Life is a true balancing act. Trying to achieve success, or even proficiency in all the different areas of one’s life requires great discipline and a good game plan. I sometimes think of my life as a four legged table. The four legs of my proverbial table would be faith, family, career and health. If at any point one of those legs were to be cut short or neglected, the table would be out of balance and unable to function as its maker intended.
As a man, I tend to focus on improving one leg at a time, to the neglect of the others. My wife is a pretty good leveling tool of sorts, and since we started dating in high school, I have finally learned to read her “leveling bubble” a little better and adjust my behavior accordingly. All this to say, when the Yin & Yang are out of whack, life can be quite challenging.
Which is where we find ourselves today in the business jet resale marketplace. New airplanes are hitting the market daily and asking prices are retreating faster than a Frenchman in his underwear. Willing sellers are plentiful while willing buyers seem almost non-existent. The few operators who have an interest in buying are afraid to move because of the uncertain economy and because prices will be cheaper if they wait. The few offers that have been made recently are so far below that of a recent comparable transaction that sellers aren’t willing to consider them yet. In short, the market is out of balance.
I was driving in to work this morning, drinking my coffee and listening to NPR (sorry Dad, not Fox News). The Morning Edition program was talking about the economy and discussed the possibility of a “Deflationary Spiral”. This is when prices drop on items for a continuous period of time, with forecasts predicting continued deflation in the future. While this might sound good to some of you in the short run, on an extended basis, continued price deflation causes people to significantly change their buying habits. If goods are expected to be cheaper down the road and a buyer considers that good to be non-essential, he will typically wait to purchase. That puts an end to activity, which is one big reason why we saw U.S. retail sales plunge by the largest amount on record in October. The Commerce Department said Friday that retail sales fell by 2.8% last month, surpassing the old mark of 2.65% in November 2001 in the wake of September 11th. Wow!
I did a quick computation using Jetnet to see how many jet aircraft sold in October of this year compared to last year. I did not want to include very old aircraft or new aircraft purchases, so I limited my search to aircraft built from 1997 – 2007. It was very telling. In October of 2007 there were 173 transactions on jet aircraft, last month, only 66.
There is a large gap right now between sellers’ price expectations and buyers’ interest level. When the real estate bubble burst this time around, prices fell precipitously and supply shot up because homeowners were unable to pay the rates or refinance their adjustable rate mortgages. With a very few notable exceptions in the corporate world, that is not the case in our industry. Most sellers want to move their aircraft because they have a replacement aircraft ready to deliver or want to upgrade. Buyers who truly need the additional lift today need to keep that in mind. The bottom line is that we find ourselves in this “Deflationary Spiral” because not many buyers truly need to put a corporate jet into service right now. Until they do, or we see some people beginning to predict a price upswing, I think we are destined for stagnant sales for a bit.
With Thanksgiving only a week and a half away, I find myself very busy. I have a lot of customers on the fence, just waiting to hear some good news. I will be working diligently the next few weeks supplying them information and trying to get our collective chakra’s aligned. Until then, be patient Grasshopper and may buyers and sellers begin to find the balance they seek.
Toby J. Smith
JBA Aviation, Inc.