““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 ”
Editor's Desk: Irrational exuberance? No, thank you
Business aviation has been taking it on the chin ever since Congress began pummeling the Big Three auto CEOs in December. Now any company that has taken bailout money is fair game for similar direct hits, if there is even a hint that it might be using business aviation to make itself more efficient. Citigroup unintentionally grabbed the spotlight with its order for a Dassault Falcon 7X. After putting up a non-defense for 24 hours ("we ordered it three years ago to replace two older, less fuel-efficient jets"), Citigroup canceled the order PDQ.
The American Recovery and Reinvestment Act-the government's latest bailout package-expressly excludes luxury expenditures, such as business jets. Broadly defined on purpose, the "guidance" from the Obama Administration leaves a lot of room for interpretation, making it almost imperative for companies to err on the safe side. It's like parents telling their teenagers to drive safely when they leave the house. The least deviation noted by a neighbor or the smallest of transgressions reported by the police becomes ammunition for grounding.
We've heard reports of companies canceling orders for whole aircraft and even fractional shares because they don't want the government to look at them cross-eyed. And in a first for Business Jet Traveler, our scheduled subject for this issue's "CEO Files" asked that his interview be canceled because the downturn in his business had made it prudent for him to sell his jet. This is a person who has owned and flown business aircraft since 1991.
When the full weight of the government, the general media and the bloggers comes down on what is perceived as a company's irrational and exuberant use of business aviation after its sales have dried up and layoffs are unavoidable, it's not hard to understand the public's ire, nor many corporations' lack of moxie regarding their use of business aircraft. It is also understandable how, in the midst of economic chaos, companies can easily forget or disregard the fact that their flight departments really do benefit their bottom lines. But as the saying goes, "When you're up to your tuchus in alligators, it's tough to remember the original objective was to drain the swamp."
The business aviation community is trying valiantly to paddle against this tidal wave of bad press. Hawker Beechcraft and Cessna have launched ad campaigns to extol the efficiency benefits of their products. Other business aircraft manufacturers are likely to follow suit, if they have not already done so by the time you read this. The National Business Aviation Association and General Aviation Manufacturers Association have dusted off a slogan-"No Plane, No Gain"-that they had introduced in 1993, but allowed to quietly fade away as the industry gained momentum later in the decade. Numbers released in February show business jet and turboprop deliveries at an all-time high in 2008, which sounds great until you hear the follow-up news that billings for new orders fell off a cliff in December, January and February, and continue to nose dive.
Like the "end is near" prophets, industry and other forecasters keep revising their prognostications. Of course, nobody really knows where the bottom is or how long it will take to wallow or launch out of it. But you can bet there will be some forecasters somewhere who will be able to look back on one of their predictions and say, "I told you so." Then they will gather a huge congregation of followers until they fail to predict the next cycle. The problem is finding the prophets among the current crop whose forecasts are correct today.
Will "No Plane, No Gain" help remove the tarnish from business aviation's image? Right now, nobody knows that either, but the campaign can't hurt. As some economists are telling us about the economy, the fundamentals of business aviation still look good. Long-time users continue to sing from the same sheet of music: Companies that use business aviation wisely are still more efficient, regardless of the state of the economy and what naysayers assert. The fundamental reasons for using business aircraft are unchanged. We will survive and will likely be wiser for it.
But don't be surprised when, during the next upswing, irrational exuberance returns with a vengeance and luxury becomes king again. Some folks just can't resist putting lipstick on a pig.