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Berkshire's NetJets forms China venture on luxury demand

NetJets Inc., the business-jet operator owned by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), will form a venture in China as rising wealth and trade spurs demand for luxury flights. Bloomberg reports. March 27, 2012 -- The China operations will be part-owned by investors including Hony Capital and Fung Investments, according to a statement yesterday. NetJets, once Buffett’s “No. 1 worry,” is expanding in China as the country’s growing economy stokes flights by local and overseas customers, the company said. “The aviation industry is really picking up now in China,” Ernie Edwards, president of Embraer SA’s executive-jet division, said in an interview at a trade show in Shanghai. NetJets agreed in 2010 to buy as many as 125 Phenom 300 business jets from the Brazilian planemaker. Expansion in Asia builds on NetJets’ decision in January to deepen a partnership with Germany’s Deutsche Lufthansa AG (LHA) for private-jet services to 3,000 North American airports. The deals allow NetJets, which serves business customers and wealthy families, to nurture ties with clients flying outside the U.S. Entering the China market will “widen our business moat”protecting NetJets from smaller rivals, such as Flight Options LLC, Buffett said in his annual letter in February to shareholders of Omaha, Nebraska-based Berkshire. “No other fractional-ownership operator has remotely the size and breadth of the NetJets operation, and none ever will.” Zhuhai Base The China venture will be based in Zhuhai, which is an hour from Hong Kong by ferry, according to the statement. It didn’t say how many planes the operation will have or when flights start. NetJets’ move positions the company to take advantage of what Embraer projects will be a 10-fold surge in China’s business-aviation fleet to 500 planes in the next decade. The country had about 1.11 million millionaire households in 2010, according to Boston Consulting Group. Pretax earnings at NetJets totaled $227 million last year, according to Buffett’s letter, and the Columbus, Ohio-based company followed up on the Embraer purchase by ordering as many as 120 business jets from Bombardier Inc. (BBD/B) in 2011. Hony Capital has more than $6.8 billion in assets under management across seven funds and investments in more than 60 companies, according to the statement. The company’s parent Legend Holdings Ltd. is run by Chairman Liu Chuanzhi, who founded computer-maker Lenovo Group Ltd. Fung Investments is the private-investment arm for the families for Victor Fung and William Fung. The brothers controlLi & Fung Ltd. (494), the biggest supplier of clothes and toys. NetJets Turnaround NetJets was previously “hemorrhaging” cash under founder Richard Santulli and would have collapsed without Berkshire’s support, Buffett wrote in his shareholders’ letter. Buffett last year named Jordan Hansell, a lawyer, to run NetJets, taking over for David Sokol who replaced Santulli in 2009. Buffett has been seeking Asian investment opportunities after visiting Japan in November, India and South Korea in March, and China in 2010. His regional holdings include stakes in Chinese carmaker BYD Co. and South Korean steelmaker Posco. (005490)Berkshire’s Iscar Metalworking has also invested in TaeguTec Ltd., a South Korean cutting-tools maker. Berkshire, controlled by Buffett, also operates in industries including railroads, insurance and ice cream. Buffett has a $46 billion fortune, the third-biggest worldwide, according to data compiled by Bloomberg.