““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 ”
Supply and Demand
It wasn’t until the end of the final quarter of last year that the used business jet market showed clear signs of direction. That’s when inventory moved noticeably lower after peaking at 2,600 in October. Just 60 days later, we were flirting with the 2,500 mark for the first time since the fall of 2008.
The difference between that year and recent months is that in ’08 the inventory level was beginning its ascent to an all-time high whereas today supply is dwindling. In fact, if you focus on the sweet spot for buyers and bankers—the year-2000-and-newer collection—you see that worldwide inventory for sale is now below 9 percent.
In the recent past, activity has centered on the latest and greatest models, but demand for a wider assortment of aircraft is building. With airplanes like the Gulfstream G550, Challenger 300 and Falcon 2000EX already in short supply, attention is increasingly turning to some heretofore beaten-down, second-generation aircraft. The Challenger 604 is a prime example, with about half as many available now as there were a year ago.
You may wonder why Gulfstream’s GIV-SP, with equally attractive pricing, hasn’t followed suit. I’ve been wrong for so long about this model’s recovery that I’m embarrassed to admit it. A year and a half ago, only 14 were for sale out of a fleet of just over 300, but then inventory began increasing. Today’s for-sale figure is 33—right about equal to the model’s 12-month moving average. There haven’t been this many GIV-SP choices since 2009.
If you focus on 2000-and-newer aircraft that are based in North America, however, you see a different picture. Only eight GIV-SPs in this group (and just six 604s) are for sale at present and if the market continues on its current path, these could evaporate during the first quarter.
Inventory has declined noticeably for some other models as well. Only nine Falcon 900EX EASy aircraft are on the market, for example, and Hawker 850XP choices have been halved since last summer, from 15 to seven. (And four of those are in Russia, Kuwait, Austria and Switzerland; only three are in the U.S.) If Citation CJ3 choices continue to dwindle, meanwhile, you may see the “Wichita Lineman” back on the line. Just over 400 are in operation, but supply has dropped from 33 last year to 23 today and appears poised to continue declining.
While demand has risen for many models, there has not been any corresponding upward move in pricing. That may change this year for some models. No one seems ready to predict that, but the main complaint I’m hearing lately from my industry counterparts is that they need more inventory, and that’s a clear sign of a strengthening market. n
Bryan Comstock (firstname.lastname@example.org) is president of Jeteffect, a jet sales and acquisitions firm headquartered in Long Beach, California.
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