Buffett's Berkshire (BRK-A) Invests Nearly $10B in NetJets Fleet Expansion (BA) (TXT)

June 12, 2012 7:00 AM EDT
Warren Buffett is either: a) a genius, or b) a mad genius.

According to reports out Tuesday, Buffett's Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) is making a substantial investment in the private-jet market while its still on the ropes. Bloomberg noted that Berkshire is investing $9.6 billion to expand its NetJets fleet, either to expand its presence or become one of the largest privately-run air force's in the world.

Berkshire ordered up to 425 units from the likes of Bombardier and Textron's (NYSE: TXT) Cessna, with delivery scheduled to start about two years from now.

Currently, NetJets has an armada of 700 planes, making it one of the largest private jet airlines in the world.

Bloomberg hints that the order might have come with favorable terms, with the lingering economic weakness causing plane manufacturers to bolster backlogs.

To be honest, we're not sure this is a great deal or not. In October 2010, NetJets ordered 125 Embraer SA Phenoms for $1.05 billion, or about $8.7 million per plane. NetJets then ordered 120 Bombardier plans in March 2011 with a list value of $6.7 billion, or $55.8 million per unit. This current order values each jet at $22.59 million.

As is typical with bulk orders, prices are generally better on a per-unit basis. NetJets CEO Jim Hansell said the price paid was based on catalog prices, but wouldn't go into much more detail. The private-jet industry is typically hush-hush when it comes to prices.

Our take? According to Wikipedia and other sources, a typical, brand new, unarmed Boeing (NYSE: BA) F-15 Strike Eagle runs about $30 million to $35 million per plane. Which would you rather show up in: a cushy, slow Cessna or nimble, awe-inspiring military fighter.

Before answering, just try to imagine the entrance you'll make when your first flyover of the airport cracks the sound barrier.

Textron and Boeing shares are both just about flat early Tuesday morning.

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