“I have an obligation to get you to your destination. You have an obligation to pay. What else is there? We don't need 24 pages of legalese.”
Preowned: April-May 2007
A few years ago, I was surprised to receive a call from an analyst at UBS, the global financial services firm, who asked me general questions about the used-jet market. Since then, this analyst has broadened his research, and he now regularly polls the players in the field, including brokers and dealers. I suspect this is a sign that our industry is maturing and that UBS views used-jet transactions as an indicator of new aircraft sales.
As I read a recent UBS report, at any rate, a callout on the cover caught my eye. In part, it said, "Despite the sharp increase in our willingness and inventory components, the majority of our respondents still see a flat-to-down market over the next year." I laughed, as I think that statement speaks to the mistrust dealers and brokers have-and rightly so-after any extended up market. Like UBS, many brokers and dealers work off market research, but decisions often come from gut feelings. In fact, I've never met any dealer or broker who felt truly comfortable about any market-up or down.
More than 20 years ago, I met with one of the granddaddies of the used-jet business. During our talk, he wasn't sipping green tea or a frappaccino, but Maalox, and not from a teaspoon. This field is not for the faint of heart. Unlike manufacturers who produce a product, used-jet purveyors have to buy or list an aircraft before they can begin to sell it. And once it sells, they have to go through the same process again and again.
New and used jets are hot now and several indicators support a continued run, but that doesn't mean life is any more relaxing now for those in the used-jet business. In fact, many in the field would rather see a flat market than a hot one, as the former means inventory for purchase or listings is more abundant. Right now, some finance companies report that though they provide dealers with funds for speculative jet purchases, many of those funds are not being employed. It's not due to a soft market, but rather to a lack of wholesale opportunities in the currently robust one.
How long will that market last? Like any other business, the corporate jet trade is cyclical. But predicting the duration of a cycle is difficult. Looking back, 9/11 in 2001 brought about the last downturn and the previous one was about 10 years earlier. This may in part be why several respectable firms have suggested that the current activity level may be sustained, with small adjustments, well beyond 2010.