A wild ride ahead

Business Jet Traveler » August 2010
Sunday, August 1, 2010 - 5:00am

Wall Streeters and other experts have been making a variety of persuasive but conflicting predictions about where the economy is headed. Will a recovery be shaped like a V? Or a U? Or perhaps a W? One expert even suggested an L-shaped condition, in which a nosedive would be followed by an indefinite period where we skid sideways along the bottom. And highly respected Pimco co-CEO Mohamed El-Erain-obviously thinking outside the alphabet-soup box-said the recovery would resemble a square-root symbol. He argues that we've reached a "new normal" for global economic growth.  

Whether or not he's right about the world economy, I think the term "new normal" applies to today's used aircraft market. It was buyers' and sellers' non-acceptance of pricing that caused values to sink until about a year ago, courtesy of a combination of some foreclosed jets and desperation sales that began to carve out the market bottom, or the lowest point of El-Erain's square-root analogy.

Consider that roughly a year ago about 40 Gulfstream GIV-SPs were for sale and today half that many are on the market (see chart). The reason for this is the new normal, which includes an accepted pricing structure nearly 50 percent lower than it was 24 months ago. Consider, too, the Hawker 850XP market: 20 are currently on the sales block-only five of which are U.S. registered. That's another example of the new normal.

So what will the recovery look like in the preowned aircraft market? I think it will be less reminiscent of alphabet letters and square-root symbols than of the Cyclone rollercoaster at Coney Island. The good news appears to be that everyone's stomach has already churned after the dramatic drop. Keep your seat belts fastened for the rest of the wild ride.

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Quote/Unquote

““When I made the film The Invention of Lying, they gave me a private jet for getting back and forth between New York and London. I thought, ‘I will never use it’ but I ended up using it every weekend. You turn up, right, and the airport is completely empty. I mean, there’s just someone at the desk and then the pilot, who says, ‘Are you ready to go?’ and you say, ‘Don’t you want to see my passport?’ and he goes, ‘Oh yeah, I suppose I’d better.’” ”

-—actor and comedian Ricky Gervais