Santulli resigns from NetJets; changes ahead at fractional

 - August 25, 2009, 6:44 AM

In a major management shake-up at fractional provider NetJets, company founder, chairman and CEO Richard Santulli on August 4 unexpectedly resigned, effective immediately. Credited as the “father of the fractional aircraft industry,” Santulli said he plans to remain with NetJets as a consultant for at least a year.

Santulli acquired Columbus, Ohio-based Executive Jet Aviation in 1986 as a platform upon which to launch NetJets, which initially struggled but grew substantially by the mid-1990s. Berkshire Hathaway chairman and billionaire Warren Buffett, a NetJets shareowner, was so impressed with Santulli’s NetJets that he bought the firm in 1998 for $725 million and, per Buffett’s custom, kept the company management in place.

“After 25 years of working with the most talented group of people I could ever have imagined, who helped build the premier aviation company in the world, I have decided to step down…to spend some more time with my young family and pursue other interests,” Santulli said in a statement. “I want to personally thank everyone at NetJets for all of their tireless energy, intelligence and support throughout all of these years.”

David Sokol, the chairman at Berkshire-owned MidAmerican Energy Holdings, was named chairman and interim CEO of the fractional provider “to allow for a smooth transition.” In a press release announcing Santulli’s departure, Buffett said, “It is with reluctance that I accept Richard’s decision to step down. Richard Santulli is synonymous with the fractional jet ownership industry, and his vision and energy have made NetJets the leader that it is today.”

Speculation about whether or not the company founder left of his own volition was rampant in the immediate aftermath of the announcement, and several sources told AIN at the time that NetJets’ finances might have been a factor. On August 7, just three days after Santulli resigned, Berkshire’s second-quarter results were released–and they weren’t good.

According to the Berkshire report, NetJets’ second-quarter revenues fell 43 percent year-over-year to $550 million and for the first half dropped $1.024 billion, or 42 percent below the same six-month period last year. Worse yet, the fractional provider sustained pre-tax losses of $253 million for the second quarter and $349 million for the first six months, compared with gains of $192 million and $255 million, respectively, in the same time frames last year.

As if that weren’t bad enough, Berkshire said that NetJets owns more airplanes than it requires for its present level of operations “and further downsizing will be required unless demand rebounds.” Two reliable sources estimate that NetJets has more than 130 aircraft in its unsold inventory, although neither the Berkshire report nor NetJets itself would say just how many excess airplanes there currently are.

Industry insiders also said that Santulli was protective of employees to the point that it might have interfered with rightsizing measures during this recession. There have been no announced layoffs at NetJets; the other three major fractionals have all had several rounds of layoffs since last fall. NetJets has, however, implemented voluntary work reduction programs for NetJets pilots in the U.S. and Europe, but these measures alone apparently didn’t significantly staunch the flow of red ink.

After barely a week at the helm of the fractional provider, Sokol reshaped the management structure. Most notably, former Executive Jet Management (EJM) president Ben Murray was promoted to president and COO of NetJets Inc., making him Sokol’s right-hand man. Also promoted was Bill Noe, the former NetJets International (NJI) president, to NetJets North America president, where he oversees EJM, the company’s charter arm; NJI, a fractional provider of Gulfstream jets; NetJets Aviation (NJA), the Columbus, Ohio-based U.S. fractional arm; and NetJets Large Aircraft (NJLA), a fractional provider of Boeing Business Jets.

Jim Christiansen remains president of NJA but now reports to Noe; previously, Christiansen reported directly to Santulli. Mark Booth and Bill Kelly will continue to head NetJets’ European and Middle Eastern divisions, respectively. Booth and Kelly report to Murray.

Meanwhile, a knowledgeable source told AIN that Sokol is moving forward with plans to consolidate NJA, NJI and NJLA operations at NJA’s facility in Columbus, and to move NetJets’ headquarters from Woodbridge, N.J., to Columbus. NJI’s current operations center is in Okatie, S.C.; NJLA has two ops facilities in Connecticut. According to the source, this consolidation will likely result in layoffs in administrative and executive staff, some of which took place before press time.

However, a NetJets spokesperson told AIN that NJI’s ops center will stay in Okatie and said NJLA is “already in Ohio.” The spokesperson did confirm that NetJets’ headquarters will be moving to Columbus.