August 4, 2011

As the industry awaits signs of a definitive recovery in the business aviation market, NetJets is preparing for it by proceeding with the “Sokol Plan” which called for streamlining operations and updating of their fleet. If March’s Global Express order addressed the growth element to its plan, the much anticipated Midsize and Super Midsize procurement attends to their longtime conventional business base i.e. the mid-tier customers.

Based on NetJets’ current streamlining orientation, and the fact that the last two aircraft fleet orders have gone to Embraer and Bombardier, the Brazilian and Canadian manufacturers are widely expected to be the front-runners for the upcoming order. The safe bet would call for a split procurement. Both will offer heavy discounts and match each other in taking-in the fractional player’s aircraft they’re cycling-out. However, from an operational and financial perspective, Bombardier is better positioned to take it all. First, given that dispatch reliability is critically important for fractional programs, NetJets would likely want to have at least one of their segment model choices to be an already reliable aircraft.That rules out Embraer as both the Legacy 450 and the 500 are new aircraft programs.

For Bombardier, while the L85 will be new, the CL300 is by any measure, the most reliable high-cycle aircraft not only in the Super Midsize segment but in all of business aviation. Secondly, Bombardier can leverage pilot training slots in their bid. Even though NetJets is a Berkshire Hathaway company which owns FlightSafety (who have traditionally trained NetJets pilots) NetJets could get such a sweet pilot training deal from Bombardier that they could opt to leave Berkshire’s FlightSafety slots (earmarked for NetJets) open for the higher margin retail market. Thirdly, in terms of power by the hour coverage, Bombardier is light years ahead of Embraer. Smart Parts is much more developed on how they provide their services in terms of coverage, pricing and partnerships. Embraer would be exposing themselves if they were to match Bombardier in this regard “right out of the gate” with their two new aircraft programs. Finally, Bombardier holds a wildcard in Flexjet that they could leverage as a “throw-in” i.e. they could offer NetJets the Flexjet customer base in the deal to “sweeten the pot.”  This year’s NBAA could be very interesting.