By Andrew Frye
Sept. 11 (Bloomberg) -- NetJets Inc., the unprofitable plane-leasing unit owned by Warren Buffett’s Berkshire Hathaway Inc., is cutting more than 300 jobs after replacing its chief executive officer.
“Severe economic conditions facing the aviation industry” have reduced demand for flights, Columbus, Ohio-based NetJets said today in an e-mailed statement. Ted Lowen, a spokesman for NetJets, said the cuts could affect as many as 350 employees. The company said the reduction involves about 5 percent of staff, which was about 8,000 at the end of 2008.
David Sokol, who took over as CEO at NetJets last month, is reorganizing a business that owns more planes than needed to serve companies and wealthy clients that are scaling back on travel amid the recession. Under Sokol’s predecessor, Richard Santulli, the company posted pretax losses of $96 million in the first quarter and $253 million in the second.
“With all that’s happened in the last year, demand for that product has really fallen off,” said Justin Fuller, a partner at Midway Capital Research & Management who runs the buffettologist.com Web site. “They’re having to rationalize their business.”
Buffett has said that Berkshire would cut jobs and close facilities run by some of its operating units as the recession weighs on results. Berkshire reduced the number of workers at Clayton Homes Inc., which makes pre-fabricated housing, by 16 percent last year to 11,998. Shaw Industries, the largest U.S. carpet-maker, cut 6.2 percent of its workforce and employed 28,974 at year-end, Berkshire said in its annual report.
‘No Alternative’
“Business conditions can change such as to necessitate temporary and permanent layoffs,” Buffett told investors at Berkshire’s shareholder meeting in May. “There’s really no alternative.”
NetJets, which had previously furloughed some pilots, recorded “downsizing costs” of $192 million in the second quarter.
Buffett picked Sokol, Berkshire’s top energy executive, to run NetJets until a permanent replacement is found. The appointment added to speculation that he may one day succeed the billionaire investor as CEO of Omaha, Nebraska-based Berkshire.
Santulli stepped down from the company he created after about 25 years. In 1986, he invented the notion of “fractional” jet ownership, in which individuals and companies purchase shares of a private plane’s flying time in lieu of buying the jet. Buffett was a NetJets customer before acquiring the company from Santulli in 1998 for $725 million in cash and stock.
Berkshire bankrolled NetJets’ fleet of Boeings, Citations and Gulfstreams. It also underwrote the company’s expansion to Europe.
Berkshire slipped $90 to $99,000 at 4:15 p.m. in New York Stock Exchange trading. The shares have gained 2.5 percent this year.
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