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Hi Norm,

You said, "FlexJet probably has a significant cost advantage over NetJets because it has fewer types of aircraft -- which means a lot less cost for training both flight crews and technicians and a lot more flexibility in scheduling flight crews"

Yes, that's a good point, and one that might be worth digging into to see just how much weight to give to these considerations.

I've always had the impression Bombardier had painted itself into a corner with its fractional jetshares program since it could not offer customers the wide selection Netjets can. As you probably realize, Flexjet offers only Bombardier products.

Bombardier can do so because it has the widest range of business jet aircradft on offer, however, anyone interested in an aircraft built by any one of the five other major business jet manufacturers has to go to Netjets, which continues to dominate with about 75% of this market.

Flight Options, the third major Frax operator takes most of what's left.
Flight Options, originally had a couple of Bombardier aircraft in its fleet, but then subsequently disposed of them.

It's a curious situation when a manufacturer owns a company that effectively competes with potential customers. With the growth of the Fractinal Jet Shares market, it's hard to imagine Bombardier wanting to continue competing withe Netjets.

I guess there are precedents, or at least parallels. When you see Microsoft entering the hardware business you have to wonder. When you see management go against the conventional thinking like that, they often have their own strategies and understanding of market demands in mind.

On the other hand, competing with a customer is something everyone can see and can have some impact even on your prospective customers:

"If I buy from these guys, and they see weaknesses in my business model, or think they can do a better job than I can, are they going to turn around and start competing with me?"

"Said another way, it's possible that Bombardier will sell the FlexJet business to NetJets or, conversely acquire NetJets and merge it with the FlexJet operation if they can work out a deal that's satisfactory for both companies."

Most manufacturers want to avoid giving even the impression that they might be considering competing with their customers. It's why in acquisitions, buyers insist on guarantees the sellers won't turn around and start a new entity that competes with the one they're selling.

If you say "possible" I'd say "probable". If not to Netjets, the most likely candidate (although they might not want quite that many Bombardier aircraft), to Flight Options. Another possibility is that they spin it off. I don't see Bombardier buying Netjets from Berkshire Hathaway, but I guess that's within the realm of the possible.

"There will be a "regional jet revival" at some point because regional jet operators will need to replace their existing fleets when their fleets become obsolete. The question is when it will occur. That said, there is one unknown in the regional jet market. In recent years, the regional jet operators have been replacing smaller (50 passenger) aircraft with larger aircraft to meet demand on routes that historically were thin and to replace smaller mainline aircraft on routes that did not require their capacity. The result is a glut of used 50 passenger aircraft on the market."

I wish I could share your confidence in an RJ revival. Although what's left of regional airlines will eventually need new aircraft. and fuel prices appear to be declining as we both expected, taking some of the pressure off the use of regional jets. I see some of that demand going to turboprops, and looking further out, to larger turboprops which both Bombardier and ATR say they're planning.

RJs have two major drawbacks. The primary concern cited for many is fuel-efficiency. With their per passenger seat-mile cost being slightly higher than larger commercial aircraft they're at a distinct disadvantage. Even if the price of fuel drops and remains lower airlines will remain cautious because they don't want to get into a situation where they're operating less fuel-efficient fleets should prices rise again.

The other concern is comfort, and we've already taken runs at that issue on more than one occasion. So, while I hope there's something to what you're saying, I don't share youre degree of confidence that will take place - at least not to the extent you suggest.

Newer, cleaner, quieter, more fuel-efficient turboprops is another possibile game-changer.
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