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Archive for April 2011

Private jets as evidence of agency problems in public companies

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There is aCorporate Greed piece on Bloomberg discussing a paper written by the Federal Reserve which cites the behavior of private equity firms with regard to private aircraft in acquired companies as evidence of agency problems in public companies.  Essentially, they say that since firms owned by private equity firms or that undergo leveraged buy outs operate smaller priave aircraft fleets than similar public companies, executives at the public companies are taking advantage of their public status and giving themselves excessive perquisites.

It may be true, but this does not strike me as evidence.  There is no proof that private equity does a better job of managing a business for the best long term performance.  In fact, private equity investors always have a relatively near term exit target (due to the life cycle of their funds) and frequently load up acquired companies with so much debt that they are left in a very precarious position once the p.e. investors leave or sell the business off to the public.  In such cases, it would make sense to cut the costs of private air travel even if it were not in the best long term interest of the business.  Anything that makes the operation look more profitable in the short term, or frees up cash flow to allow increased leverage is good from the p.e. perspective, but may have negative long term implications for the business.

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Written by mojofinance

April 9, 2011 at 7:08 pm

New NetJets CEO Hansell is great, says his dad

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Funny Bloomberg article talking about the new NetJets CEO, Jordan Hansell. Hansell is really a complete unknown in the business world. He was recruited out of private law practice  just two years ago to be NetJets’ general counsel.

The article reminds me of something out of a school paper, as the primary source of information about how prepared Hansell is is Hansell’s father. Talk about cutting edge investigative journalism.  I guess Hansell’s grandmother was not available for comment.  Unsurprisingly, Hansell’s father seems to have good things to say about his son.

It’s not at all clear why Hansell is qualified to lead such a company.  He has no operational experience and no experience in the aviation industry.  At least with Sokol, he had a background in managing large, capital intensive businesses.  He may surprise me, but I think they’re going to need to come up with someone to take over who can really show some vision on where the company needs to go.

Written by mojofinance

April 8, 2011 at 1:52 pm

No tears for Sokol

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David Sokol’s well publicized departure from Berkshire Hathaway (and NetJets) came as a surprise to the financial world, but was viewed favorably by others.  Certainly, Sokol’s plans to shrink NetJets to profitability was controversial with the NetJets pilots (nearly 500 of whom are already furloughed).  In addition the massive cancelation of orders to Cessna, Hawker and Gulfstream no doubt ruffled a few feathers, as pointed out in this Aviation Week article about his departure.  I assume, though, that Embraer and Bombardier — the beneficiaries of NetJets’ change in aircraft suppliers — were less enthused to see Sokol leave.

Written by mojofinance

April 7, 2011 at 2:56 am