It's Ugly Out There Kids
When this blog is posted, there will be exactly 13 shopping days left until Christmas (airplane shopping days that is). Which means that, unless you are a cash buyer for an aircraft and you don’t require a pre-buy, 2008 is in the books. Although the true numbers won’t be tallied and posted for us to see until around Valentines Day, following are a few interesting data points to throw around the office water cooler.
- Used business jet inventory levels have increased 62% from last year.
- Business jet takeoffs and landings in October were 19% lower than last year. (Source: David Strauss UBS Investments) That is a bigger drop than we saw in September 2001, when US airspace was shutdown!
- Credit standards have tightened. Lenders are often requiring 20% down payment or more.
- Corporate Aviation has become a target for the news media as an example of corporate misuse of funds.
- GM & Ford both bowed to that pressure, and have taken steps to close both flight departments and divest of their aircraft (13 aircraft between the two)
- Some Large Cabin & Ultra-Long Range business jets have lost upwards of 30% in value over the last 6 weeks. Even at the new price levels, there continues to be little to no interest from real buyers.
As a customer recently told me after throwing around a few of these statistics, “Well, Merry Christmas to you too!”. He was right. It’s not all bad. If you sit around and watch the talking heads on TV for any length of time, you will be overwhelmed by bad news. I guess that is what keeps people watching. I will try to balance out the bad news with some positive observations I have seen over the last two weeks.
- Although Large Cabin & Ultra-Long rage prices have fallen far recently, the right airplane is still valued at or above the price the current owner paid for it the day it rolled off the production line.
- Prices had gotten so inflated in some markets that many buyers refused to pursue an acquisition at such premiums, despite having a true need for the additional lift.
- Jet-A fuel is currently priced around 40% lower than it was this time last year. That will result in a significant reduction in operating expenses.
- I have spoken with many flight departments in recent weeks just looking for a little stability in the markets before they start making offers on aircraft.
- The airlines are taking steps to reduce their fleet and are offering fewer connecting flights, making it even more difficult to travel without the use of a private aircraft.
- Black Friday and Cyber Monday sales figures exceeded all expectations, even though profitability might still have been off from where it was last year.
As I’ve often heard, it’s always darkest before the dawn. Although I can’t say I think the sun will rise tomorrow in this market, maybe we will start to see some pink over the horizon the first of the year. In the mean time, turn off CNN for a few days and remember, as Ellen Griswold says “I don't know what to say, except it's Christmas and we're all in misery.”
Toby J. Smith
JBA Aviation, Inc.