Bouncing off the bottom

Business Jet Traveler » February 2010
Monday, February 1, 2010 - 4:00am

After used aircraft inventory reached an all-time high last July, the market sustained a month-over-month decrease in supply, falling 8 percent below its peak of 3,100-plus. While that's good news for sellers, some long-time observers temper any optimism by noting that as market values stabilize or rise after a plunge, buyers often take a timeout as they assess the revamped trading environment and adjust to the new price levels.

Some jet shoppers convey their disbelief by submitting offers that might have been considered seriously at some point last year, but that have little chance of being accepted today. This results in an adjustment period that can briefly stall the nascent recovery, until the pain of ponying up the additional fare subsides.

Today, at any rate, the market is by no means on fire, but nor is it on the brink of collapse as some were predicting it would be a year ago. Like the stock market, the used-jet market tends to get overbought and oversold and the last few years exemplify this. Skyrocketing prices in 2007 were soon followed by plunging values. Now that the fear trade is gone, where panicked sellers were in dump mode, fire-sale pricing seems to have disappeared and the market has squarely entered a transitory state. It's likely the market lows for most of the actively traded aircraft happened sometime during the middle of last year.

In the wake of the December 25 airline bombing attempt and other recently reported airport security breaches, corporate jet ownership might have bounced off not only its pricing lows, but its image lows. While values haven't stabilized for all aircraft models, they likely will if sales activity continues on its current path. The inherent security of business jet travel, a weak U.S. dollar, low pricing, a low-interest-rate environment and an improving image, or at least less of a negative one, all point to a rebound in used aircraft pricing.

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““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 ”

-David Yermack