““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 ”
Full speed ahead
The continuing low-interest-rate environment coupled with a weak U.S. dollar against many international currencies and long backlogs of orders for new jets continue to buoy the used-aircraft market. Inventory levels did creep up a bit in January, but the increase was in line with gains in each of the previous two years and the current levels are still well below the all-time high of 2,059, which was set in November 2002.
When you consider how many news articles have been published lately about whether we're already in or are heading for a recession, you might expect jet buyers to beat a hasty retreat, but that hasn't happened. One of my clients' investment advisors said of the aircraft market's resilience, "I just don't get it." Some assert that jet-buying activity lags a downturn-and an upturn, for that matter-by a quarter or two, and historically that seems to be the case. Perhaps, too, this business is benefiting from an increased understanding that the corporate jet is more a business tool than a luxury item.
Of course, most business tools are depreciating assets, which is what makes private jets such an interesting study. While some models' prices may retrace their paths from earlier this year, others may continue to defy gravity. Consider the Boeing Business Jet, whose price in recent months started bumping up by $10 million-yes, $10 million-with each sale until it hit the current high of more than $70 million. Then you have a recent sale of a Falcon 7X, reportedly for more than $60 million. Some other aircraft, many of them in the 10- to 20-year-old range, never really experienced the surge in value that some of their later-model successors displayed; prices of these older airplanes will likely remain fairly stable in the year ahead.
Meanwhile, certain new models-including the 7X and others in the pipeline, like Cessna's Columbus and the just announced Gulfstream G650-are building on the momentum that began earlier in the decade. The used-aircraft market will continue to benefit as buyers of such new aircraft become sellers of old.