Berkshire Beyond Buffett(35)

FlightSafety’s success was fortified when insurance companies began crediting customers whose pilots had taken refresher training courses that FlightSafety offered. One insurer, USAIG, developed a program called “Safety Bucks,” offering a discount from their premiums if the customer used it to pay for FlightSafety training.9 Next to come around were labor union  s, initially opposed to outsourcing but finally grasping its value, too. Overseas frontiers followed, as the company won contracts to train young pilots for international carriers such as Air France, All Nippon Airways, Japan Airlines, Korea Air, Lufthansa, and Swissair. FlightSafety opened training facilities across the globe near aircraft manufacturing plants, commercial airline headquarters, or airports.

In the mid-1990s, Ueltschi turned to succession. He had always promised Whitman that he would succeed him as chief executive, but Ueltschi was concerned about takeover risk upon exiting with his block of stock.10 Then, serendipitously, in late 1996, a shareholder of both FlightSafety and Berkshire who knew of Ueltschi’s dilemma wrote to Robert Denham, the long-time Berkshire lawyer and Buffett confidant who had helped orchestrate Berkshire’s acquisition of Star Furniture.11 Buffett called Ueltschi to discuss FlightSafety’s future. When they met for a hamburger lunch in New York, they instantly connected and signed a deal within a month. Berkshire offered FlightSafety shareholders either cash or stock.

At the time of Berkshire’s acquisition, FlightSafety had operations around the world using 175 simulators for a wide range of planes. A capital-intensive business, simulators cost as much as $19 million apiece. In the next eight years, FlightSafety added more than one hundred, making its aggregate cost of simulators $3 billion.12 Given that pilots are trained one at a time, Buffett estimated that the company required $3.50 of capital investment to produce $1 in revenue. High operating margins are thus vital to yield reasonable returns on capital. Whitman—among the handful of Berkshire CEOs who have spent more than fifty years with their company—has led FlightSafety to generate those returns.

Today, FlightSafety operates 320 simulators and has manufactured more than eight hundred.13 In any given year, FlightSafety conducts as many as 1.2 million hours of instruction, training 100,000 pilots, technicians, and other aviation professionals for airlines and more than 3,800 corporate flight departments.14 Whitman has diversified FlightSafety into helicopter training—on models including AgustaWestland, Airbus, Bell, and Sikorsky—and has grown its U.S. military training component. FlightSafety teammates, as Whitman calls the company’s workforce, are sustained by entrepreneurial passion, adding markets by demonstrating the value of outsourcing training to a trusted expert.




FlightSafety’s largest customer is fellow Berkshire subsidiary NetJets, a company created by Richard T. Santulli, who resides with Ueltschi and Whitman in the pantheon of Berkshire’s great entrepreneurs. The company’s roots date to 1964, when several retired Air Force generals formed Executive Jet Aviation, Inc.15 The company chartered business jets for private use and earned a reputation for excellence in customer service and safety, although temporary ownership by the Penn Central Railroad from the late 1960s through the railroad’s scandal-ridden bankruptcy gave it a bad name for a few years.

In 1984, Santulli, a Brooklyn-born mathematics whiz with two degrees from Polytechnic University of New York, bought the business. He had spent the 1970s writing computer programs for Goldman Sachs, eventually running the firm’s leasing unit. In 1980, he embarked on his own.

At Executive Jet, Santulli’s math background proved valuable.16 Over the previous two decades, his predecessors kept detailed records on the company’s charter aircraft concerning destinations, layovers, seasonality, flight duration, and equipment maintenance. His mathematician’s mind perceived intriguing relationships; his entrepreneurial instincts sensed lucrative business opportunities.

Harvesting the data, Santulli gradually came to envision a new approach to the business. Instead of chartering planes one at a time, he would sell fractional interests in given planes to multiple owners. His company would then operate the fleet in exchange for customer service fees. The time-share concept had worked in the real estate world; why not aviation?

The math/business problem Santulli solved was this: if he sold a certain number of shares, how many additional planes would be necessary to enable guaranteeing customers’ use of their plane? The answer varied by scale: with all of the shares in one hundred planes fully sold, for example, the company would need to own another twenty-six (called its “core fleet”) to guarantee availability for all customers; with eight hundred planes sold, a core fleet of eighty would do, still a capital-intensive venture but driving higher returns.17