““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 ”
Signs of Life
Reduced inventories of several models suggest that, after years of weakness, the used-jet market is finally turning around.
Though it’s too soon to start celebrating, we’re seeing more and more signs of a turnaround in the market for used jets.
One example: the number of preowned Gulfstream G550s for sale recently dropped below 10—down from 17 roughly a year ago. When you consider that more than 400 of this model are in operation, the small percentage on the used market is impressive. An increase in prices seems unlikely in the short term but we can expect values to at least stabilize if G550 inventory holds at or below current levels, as one might expect heading into the historically busiest sales period of the year. The immediate beneficiary of such stabilization would, of course, be the GV, a model whose inventory has slightly increased year-over-year.
Supply of Bombardier’s Challenger 604, meanwhile, reached an all-time high at the end of 2012—but then buyers detected value and assaulted this segment with cold, hard cash, driving availability down to levels not visited in a couple of years. Buyers’ acute sense of value can tighten up a market over a couple of quarters, which is what has occurred here. While the Challenger 604 market remains supply-heavy, inventory seems likely to continue shrinking this fall, with levels stabilizing by the end of the year. Lending support to this thesis are the “sale pending” notices that accompany nearly 10 percent of the model’s current for-sale listings, plus a comparatively low supply of the successor model 605s for sale.
Another large-cabin jet, the Falcon 7X, seems to have arrived at its trigger point, with most of the pricing in the sub-$40 million area. The aircraft has been selling at a rate of roughly one per month over the last six months, double the rate of the previous six months, bringing the number of choices below the 12-month moving average. n
Bryan Comstock welcomes comments and suggestions at firstname.lastname@example.org.
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