WOODBRIDGE, N.J.–Warren Buffett’s Executive Jet Inc., the dominant seller of fractional ownerships of airplanes, is facing new competition from UAL Corp. and Bombardier Inc., threatening its alreadythin profit margin.
Executive Jet caters to corporations and wealthy individuals intent on avoiding the long delays and pedestrian treatment typically associated with commercial airlines. Some planes are as luxurious as a first-class hotel and come complete with plush leather chairs, private showers, bedrooms and gourmet meals.
“It’s 10 times better than regular airlines,” said Mickey Segal, president of Nigro, Karlan & Segal, a Hollywood talent agency whose clients include David Letterman. “Most of my clients do it for security purposes and expediency.”
UAL plans a service of its own, and competitors such as Bombardier are expanding in what is still seen as a niche market.
Executive Jet is betting that its 2,000 customers, including golfer Tiger Woods and General Electric Co., will remain loyal.
“It’s going to be an extremely rough fight,” said George Ireland of Ring Partners LP, a Denver-based hedge fund. “The question is what happens to the profit margins for everyone.”
Some analysts question if there is much profit now. Estimates of Executive Jet’s annual revenue range from $380 million to as much as $2 billion with a profit margin of less than 10 percent.
Standard & Poor’s said that Executive Jet had 1999 revenue of $1.2 billion and profit of about $75 million. That same month, Moody’s Investors Service estimated “operating revenue” at $380 million.
About 3,694 fractional-ownership shares were sold last year, according to the National Business Aviation Association. Executive Jet accounted for most of those, analysts said. UAL is the first major airline to set up a fractional-ownership program.
Bloomberg News
