Warren Buffett Forecasts NetJets Profit in 2010 – Update 2

Warren Buffett’s Berkshire Hathaway Inc.forecast a profit at its NetJets Inc. unit, which may get a boost as corporations spend more on transportation and business travelers shun company-owned aircraft.


NetJets

NetJets will probably return to profit in 2010 after losing more than $500 million in the first nine months of the year on a drop in revenue, Berkshire said Nov. 6 in its third-quarter report. Buffett, Berkshire’s chairman and chief executive officer, replaced the unit’s CEO in August. New chief David Sokol cut jobs and wrote down the value of planes.

As the economic recovery boosts travel budgets, U.S. firms may save money with NetJets fractional jet ownership, said Guy Spier, principal at hedge fund Aquamarine Funds LLC. The NetJets service, in which clients buy shares of a private plane’s flying time, may entice executives wary of the corporate-jet outrage aimed a Citigroup Inc. this year, Meyer Shields, an analyst with Stifel Nicolaus, said yesterday in an interview.

“This is an elaborate form of taxi, and that’s seen as less piggish” than company-owned planes, said Shields, who has a “hold” rating on Berkshire shares. “There are times when you’ve got to get to four different cities over the course of a day, and you need a jet.”

The recession squeezed capital at U.S. firms and government bailouts caused executives to curtail the use of corporate jets at New York-based Citigroup and General Motors Co. Citigroup, once the world’s biggest bank, reversed a decision to buy a $50 million corporate plane in January after criticism from lawmakers including Michigan Democratic Senator Carl Levin. “In a perverse way, it’s possible that the recession has caused more companies to go to NetJets,” said Spier, whose New York-based firm owns shares in Omaha, Nebraska-based Berkshire. “It’s much more efficient capital allocation” than jet ownership.

NetJets competes with Textron Inc.’s Cessna unit, which offers fractional jet ownership through CitationAir. American Express Co., the biggest U.S. credit-card company by purchases, expects a recovery in business-travel spending to be led by China next year, the company said in an Oct. 28 statement. Continental Airlines Inc., the fourth-biggest U.S. carrier, said last month that spending by company rebounding. /p>

“We have seen some indications of a return to business traffic,” Continental CEO Jeffery Smisek told analysts on an Oct. 27 conference call. Corporate customers are “beginning to loosen some of their more draconian travel restrictions.”