new planes, laid-off staff, furloughed pilots, sold off ageing aircraft and reduced its serviceable debt by $600 million. Sokol also did away with some sacred cows like free trips on NetJets aircraft for celebrities and expensive junkets like their annual Las Vegas Poker Tournament for their high-end customers. As a result, Sokol managed to take NetJets from a $711 million dollar loss in 2009 to a pre-tax profit of $207 million in 2010.
The other critical element of NetJets’ long term plan is to address the growth component; and it’s here where Bombardier lined up better than Gulfstream, not because the new Global Express family was better than the G650, but because Bombardier has better midsize and super midsize offerings it could eventually provide NetJets….platforms the fractional provider needs to bridge the gap between the Phenom 300 and the G5000. A decision on mid range aircraft is expected to take place as early as this fall. At the risk of reading too much into a press release, Sokol’s comments on the Global deal centered around being “impressed with Bombardier’s product strategy vision.” But it would be a safe assumption that Bombardier provided Sokol a detailed look into their product strategy and he probably liked what he saw. In fact, he may have even had a few suggestions himself for Bombardier that centered on reliability and performance. And what better platforms could there be than the L85 or the expected upgraded CL300, arguably the best aircraft for fractional operations. Indeed, no one should consider it happenstance that NetJets has chosen suppliers such as Embraer and Bombardier, two airframers that know a little something about the adhering to the rigors of commercial airline operations. The CL300 in particular was built with the fractional model in mind i.e. a simple, high utilization, reliable aircraft with great ramp appeal. For NetJets, having one supplier over four (4) key segments (5 if you count Embraer’s Phenom 300s) could translate into significant discounts in the front-end purchase price for the aircraft as well as life cycle support and training costs. Even with Gulfstream expected to come out with their new large and super large family of aircraft fairly soon, competitive midsize and super midsize aircraft is something they simply do not have in the G150 and G250. In fact, in terms of NetJets correcting their disjointed fleet, Gulfstream, Dassault and Cessna essentially fell victim to NetJets’ shift from its old entrepreneurial culture to a more rational and deliberate long term planning philosophy.
The sizzle in the deal
The centerpiece of Sokol’s growth plan is tapping emerging international markets like China and India. This is where new demand will come from both in terms of customers and destinations. The Global Express deal will provide NetJets with the products, but how could they start mining these markets for customers? Capturing customers in these markets requires a demand vehicle and it seems that NetJets is looking to do it, in part, by securing premium commercial airline customers i.e. first class and business class flyers. The idea is to partner with airlines and offer their premium customers continued service on post hub travel using fractional ownership. Interestingly, Lufthansa Private Jets recently announced that they were closing down their Swiss Private Aviation subsidiary and returning back to the NetJets fold using a previous agreement the two companies had for block charter. (Korean Airlines currently has a similar deal with Flexjet). A logical extension of this strategy could be dusting off Bombardier’s Global Connector program which calls for Globals to be outfitted with 12 to 19 seats in commercial airline livery charging premium price fares and operated by NetJets. On the commercial airline side, they would be happy to lend their branding and hand over operational control of this service to NetJets in return for a sizeable share of the profits.
The future of Flexjet?
As for Flexjet, the NetJets order for Globals (and the prospect of a follow-on order from Bombardier a very real likelihood) does not look bode well for their future. It begs the question: what benefit would Bombardier have in sustaining Flexjet if they’re selling aircraft to other fractional providers? The answer is not much. Furthermore, if NetJets, the industry’s largest fractional provider was losing money from operations, it’s a safe bet to assume that Flexjet is not a major contributor to Bombardier Aerospace’s earnings whose current EBIT margin is mired at 5%. Flexjet also never lived up to the promise of migrating fickle fractional customers into traditional aircraft buyers (but to be fair, no fractional ownership provider did, including NetJets). It is therefore well within the realm of possibilities that a potential NetJets mid range aircraft order from Bombardier for L85s and CL300 could have Flexjet as a throw-in.
Conclusion
With Bombardier finally succumbing to the allure of selling to NetJets, the prospect of divesting or shuttering FlexJet is something Bombardier should consider. The margins from the current and potential NetJets orders (even if they are slim they are still incremental i.e. these are margins Bombardier would not have otherwise realized) coupled with the shedding of the costs of sustaining Flexjet will add significant margin to their bottom line. Throw in ceasing production of the poor selling L40XR and L45XR programs and marginal success for the C-Series and perhaps Bombardier finally realizes its long cherished goal of achieving an EBIT margin of 10 to 15% for its Aerospace Group, returning the stock back to when it was a critical holding of any major investment fund portfolio.
As for NetJets, their current long range plan is bold, to be sure. But let’s recap what Mr. Sokol has actually put in play. First, with last week’s Global order he’s procured a family of aircraft that is perfectly suited to capture demand in emerging markets becoming the only fractional provider with a truly international footprint. Furthermore, in dealing with Bombardier, NetJets could possibly have taken out a competitor in Flexjet as well (either by way of eventual acquisition or forced retirement). Domestically, in addition to streamlining operations, Sokol procured the same light aircraft model as the competition. Some fractional competitors boasted how NetJets “copied” them by selecting the Phenom 300 after they did. This should be a cause of concern rather than a badge of honor. If I’m a fractional prospect in the US that’s looking to buy into a Phenom 300 share, why would I opt to go with the #3 or #4 fractional provider over NetJets?
Sokol’s plan is more than a turnaround strategy for NetJets. It may actually be a prescription for the fractional business model. It’s going to test the basic tenets of the fractional industry such as operational efficiency, network coverage and the migration of concept buyers to whole aircraft sales. The only problem is that in Mr. Sokol’s world, there can only be one fractional ownership provider. The remaining fractional programs would do well to take notice that NetJets is gunning for their customers and surrender may be their only option.
Relevant Subject(s):
Aerospace & Defense
© 2011 Gerson Lehrman Group. All Rights Reserved.
Last edited by dudemize; 03-07-2011 at 12:20 PM. Reason: Added text
03-07-2011, 02:22 PM
#24
Gets Weekends Off
Joined APC: Apr 2007
Position: F/O- G-V/550
Posts: 1,163
Originally Posted by DWS1
UCLA,
I agree with most of what you post on this forum. However, I disagree that Globals will keep anyone at NJA any more than the Gulfstreams would since those are their replacements. Without some major pay increase associated with this new aircraft along with movement among the ranks giving a promise of some kind of career potential the idea of staying for the Globals (or any other a/c short of a fleet of BBJ's) doesn't seem to strike me as any more appealing than flying it's equivalent at American Eagle. There is much to come to light over the next couple of years and anyone that thinks they have the picture of what NJA will look like in 10 years is kidding themselves as only the market will dictate that reality. It's in DS's DNA of changing the plan as you go to fit the market. But to say that many will stay for the promise of flying a Global doesn't add up for me as it all comes down to career potential. And as of this moment, that does not exist as anything but a potential. Just my opinion though which has been wrong more than right.
I agree with most of what you post on this forum. However, I disagree that Globals will keep anyone at NJA any more than the Gulfstreams would since those are their replacements. Without some major pay increase associated with this new aircraft along with movement among the ranks giving a promise of some kind of career potential the idea of staying for the Globals (or any other a/c short of a fleet of BBJ's) doesn't seem to strike me as any more appealing than flying it's equivalent at American Eagle. There is much to come to light over the next couple of years and anyone that thinks they have the picture of what NJA will look like in 10 years is kidding themselves as only the market will dictate that reality. It's in DS's DNA of changing the plan as you go to fit the market. But to say that many will stay for the promise of flying a Global doesn't add up for me as it all comes down to career potential. And as of this moment, that does not exist as anything but a potential. Just my opinion though which has been wrong more than right.
cheers
03-07-2011, 02:52 PM
#25
Gets Weekends Off
Joined APC: Apr 2007
Position: F/O- G-V/550
Posts: 1,163
Originally Posted by dudemize
03-07-2011, 04:16 PM
#26
Banned
Joined APC: Oct 2010
Posts: 1,222
I have no doubt that NJA will be around, and also have no doubt that "eventually" they will call back... By eventually it could be anywhere's from 2-10 years......
The union has been as upfront as possible, but they do seem to have a more negative view on the growth of NJA. If we were to go just by the headlines and DS interviews I would be already planning my return. That's what makes this so frustrating from our vantage point. Economy is doing better, aircraft have been ordered, headlines like this, and DS's interviews ALL point to an on schedule return....But then we get word from union folks that they've "seen" charts showing nothing for 10 years..... Of course it's all a fluid plan, but there has to be some sort of middle ground... I doubt 10 years will pass before recall, but also doubt it'll be "on time" either....
The union has been as upfront as possible, but they do seem to have a more negative view on the growth of NJA. If we were to go just by the headlines and DS interviews I would be already planning my return. That's what makes this so frustrating from our vantage point. Economy is doing better, aircraft have been ordered, headlines like this, and DS's interviews ALL point to an on schedule return....But then we get word from union folks that they've "seen" charts showing nothing for 10 years..... Of course it's all a fluid plan, but there has to be some sort of middle ground... I doubt 10 years will pass before recall, but also doubt it'll be "on time" either....
03-08-2011, 08:54 AM
#28
Banned
Joined APC: Oct 2010
Posts: 1,222
Originally Posted by frmrdashtrash
If you get a chance to read Sokol's letter, you'll see the real side of those public interviews on CNBC. He doesn't want us back.... He's looking to furlough more.
Eventually owner demand should get stronger and the need for more bodies will exhist. The CBA and FAA regs ensure there is a limit to how much they (pilots) can work etc....
Unless DS turns away business or really decides to shrink the company.....which is still up in the air... The true direction of this company may take a few years to really figure out. The Union has their opinions, but I've been given bad information before from them and other unions. So I'm not exactly putting 100% faith in what they believe. As they say, they haven't seen any form of the 5 or 10 year plan. And until they actually see it we're all just guessing.
I agree that DS would definitely not like to call us back, and would like more furloughs. But that is just a manager trying to squeeze as much out of a lesser expense (us).
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