““CEOs go to their vacation homes just after companies report favorable news, and CEOs return to headquarters right before subsequent news is released. More good news is released when CEOs are back at work, and CEOs appear not to leave headquarters at all if a firm has adverse news to disclose. When CEOs are away from the office, stock prices behave quietly with sharply lower volatility. Volatility increases immediately when CEOs return to work.” —David Yermack, a New York University finance professor, whose recently released study shows a correlation between when CEOs take their private jets on vacation and movements in their companies’ stock price ”
It dawned on me this morning that though I'm a used-aircraft broker, I have $90 million worth of offers on my desk for new jets-two aircraft that haven't even been built yet. So why are these transactions my business? Because when holders of new-aircraft positions look to resell them, they turn to used-aircraft brokers, not the jets' manufacturers, to orchestrate the deals. After all, the manufacturers are in the business of selling new aircraft; and the position holders rightly question the motivation level a manufacturer has to promote an already sold position over a new one.
In fact, while the resale market for new-aircraft positions remains upbeat, the manufacturers collectively grimace at position resales, as this activity may not bode well for future orders or revenues. That's because these resales shorten backlogs, since the new buyer won't have to go to the end of the line, won't push deliveries further out and will potentially deprive the factory of another sale. The last thing any manufacturer wants is to have "white tails" (unsold airplanes, so named because their tails lack the logos or colors of their owners) sitting on its ramp waiting for a buyer.
Right now, however, the number of positions available for resale-about 100-represents a small portion of the total number that buyers are holding. And while manufacturers commonly believe position resales have only a negative impact, some say they can benefit manufacturers. Consider that soon-to-deliver positions can be resold for more than the factory list prices-in some cases, $10 million more-which should make it easier for manufacturers to justify those list prices. Manufacturers can also use position resale prices to show buyers how well their aircraft hold value.
In fact, some manufacturers have been known to acquiesce to the assignment of the purchase agreement to a third party-a gesture that seems fair considering the lengthy time between order and delivery and the changes that can occur during this period. This is not to say a charge won't be levied for this allowance; reports have surfaced about $100,000 fees to transfer a warranty and of a commission to the manufacturer of 1 percent of the gross sale amount. (Some position sellers have avoided roadblocks and fees by forming limited liability corporations and have been able to adhere to their contracts by selling not the positions but the LLCs-which just happen to have as their only asset an aircraft purchase agreement.)
Many manufacturers, meanwhile, have tried to extinguish the resale of positions, largely to prevent speculation. For example, some reportedly assert that they won't honor warranties if a position is resold. In the end, however, position resales have rarely been stymied and they likely never will be. No matter what efforts are implemented, people will continue to find ways to carry out one-off position resales, as they have for the last several years.
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