NetJets planning China-based venture, says Buffett

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Leading fractional ownership and charter operator NetJets plans to set up base in China, Warren Buffett, chief executive of NetJets parent Berkshire Hathaway, stated in his annual letter issued to shareholders on 25 February.

The company, which has bases in the USA and Europe, set its sights on the Asian business aviation market many years ago. Now, the region's booming economies and an expanding wealthy elite with an appetite for business jets is proving an irresistible draw for the 26-year-old company.

Buffett's full-blooded financial outlook for previously embattled NetJets - reviving under the stewardship of Jordan Hansell - is also helping to drive the expansion.

"Jordan Hansell took over at NetJets in April [2011] and delivered 2011 pre-tax earnings of $227 million," said Buffett.

This compares with a $711 million loss in 2009. "That is a particularly impressive performance because the sale of new planes was slow during most of the year."

In his letter, Buffett said NetJets saw an unexpected "uptick" in sales during December, although it remained uncertain if this would be sustained given the turbulent economic climate. Buffett admitted NetJets was his "number-one worry" at one time. "Its costs were far out of line with revenues, and cash was haemorrhaging. Without Berkshire's support, NetJets would have gone broke," he said.

"These problems are behind us, and Jordan is now delivering steady profits from a well-controlled and smoothly-running operation."

NetJets will enter China "with some first-class partners", Buffett said. One of these is believed to be businessman and former Hong Kong airport authority chairman Victor Fung, although NetJets has not confirmed this.

The move "will widen our business moat", Buffett said. "No other fractional ownership operator has remotely the size and breadth of the NetJets operation, and none ever will."

A start-up date and location has not been disclosed by Buffett or NetJets, but a China-based industry source said the company may be looking to base its operation in Zuhai.

"No aircraft operators certificate has been applied for with the Chinese civil aviation authority's central southern division, which would be the responsible CAAC division for an operational base in Zhuhai," the source said. "So maybe NetJets is still working with the ministry of commerce on its foreign investment permit."

NetJets has orders and options with Bombardier for 120 business jets across its Global family of super-large, long-range and ultra-long-range types - categories widely favoured by Chinese buyers.