David Sokol of Netjets and MidAmerican spoke recently about what he sees going forward for the American and European Economies.
His comments were recorded by an Industry magazine:
NetJets chairman advises patience
By: Jeff Burger
October 21, 2010
Business Aviation Aircraft
"Those of us in this room will feel pretty good five years from now," predicted David Sokol, chairman, president and CEO of NetJets. "Time is the friend of good businesses." Sokol made the comment yesterday at Dassault Falcon's annual NBAA "family breakfast," where he was the guest speaker and revealed plans for NetJets to open an outlet in China.
Dassault Falcon hosted the event at the Omni Atlanta CNN Center. "We've seen at NetJets a significant return this year, increasing month by month," Sokol said.
"We're up about 8 percent year over year on flight activity and, while still down from 2007 levels, it's very much a positive trend. Sales activity is up, particularly in the last four months, with net new owners up in significant numbers for the first time this year.
All of those facts speak well for the future of business aviation." Still, Sokol acknowledged the obvious–that recent times have been among the toughest this industry has seen. "Last year was my first NBAA event and it was kind of like going to a wake," he joked.
"Our sales folks had been telling me how vibrant NBAA events are and I assumed it was me. I felt like I had leprosy last year." Sokol forecast a "slow-growth" period over the next five years in the U.S. and said conditions in Europe will be even more difficult.
"U.S. budget deficits…are at record levels," he said. "The U.S. consumer, their debt is at record levels." As for the housing industry, Sokol noted that published data indicates a nine-month inventory of unsold homes in the U.S. and he said a healthy market would have a four-to-six-month inventory.
In fact, he commented, those figures don't account for a "shadow market"–people who want to sell their homes but are waiting to try to do so until conditions improve. "With the shadow market, [the inventory] is probably more like 22 months.
So we think it's probably another 18 months before we see new housing construction getting back to historic levels." Sokol was perhaps even less optimistic about the short-term outlook for reducing unemployment. "The efficiency that was pushed into the system in the fourth quarter of 2008, at least in our businesses, is extraordinary," he said.
"We have manufacturing businesses that cut 25 percent of their overall employment during that period but today believe they can go back to the same volume levels they were at in 2007 and only bring back about a quarter of those employees. Technological improvements have been put in place that frankly we probably should have been doing a decade ago." As a result, Sokol said, he expects unemployment to stay "probably north of 9 percent for another 18 to 24 months." Asian Growth Though Sokol made similar comments regarding Europe, he sounded decidedly bullish about Asia, where he predicted annual growth in the next five years would hover somewhere between 6.5 and 8 percent.
"Anyone who has been to China recently has seen the enormous growth," he added. "The ability of the central government to control and to throttle that economy is absolutely amazing to see.
And while one may not agree with all the policies of China, you cannot deny the extraordinary progress they've made economically. They're going to be one of the economic superpowers of the future." Sokol said NetJets is "filing for certification to create NetJets China later this year." He also said the company is expanding in Europe and adding more aircraft, an apparent reference to the announcement here at NBAA that NetJets will buy 50 Embraer Phenom 300s and option another 75.
Added Sokol: "We're strongly of the belief that while we probably have another 12 to 18 months to work through the excess inventory in the [business aviation] sector…we probably reached the bottom point sometime this summer and look forward to growing in this industry." Finally, Sokol talked about energy, a topic, he said, that "ties into business aviation [because] fuel efficiency and environmental considerations are linked at the hip going forward." Sokol, who in addition to running NetJets is chairman of MidAmerican Energy Holdings, predicted that "the energy industry will go through enormous change depending on what government decides with regard to climate change." MidAmerican Energy Holdings, an $11 billion (2009 revenues) company, which like NetJets is also owned by Berkshire Hathaway, is involved in the production, supply and distribution of diversified energy sources in the U.S. and UK. "We've allowed the politics of environmental considerations to get way ahead of the technological realities," Sokol said.
"If you think about the globe trying to reduce CO2 by 83 percent by the end of 2050, which is what most of the projections [say] we need to get to, [we need] a complete change in the energy consumption methodology of the world. We've had 200 years of an economy that's been built on use of fossil fuels.
"[We're not] knowledgeable enough to know whether the science of climate change is accurate enough or a real issue," Sokol commented. "It's really a governmental decision that has to be made.
But if it's made, how do we transition?" Sokol answered his own question by suggesting that "at least $2 billion" should be spent on a nonpolitical effort to study the issue and plot a course forward, and he emphasized that nuclear energy needs to be a big part of any solution. Other speakers at the Dassault breakfast included Charles Edelstenne, chairman and CEO of Dassault Aviation, who confirmed that wind tunnel testing on the upcoming Falcon SMS is done and that the preliminary design is frozen; John Rosanvallon, president and CEO of Dassault Falcon Jet and Olivier Villa, senior vice president of Dassault Aviation Civil Aircraft.