““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 ”
The Lease Alternative
An airplane seller who was acting as his own broker told me that he’d been abandoned at the sales altar on three recent occasions, each time because of issues with buyer financing. “Welcome to the club,” I thought. “If selling airplanes were easy, everyone would be doing it.” Indeed, many deals fall apart due to a lack of funding options, creditworthiness issues, cold feet or some other impediment. That’s been particularly true in the last few years. Even the deals that are getting done seem to be taking an inordinate amount of time.
Meanwhile, I’m hearing more queries about lease options today than at any other point in the last 20 years. Most owners remain uninterested in subleasing their jets, but exceptions do exist: Among the nearly 2,600 business aircraft now on the market, 45 are available only for lease while the owners of another 50 or so would consider a lease or sale. Lease options include older, small-cabin aircraft like a Lear 35A; long-range, large-cabin models like the Gulfstream GV and Global Express; and practically everything in between.
The lease option is just another arrow in the quiver of owners who may not be in a position to sell for a host of reasons. For example, they may be upside down in the aircraft financially, which would make a lease attractive because it would allow them to avoid the lump-sum seller payout that would be incurred in an outright sale. Some may also view a lease as a way to ride out the storm that has hit aircraft values and tread water until a recovery happens.
Leasing terms and conditions vary widely. Some owners offer short-term arrangements; others prefer long term. Some don’t allow the aircraft to be chartered and many, if not most, have monthly or annual flight-hour restrictions, or have built-in price premiums if maximum allowable hours are exceeded. [For more on leasing, see “The Changing Face of Aircraft Lending” on page 26. –Ed.]
Buyers and sellers need to weigh such variables carefully, but they shouldn’t ignore the lease option. In a down market, it can offer a noteworthy alternative in the preowned arena.
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