Inside NetJets Control Room
From Air Sick, Jul/Aug 02
How NetJets workers manage the world's sixth largest airline
It's 8:30 a.m. on an April morning in Columbus, Ohio, and Richard Smith wants to know two things: what's the day's weather going to be like -- everywhere in the country -- and how many times were his flights -- all 271 of them -- delayed the day before?
The executive vice president of the NetJets fractional jet ownership program is presiding over the daily meeting with the operation's division managers. The little conference-room general, who sometimes refers to himself by his suit size -- 42 short -- belies his diminutive stature with a king-size presence. He's zeroing in on the two concerns that are significant in his world, where jets are guaranteed to be delivered anywhere in the country at the drop of a hat: what can go wrong in the next 24 hours and what went wrong in the past 24? A couple dozen employees surround two large tables, hanging on every word and staring at two projection screens carrying computer images of what is being discussed.
First comes the morning weather brief. A meteorologist reports showers throughout most of New England. High-level hazards will create plenty of turbulence throughout the Midwest and icing will occur in the Northwest. A pretty typical day of minor inconveniences.
"Yesterday we had 271 flights," Smith announces, and a bit of visible tension rolls through the room as everyone anticipates his next question. "How many delays?" In a world where customers pay a lot of money to experience trouble-free flight, delays of only a few minutes that might go unnoticed at a commercial airline get a lot of scrutiny. As it turns out, there are only a handful and they lasted only a couple of minutes. Tension melts a little.
Then comes a maintenance report. NetJets manages more than 450 private planes, making it -- in number of craft -- the sixth largest airline in the world. Seventy of those planes were out of service the day before. NetJets planes constantly rotate through maintenance, not just to fix problems with engines, airframes and avionics, but to clean interiors and, every 30 months, to completely refurbish them. All similar models are supposed to look the same inside. While owners invest in a piece of a specific plane and ride a different one almost every time, the tail number, not a funky cabin, should be their only indication that it's not always the same aircraft. The mechanical division weighs in: "We're looking at getting 10 to 12 of those aircraft up today."
A quick look at the previous week's worth of flights shows figures from 256 to 352 flights a day; the normal average is 350 flights. Some 259 are expected today, but the number will change according to the whims of the owners, who are assured they can get a plane in four to six hours, depending on the type of craft they own. Over the weekend, traffic dropped precipitously. But the coming Sunday is expected to present a challenge to the staff. Ten days of the year are exceptions to the four-to-six-hour delivery guarantee. Most of those days fall around holidays like Thanksgiving and Christmas. But, with some 55 professional golfers and many well-connected fans among the 2,500 or so NetJets owners, the final day of the Masters tournament also falls into that category of dispensation for the company. Of the 300 planes expected on the tarmac of the airfield at Augusta, Georgia, Sunday afternoon, 80 will be from NetJets. As it turns out, one of the service's most high profile owners, Tiger Woods, will be the winner.
Smitty, as their commander is known, stares at his troops. For a moment the tension quotient shoots up, only to be released again by his exhortation: "Thank you very much. Let's do it!" Called to battle, they move back to their posts.
For a company that is touted by satisfied customers as a "time machine," delays are the enemy, not a hazard of the business as they have become in the commercial airline world. When Woods was stuck in Asia with a grounded plane, it took NetJets four hours to replace it. As one employee put it: "When a [commercial airline] loses a plane, the hopeful solution might be having another one 24 hours later. With us, that's just not acceptable."
As I was a passenger on one of those 271 flights of the day before, their movement and rate of delay might have been of pressing interest to me had I not just had one of my best flight experiences ever.
Imagine: Your limousine pulls up to a gate at the airport. A guard checks your ID, the gate swings open and you walk 50 feet to a waiting jet. Your luggage goes straight into the baggage compartment. You climb immediately into the cabin. After a quick rundown on safety procedures, the plane taxis to the runway and zooms into the sky. You're met at the other end by a car waiting at your plane, your bags moved immediately to the trunk. Welcome to the no-hassle world of private air travel.
What seems a fantasy scenario to most air travelers -- especially in these days of heightened security concerns following September 11 -- is the everyday reality of a privileged few who have access to private jets. For them, the inconvenience of arriving at the airport hours early for a flight is erased. It's impossible to miss a plane. They never join the stampede in the terminal. They avoid the indignity of removing their shoes in security lines. They don't look around the cabin, wondering who's most likely to rush the cockpit. They know everyone. They eat what they've ordered for their plane's galley -- never terminal junk or warmed-over airline food. They never lay over in Pittsburgh or stand by a carousel, praying their baggage will chug out without having been manhandled. They have a choice of more than 5,000 airports in the United States and Europe, instead of the 563 that service the airlines. And, since their time is money, they save a lot of green.
But to wing like a sky king entails a huge capital outlay, plus the headache of maintaining a crew of pilots, mechanics and a maintenance staff, storing the plane somewhere and dealing with unpredictable costs and other surprises.
At least all that is true if you own an entire plane and manage it yourself. NetJets, as the first to sell shares of planes, is responsible for making private flying a viable travel solution for thousands of private and corporate owners who might never have considered it affordable or practical. The pioneer in fractional jet ownership easily leads the industry 16 years after its inception by continuing to make owning a part of an airplane alluring, convenient and impeccably safe.
To truly understand the NetJets experience would entail a trip by private jet to its operations center in Columbus. That's why one April afternoon I was cursing under my breath as I arrived at Teterboro Airport in New Jersey 30 minutes early for my flight. Normally, I would have been having heart palpitations because I'd cut it too close and might miss the plane. But in this case I'd blown my chance to make the plane wait for me. No matter, my Raytheon Hawker 800XP, tail number N840QS, was there on the tarmac ready for me. The "N" designated it as a civil aircraft registered in the United States. The letters "QS" were specific to NetJets and stood for quality service.
On board, copilot Jay Mayer, who'd recently left another fractional service because he had safety concerns, greeted me. This will be my first exposure to the NetJets obsession with safety standards. The company won't look at a pilot's résumé until they've had 2,500 hours of flight time. Regardless of whether their backgrounds are corporate, commercial, military, cargo or Air Force One -- there are 10 with the latter -- all NetJets pilots start in the copilot's seat. They also fly only one of the 13 different jet models offered.
It took only a few moments to run down safety procedures and make sure everyone was belted in. The taxi to the runway was comparably short, and when the plane took off, its relative lightness helped it hurry to 40,000 feet, above commercial traffic, in no time. That's important because tail winds were favorable then at that altitude.
As the plane hurtled toward my destination, I could key on creature comforts. While the cabin's height would hardly let me (at 6 feet, 3 inches) stand upright, once I was seated it was just as comfortable as first class. The seats could lie flat and swivel to face each other. The cabin even had a small couch. Along with amenities like DVD and VHS players (larger craft even have satellite television), the cabin is equipped with such business necessities as phone and lap top connections. Again, when time is money, this convenience and privacy can result in recouped hours.
The plane touched down at Port Columbus International a little more than an hour later and not long after that I was at my destination, where Richard Smith greeted me in his office. He showed off a model of a proposed supersonic business jet that if operational would circumvent the environmental concerns that keep SSTs from crossing the United States. After that, he offered to hop up onto his desk and give an air guitar demonstration of why Jimi Hendrix outclasses Warren Zevon. Then he allowed that while he is one of the longer-term employees (since 1978), he doesn't have the military background that marked many of the old-timers.
The NetJets story began in 1964, when a not so unlikely confluence of Air Force generals and show business celebrities started Executive Jet as a charter service for the then-ground-breaking personal aircraft Learjet. The company was the brainchild of Gen. Dick Lassiter, an air-travel visionary. He approached actor Jimmy Stewart, who had risen to the rank of colonel as a bomber pilot in the Second World War and knew Lassiter as a technical advisor on his film Strategic Air Command. Stewart, as well as radio and television personality Arthur Godfrey, himself a flying buff, invested money. Also joining the venture were Gen. Paul Tibbets, who had captained the Enola Gay when it dropped the first atomic bomb, and Gen. Curtis E. LeMay, then known as an Air Force chief of staff and a Second World War hero who developed bombing formations and techniques. (He later ran for vice president on George Wallace's 1968 ticket.) Columbus was chosen as headquarters for the company for its central location to most business travel of the time. Applying the principles of Air Force aircraft management, the group ran Executive Jet as a no-nonsense military operation.
But by 1984 the venture was limping along. Enter Richard Santulli, a former college math professor who went on to create computer programs for Goldman Sachs's leasing department. He bought the company at a bargain price. He reasoned, if for nothing else, he could use the Executive Jet hangar space for his helicopter leasing operation. Santulli, who had never traveled by air before his 21st birthday, then got the itch to own his own plane. His helicopter business had him flying to places like Biloxi, Mississippi, and Shreveport, Louisiana, destinations that, given their remoteness in the commercial airline world, would eat up most of a day to reach. He realized, however, that he wouldn't use the plane enough to justify buying it alone, so he approached a group of friends about splitting the cost. The idea seemed doomed when they immediately began bickering because they all wanted to use the plane at the same time.
What to some might have seemed an insurmountable flaw was a challenge to the mind of Richard Santulli, versed as he was in quantitative analysis and the leasing business. He also had an advantage over the others: a tremendous database. Executive Jets, being run by former military men, had records of every flight it had ever made. Scouring figures on private jet use, Santulli noticed that Executive's planes consistently averaged 800 hours' use a year. "The flying patterns had not changed from 1966 to 1986," he now says. Armed with that information, he was able over six months to create a business model, assuming that a number of owners each bought a fractional share in a large number of jets. In effect they would own part of one jet, but have the use of any other were their plane being used when they needed to fly. It would work for the company because Santulli figured out how to minimalize ferrying (delivering planes at no charge to customers). It would work for the owner because the planes would all be used at the same rate (800 hours a year) and maintained in the same way. While an owner might never even fly in the plane in which he owned a share, he would get the number of hours he bought in a comparable or better plane. But the best part, Santulli reasoned, was that with enough aircraft and a certain amount of redundancy, owners could be guaranteed a jet on four hours' notice. No one would argue over who got the plane for Labor Day weekend.
"I thought it would catch on," recalls Santulli. "I was rather naive in that assumption." Even though the business would grow for a number of years, it wouldn't be as easy as he hoped. He wooed new owners by giving them a few hand-chosen names from his customer list. Then Santulli ran headlong into the economic slowdown after the Gulf War in the early 1990s. "I got killed. I lost a tremendous amount of money." But he persevered and now feels that the mere fact that he stayed in business in such dire times silenced many disbelievers.
The system that he came up with and honed over the years works like this: Owners buy a fraction of a jet -- from a sixteenth to a whole share. They are guaranteed that fraction of 800 hours on a comparable aircraft. If none is available, the owner is upgraded to superior craft (much like what happens when you've ordered a subcompact from the folks at Hertz and they give you a Town Car because they've run out of smaller cars). On top of the buy-in price, owners pay a monthly management fee for their aircraft and an hourly flying fee for the time they use a plane from wheels up until wheels down. Management contracts last five years, but NetJets guarantees to buy back an owner's interest within 90 days at fair market value should the owner decide to leave NetJets. Owners may also sell out to third parties if they choose.
If you think about it, the deal is remarkably like leasing a car. You buy a piece of a plane and use it for five years and return it to be bought out by NetJets at, by conservative estimates, 80 percent of its original value. (Note: no obligation exists to sell back at that time.) Essentially you are paying the depreciation on the plane just as you would with a leased car. During the time you use it, you pay to manage and fuel it. If you leased a limousine and hired a chauffer, you would have similar expenses. In the case of fractional jet ownership, you only take a piece of the plane, and services are provided at a set price. Furthermore, NetJets owners who use their airplanes for business purposes may deduct depreciation of the craft on their income tax just as millions of business car lessees do every year.
Senior vice president Kevin Russell, the marketing director, says the predictability of costs makes NetJets particularly attractive to some buyers, especially corporations. "You can show your CFO exactly what it will cost per year." The management contract takes care of all the details. A firm doesn't suddenly find itself in the business of hiring pilots, figuring fuel and maintenance costs or paying for hangar and landing fees. NetJets has become popular not only among companies looking for an affordable way to enter the private jet world, but among companies that already own a fleet and want to supplement it with few headaches. General Electric, for instance, owns shares totaling more than 3,000 hours.
While the fractional program that began with eight Cessnas now numbers more than 450 planes, it has hit some turbulence over the years -- especially in the early '90s when recession and the Gulf War took their toll. That changed when NetJets wooed one particular customer: Warren Buffett. Buffett, the head of the phenomenally successful Berkshire Hathaway holding company, had pooh-poohed private jets for executives as extravagances. In fact, when he dipped into the market himself, he named his plane Indefensible. Then, in 1995, he bought his first share in NetJets for his wife. It so impressed him that he agreed to appear in advertising, famously stating: "NetJets has changed my life." In 1998, he bought the company through Berkshire Hathaway for $725 million. With Buffett behind NetJets, Santulli, who avoided an IPO that would have made him answerable to Wall Street, now claims he has more than a billion dollars at his disposal at the drop of a hat. With that kind of clout and an aggressive purchasing pattern, the company is able to cut great deals on everything from aircraft to jet fuel.
The NetJets fractional concept that seemed so earthshaking 15 years ago is now the model of the personal jet industry. NetJets has expanded to Europe and the Middle East and is looking to Asia and South America. According to Santulli, the company plans to add 65 to 75 planes a year over the next five years. The company offers shares in 13 kinds of aircraft, seating from seven to 19 and costing from $375,000 for a sixteenth share in the smallest to $3.25 million for a sixteenth share in the largest, a Boeing business jet. The fractional business has become so large a part of what Executive Jet does that on April 30 the company changed its name to NetJets, the subsidiary swallowing up the whole.
For Richard Smith, the involvement of Santulli and then Buffett goes far beyond dollars and cents. It ratchets up the safety quotient. Over dinner that night, he remembered the days when it was hard for him to get a film strip projector and an audio tape for training purposes and he vowed that "if I ever get to a position of authority around here, we're gonna have some real training." When Santulli arrived, Smith was told if there were ever a problem with getting enough training to give him a call. "I never made that call yet."
Today the company owns three flight simulators that cost $18 million to $22 million apiece. Every six months, each of the 2,300 pilots receives training on the simulators, and 23 days a year are set aside for general training. Smith said employees must feel empowered to go to their bosses about safety hazards or it's a recipe for disaster. "It's got to be safe enough for my wife and kids and mom and dad. That's the cardinal rule," Smitty concluded.
The conversation turned inevitably to the Payne Stewart disaster (the golfer's plane lost cabin pressure, suffocating all on board, and eventually crashed after running out of fuel). Smitty attributed the 1999 tragedy to poor equipment and maintenance, "That was a 23-year-old Learjet." NetJets doesn't handle planes of that type or age. "The company that chartered it was on our black list." To handle overflow, NetJets occasionally uses charter companies. It wouldn't have used that one.
Accidents are not the only safety concerns for fliers, however. In an age of terrorism, inquiries to NetJets have increased, according to Russell. In turn, the company is responding to manmade risks with technology that is hush-hush at this printing. Smith did, however, relate a story of how the company has added security without involving its own equipment. When an owner was flying from Sarajevo to Islamabad recently, an employee contacted his son, who was on duty for the Navy in the Middle East. The serviceman arranged for U.S. Air Force AWACS aircraft to monitor the NetJets flight.
Steven Brechter, the chief operating officer, explained the emphasis on flaws that were reported in the daily meeting: "What went wrong we look upon as nuggets of gold. We focus on the nuggets of yesterday and how to turn them into a better tomorrow." Brechter says that he came to NetJets in 2000 as an alumnus of United Technologies. "What I bring to the table is the philosophy of the principles of process controls. Companies are used to downsizing. Here we're flipping it over and managing growth." He projects an approximate annual 20 percent increase in the fleet for the foreseeable future.
Brechter focuses on attaining and maintaining exacting business standards such as ISO 9000 and the Malcolm Baldridge National Quality Award. "Our vision is the top of the Sistine Chapel. Be the best." Yet he referred to a not so theoretical motivation to succeed, United Airlines' recent failed foray into fractional jet ownership, Avolar. "We have to behave like Avolar is still here nipping at our heals."
Being the best is a ceaseless process that has reaped an ancillary benefit: inclusion in Forbes' list of the 100 most desirable companies for which to work as part of the Berkshire Hathaway universe. A ubiquitous enthusiasm for the job exists at NetJets that at first seems corny and then becomes infectious.
Most of the operations employees sit at work stations in the 20,000-square-foot operations control room, attending to all the functions of the owners' flights. Seventeen teams of six people each service the owners, each acting essentially as travel agents. Other groups handle crew services, catering and flight coordination. And then there is a full-time weather service.