““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 ”
Preowned aircraft annual report
Considering what 2011 served up in terms of worldwide calamity–from government overthrows to devastating natural disasters to a global debt crisis–it's a wonder anyone had the confidence and wherewithal to buy a corporate jet. Yet the year saw a continuation of 2010's resurgence of buyer activity. This mild but sustained trend is providing a sense of relief for many sellers.
One difference between this year and last is that in 2011, many formerly dormant market segments are experiencing renewed buyer interest. Inventory in some of these heretofore lightly traded markets is still abundant and clearly the best of the best is getting picked off. While prices of GIV-SPs may have fallen about 50 percent from the peak, many older aircraft are selling at even bigger discounts–for 25 cents on the dollar, in some cases. So a midsize-cabin model that cost $4 million at the market's high point may now be available for $1 million. That's a steep cut considering that it's only three years older now and has perhaps another 1,000 hours on it. The reduction will certainly offset the higher operating expense that goes with an older model and the low cost of purchase should take care of any angst over residual value.
Another interesting development this year was an increase in the percentage of aircraft that are based in Europe. About five years ago, new airplane deliveries to that continent outpaced those to the U.S. for the first time. Now, thanks to a dismal economic outlook, those same aircraft are showing up on the market in sizable numbers. More than half of Hawker 850XPs for sale today are based outside the U.S. and the same goes for Learjet 60XRs. Similarly, 65 percent of late-model Citation XLSs for sale now are based outside the U.S.
With Europe still navigating stiff economic headwinds, it would not be surprising to see inventory continue to build in the region. Given the relatively weak dollar and the travel and export hassles inherent in shopping for a jet abroad, it seems unlikely that U.S. buyers can be drawn outside its borders when the supply on home soil remains bountiful.
In any case, worldwide inventory figures no longer suffice as indicators of the market's health; now you have to consider jet populations in specific regions as well as inventories of specific model years. Consider that currently in North America, 7.3 percent of the nearly 6,000 aircraft delivered between 2000 and 2010 are for sale. In Europe, meanwhile, for-sale signs are attached to 13.7 percent of the 1,850 aircraft delivered during that same time frame.
Asia is another story. Its jet market is only about a tenth the size of the one in the U.S., but it has enormous potential for continued growth and we'll likely see large percentage gains. During the last two years, the number of aircraft imported into China was more than double the number that arrived from 2000 to 2008. The palate for new jets will eventually lead to more used offerings, but for now, the focus is on factory-fresh models. As for South America, its fleet of 2000-2010 models is slightly smaller than Asia's and just under 7 percent of that fleet is currently for sale.
It seems many buyers have become immune to the disaster-of-the-day scenario that has unfolded this year and have made a dent in the inventory despite it. Should the bad news stop, or we actually get some sort of positive stimulus, you could perhaps see the market make further and more accelerated advances. For now, it seems that buyers and sellers alike are content with the unhurried pace of the recovery.
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