Sokol Threatens to Shut Down NetJets

I think Sokol was right and I think his critics were wrong. I read the criticism and what I get from it is that people are criticizing Sokol for not spending more money: on jets, on people, on programs etc.

Profit = Revenue - Costs. Good business focus on both increasing revenue and reducing costs. But it seems as that NetJet executives don't care about costs.

That said I do think Sokol made a huge mistake. He vastly underestimated the damage disgruntled former employee could do to his business.

I have read through almost all of the comments posted here and honestly, I don't think these posts come from people who have the perspective of someone who has run a business of any size. It is almost certain that none of these people have been brought in as a fixer.

I have been involved with businesses that developed a culture of controversy. Often, the best way to deal with these situations is with frank communications and a few "get on board or hit the road" conversations. I didn't see anything wrong with the email posted above. There are many ways to push through managing a company in crisis. That email was a part of one way. I can't fault Sokol for taking the tack he did. It may have negative consequences but letting controversy fester also has consequences. As a manager, you make a choice and you push on.

I have been an investor in BRK for many years and always enjoy reading the annual reports. Netjets always seemed to me to be a troubled sub with great potential, but nothing to show for years of trying. When i heard that Netjets was under different management, I was relieved because it seemed like this sub needed to head in a different direction.

If Santilli or any other former executive is out there bad-mouthing Netjets, then they are just acting petulant. It is bad form to bad-mouth a former employer in public. But it can be damaging to a business, and often it is a good idea to respond rather than let the naysayers get to control the conversation.

Alice, your blog is excellent and I only have great admiration for your grit and honesty.

I'm a 30 year aviation exec with no ax to grind.

Mr. Santulli had the right idea regarding how to make the company remain profitable long term. He envisioned the worlds leading brand and his strategy depended on being the best. After all, the Netjets client group is not price sensitive. At this level in our industry "price sensitivity is more or less inverse to price". To remain profitable and grow, Netjets just needed to ensure that it was "the best".

Sadly, Mr. Santulli's vision was not allowed to rule and Netjets can only go down based on how the company is being run now. The damage has been done. Best way out is to sell off the parts if possible, because their customer expectations cannot be reset to the loss in safety importance and the decline in delivery of customer service and product.

For Netjets owners - "It's time to mothball your fractional jet".

Good luck to all Netjets employees and customers. It's been real.

We must not forget on August 4, 2009, after a one week review David Sokol took over NetJets appointing himself Chairman and “Interim CEO.” He openly stated to many he planned to be in and out in approximately 90 days. Any impartial observer can easily note that 90 days turned into 120, 180, 365, and now around 18 months if he is lucky. Even after his period as CEO David will remain Executive Chairman keeping his iron fist on NetJets and his executive team. He just wants the space for optics and to put a body between him and what many see regarding the inevitable.

Here is where the blame game and rewriting history begins. While David would like to rewrite history there are too many reputable individuals that lived through all this who won’t allow David to spin and PR this story for his own benefit while NetJets twists in the wind.

Many strongly believe that Sokol made decisions using less than ideal methods negatively impacting the brand, business model, strategic partnerships, experienced leadership, and customer and employee confidence. From a service deliver standpoint last winter was the worst in NetJets history; this in an undeniable fact. It’s my understanding that by all operational accounts the decisions made between August 4 and yearend drove service delivery well below historical standards. What crushed morale was that none of the individuals involved with the decision making bothered to see the effects of the decisions by spending any reasonable amount of time at the operations center.

In July and August of 2010 the employees and the unions are expressing serious concerns over the strain in the system. At NetJets this is the slowest period of the year yet they appear to be saying it feels like they are grinding out the busiest periods of they year. When the demand is low the system should be very fluid. But they are raising their hands saying things are not right. Yet David sends them a letter essentially saying be quite and deal with it or I will “redirect” (wind-down/shutdown) NetJets.

So as Alice pointed out, was the disease better than this cure?

All fair questions and all far from sabotage or smear. Shame on the reporters that take the press packet from the communications machine and PR consultants thrown at them and fail to do any reasonable amount of research and investigative work.

Let’s be honest here, this has been a fair and open discussion about David Sokol’s leadership style and performance at NetJets. This includes a fair and critical examination of NetJets globally and what that means for the future of NetJets, the fractional industry, and private aviation in general. The state of NetJets Europe is heartbreaking and nobody wants the same to happen in the US. By all credible reports NetJets Europe is in a very bad situation at this point. It’s fair to discuss and debate if this was preventable under David's leadership. Lucky for NetJets Europe it can be subsidized by NetJets US.

Nobody has been “sabotaging” NetJets. David Sokol can answer the tough questions or he can try to cloud and avoid the issues while trying to redirect the PR conversation. The fact is that these difficult questions can’t be answered without informed discussion and honest debate. Current management will choose to answerer the tough questions – or not. That does not mean the tough questions and critical debate shouldn’t occur.

This forum only makes sense as Alice Schroeder is an expert on Warren Buffett, Berkshire Hathaway, and by the end of this she will be an expert on NetJets and the future of the fractional aviation business model. Alice’s reputation for detailed-comprehensive work and professional credibility are beyond reproach and her resume couldn’t be better suited to independently evaluate and analyze the facts and individual experiences and reports.

It has already been cleared up that the “losses” at NetJets in 2009 were overwhelmingly one-time charges and the business and operations were very soundly profitable. Removing the one-time charges that nearly every company experienced in 2009 gives the real picture. Take a look at the one-time charges across the aviation industry and it’s not hard to correlate NetJets was not alone and everyone was impacted by the financial crisis and economic downturn. Private aviation was hit especially hard through the public demonizing of private jets.

We have also highlighted that Warren Buffett chose to have David Sokol do a review of NetJets as opposed to an independent firm. What’s wrong with asking why? Why does David Sokol continue to defame and attack NetJets co-founders who created an industry with tens of thousands of jobs on their contributions? The same people who created what David calls a great company with talented employees? Why does David bad mouth former executives in close circles and behind their backs in an industry these people have dedicated their lives to? Why is it that relationships appear to be so difficult for a person publicly considered to be Warren’s replacement and what could that mean to Berkshire Hathaway.

What’s wrong with asking: Who? What? When? Why? How?

What’s at stake couldn’t possibly be bigger: safe transportation, thousands of aviation jobs, and who may run Berkshire Hathaway after Warren. I don’t see how honest and open discussion harms NetJets, Berkshire Hathaway, and BRK shareholders if there is nothing to hide.

No trade secrets, trademarks, secret R&D, new market programs and products, or financial information that aren’t already public information have been presented in this forum as far as I can tell.

What I see is far from “sabotage” but rather people concerned the new leadership direction and actions will lead to another hundreds of layoffs and hundreds of furloughs because as Alice as already pointed out, in aviation (especially fractional aviation) you are either growing or dying. And, NetJets has not presented any new comprehensive or “fresh” growth strategies. In fact David’s approach has been to compete directly with Marquis, which many experienced professionals believe will result in weaker overall sales performance.

What is more clear than ever is that David can’t tolerate being challenged or questioned and if anyone challenges or questions him no matter how factual and strong the merits its called “sabotage” and “smear.” How ridiculous is that? Unless there is something to hide… Otherwise, just answer the questions factually and honestly. Shouldn’t we ask and expect the same standard of Warren and David?

From what I can see there are just a lot of concerned people saying; safety should never be compromised, the customers should always receive the value they pay for, the employees should be dealt with in an honest manner so they can make decisions that are in their best interests, and shareholders should be asking tough questions about NetJets future.

As has already been pointed out, some filings and disclosures may have already been affected by this forum and discussion. From most accounts David has been quite confrontational and controversial throughout his transition. So let’s not shed any tears if others show him the same consideration David showed them.

Thank you Alice for offering this forum, your expertise and time, and invaluable insights.

I have seen Executive Jet/NetJets from many unique perspectives. From spending time with the valued employees cleaning the hanger floors and aircraft, to the gentleman that delivered the mail in Woodbridge that started with RTS Capital, to the flight center in Columbus, and much-much more. No matter where I was or who I was speaking with I found a list of complaints and successes follow by exceptional pride to be part of the Executive Jet/NetJets brand, culture, and family. In the day everyone would dig in to dig out of what ever was the hurdle of the day out of loyalty for the customers, culture, and brand.

Executive Jet/NetJets was a vision that started with three airplanes. For over a decade the concept was a challenging sell to customers and the industry. But the concept caught on with customers and throughout the industry. From 1998 through 2008 Executive Jet/NetJets skyrocketed to iconic levels in an industry that often has little to rave about. Over that decade the company grew 6 times over. And for more than 22 years a handful of businessmen continued to develop an entirely new industry creating tens of thousands of new jobs and careers.

From top to bottom the customer was always THE priority. Executive Jet/NetJets was a customer-centric organization where everything wasn’t always perfect, but one way or another the customer always new when something wasn’t right the Executive Jet/NetJets family would make it right on way or another. The customer value proposition was felt and experienced as every relationship was considered the most important relationship.

When I first arrived the co-founders impressed upon me “a customer or prospect doesn’t wakeup in the morning and think about Executive Jet/NetJets, every morning we have to wakeup and ask ourselves how are we going to make our customers think about us? And how are we going to ensure it’s a positive vibe?” Proven over 22 years the company found that letting each employee know that they meant a great deal to the company and the customers experience was engrained in a culture that became the fabric of a fascinating and unique brand. The customer felt the uniqueness of the Executive Jet/NetJets family and brand, the customer felt special and appreciated in every way.

Executive Jet/NetJets wasn’t an off-the-shelf venture. Everything about the concept was new in some form. The Executive Jet/NetJets concept and business model was pioneered by Richard Santulli and Jim Jacobs and started from nothing. Without these two individuals the industry would be a different place. Every idea or possibility didn’t go off without a hitch but they were always trying new ideas, knowing not all of those ideas would work. But everyday they woke up and looked into new and innovative ways to maintain the high ground against the competition and industry as a whole while expanding that mote. They were always looking to test the envelope simply because 22 years ago the envelope was quite small and they expanded that envelope through innovation, creativity, and relationships.

Executive Jet/NetJets was a “family” business and culture. It wasn’t easy, everyone didn’t always agree, but everyone was focused on the same goals with a common passion. Executive Jet/NetJets wasn’t perfect put it was always improving, investing in the future, and looking to grow. Most of all we valued one another’s contributions and commitment while building and providing an unparalleled private aviation experience everyone could be proud of.

While current management acts like they never existed I want our founders to know many thank them and will not forget them for what they have created. We will not allow people to rewrite history even though we work within a culture of fear and that many know we would be in a much better position post this recession as we were every other recession if they were still at the helm.

Thank you!!!

ps: After living all of this up close and personal it makes "The Snowball" oh-so-true.

Alice is without a doubt a quality individual. She is sincere in her interests and efforts which I genuinely appreciate. But what I have come to enjoy about her most is that she is as capable as any analyst and writer I have ever come across. And at the end of the day she "brings the heat" with style and grace.

In my opinion what David Sokol wrote is more damaging to the NetJets brand than anything I have ever seen. It appears this man can't stand being questioned or challenged.

If the pilots and employees don't feel they are being supported in delivering what the owners pay for, David Sokol may want to listen as opposed to delivering implied threats; especially when safety is a concern.

The fact Sokol snubbed a safety concerns meeting and then threatens everyone with a shutdown right after the meeting indicates safety is not a priority to him.

There’s nothing better than a good corporate soap opera in the dog days of summer.

A few thoughts:

Has Sokol saved Buffett at NetJets or hasn’t he? Oh, wait, Alice already asked that. Disregard.

If not, then what will be the value of Sokol’s currency with Buffett from now on? Talk about “fear of failure”.

Liquidation of NetJets? That’s going to be a little awkward. How will all the elephants get to Omaha and Sun Valley? Not only awkward, but expensive. Contracts to buy out, aircraft to take a bath on, errr, sell. Talk about “fear of failure”.

Is Sokol’s judgment really this poor? If not, then why this? Alice’s antenna may be twitching, but my head is spinning around on my neck. I rank this as a singularly colossal miscalculation. I really thought things were going relatively well at NetJets until this. Where did Buffett get this guy? And what will Buffett do with him?

More questions than answers.

I'm shocked that this email was sent (if it was actually sent to the whole company). What a mess...

Schroeder, you're such a hack. I have the email in front of me and there is no threat to the existence of Netjets.

NOTE from Alice - With all due respect, Bruce, you are misinterpreting the email. Please see more detailed discussion elsewhere on this page.