Buffett Has Sokol Run NetJets, Fueling Succession Speculation

By Andrew Frye and Erik Holm

Aug. 5 (Bloomberg) -- Berkshire Hathaway Inc. named David Sokol to run its money-losing NetJets Inc. airplane-sharing unit, adding to speculation he may one day lead the investment and holding company built by billionaire Warren Buffett.

Sokol was tapped by Buffett to replace Richard Santulli on an interim basis as chief executive officer of the Woodbridge, New Jersey-based airplane-rental unit, according to a statement yesterday. Sokol, 52, is chairman of Berkshire’s energy business.

Buffett, Berkshire’s leader since the 1960s, is monitoring candidates to succeed him in overseeing a cadre of businesses ranging from candy and furniture to energy and insurance. The potential successors all work for Berkshire, and picking one is the board’s most important job, Buffett, 78, has said.

“He must think a lot of Sokol’s abilities to throw him into this,” said Andrew Kilpatrick, who wrote the two-volume “Of Permanent Value: The Story of Warren Buffett.” “I don’t know it means he’s an heir apparent, but it does mean he’s in there.”

Berkshire stockholders and Buffett-watchers have long speculated about who will fill the CEO position. Barron’s has reported that Sokol, chairman of MidAmerican Energy Holdings Co., was the most likely successor.

Tony Nicely, the head of Berkshire’s Geico Corp. car insurance business, and Ajit Jain, who runs a unit that sells reinsurance, are also on media lists of potential successors.

NetJets has suffered as the U.S. recession deepened in the last year. The company posted a $96 million pretax loss in the first quarter, compared with profit of $45 million a year earlier, on writedowns.

Santulli’s Exit

Santulli exits after about 25 years with the firm. In 1986, the executive invented the notion of “fractional” jet ownership, in which individuals and companies buy shares of a private plane’s flying time in lieu of buying the jet. Buffett was a NetJets customer before buying the company from Santulli in 1998 for $725 million in cash and stock.

Under Buffett, Berkshire bankrolled NetJets’ fleet of Boeings, Citations and Gulfstreams. It also underwrote the company’s expansion to Europe.

“If you were to pick someone to join you in a foxhole, you couldn’t do better than Rich,” Buffett said of Santulli in his 2007 letter to Berkshire shareholders. “No matter what the obstacles, he just doesn’t stop.”

Santulli said in the statement that he informed Buffett of his decision to leave NetJets yesterday morning, hours before the afternoon announcement. Buffett accepted the resignation with “reluctance,” according to the statement.

NetJets “has got to be the worst business in the Berkshire portfolio right now, or close to it,” said Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha” and founder of hedge fund Ram Partners LP. “It’s not necessarily Santulli’s fault. NetJets must be sucking wind right now.”

Maryann Aarseth, a spokeswoman for NetJets, didn’t return a call seeking comment. Buffett didn’t respond to a request for comment left with assistant Carrie Kizer.

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Erik Holm in New York at eholm2@bloomberg.net.