Al Ueltschi (prounounced Yule-chee) has one of the most remarkable careers in business. He moved from legendary pilot to the creator of FlightSafety, the leader in pilot training, to funding ORBIS, an internationally-focused ophthamological charity organization. At 91, he continues to excel and participate.
Berkshire Hathaway (BRK) purchased the FlightSafety in 1996 for $1.5 billion. In the 2007 BRK annual report, Chairman Buffett commented that FlightSafety had pre-tax operating earnings of $111 million, and a net investment in fixed assets of $570 million. Al Ueltschi drove a hard bargain; Buffett paid nearly 15 times EBIT. EBITDA is not given, but FlightSafety probably had depreciation of 15% of fixed assets, putting the "D" of EBITDA at $80 million. If so, then Chairman Buffett probably paid 8 times EBITDA.
The hazards of paying a reasonble amount for EBITDA (7-10X), but a high amount for EBIT (over 12X) shows up here. Because FlightSafety is a "capital pig" (revealed by the high depreciation number), the results have been unlegendary.
Pre-tax operating earnings in 2007 were $270 million, a earnings increase of $159 million since 1996. Applying the same valuation that BRK paid for the company, FlightSafety would be worth $3.6 billion - better than a double. However, BRK has invested an additional $1.635 billion in capital expenditures. The not-tax-adjusted rate of return for this "it-put-up-more-to-earn-more" investment is in the low single digits.
But it may be worth such a low return to BRK to have the influence of such an amazing CEO. Here are a few words from Al Ueltschi: "We're all just human beings and we all do the best we can. We can make a difference by helping people. We have the greatest opportunities in the world."
He passed in 2012 at age 95 while doing amazing charitable activities to the end. His life is an exemplary model of integrity of inside and outside matched with passion.
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