Everyone has their own opinions on what to look for as the first sign of a recovering economy. The stock market is an easy target, but I can’t say that I am convinced it is the best. The 24 hour news channels make references to dozens of different indices that are supposed to reveal trends in our economy.
In reality, all of these various resources are really telling you what happened last quarter, rather than offering any feedback in “real time.” In fact, even though we all knew we were heading toward a recession last fall, it couldn’t be officially labeled as one until the numbers verified that we experienced two consecutive quarters of negative growth in GDP after the first quarter of this year, which I don’t think was confirmed until some time last month. The same is true of our industry benchmarks – Bluebook & Vref. Good information on what just happened one quarter ago. Not so good at telling you what happened today.
So what are some of the things you should look for in the jet resale market so you don’t miss the bottom? In talking with some folks at Cessna a few weeks back, I was told they look at three key areas for signs of stability in the marketplace:
- Corporate Profits – According to Cessna, once corporate profits start to come back, they start seeing new orders of aircraft eight quarters later.
- Average Daily Utilization – If people are not using the aircraft they already own, they certainly won’t be considering upgrading or adding to their current fleet.
- The jet resale marketplace – See there – the OEM’s do care about us pre-owned peddlers. I’m sure my invitations to all their shindigs at NBAA just got lost in the mail last year.
So that’s what the new sales guys are looking for. Corporate profits seem to be doing better as of this writing, as evidenced by some good numbers on Wall Street. I don’t have the numbers yet for average daily utilization through April, but I know that in March, Citation use was down 21% from March of 2008. In fact, until March of this year, 2001 held the previous record for lowest utilization rates on record.
So what about the resale market? I would argue that the following might be some very good places to look for indications of a changing marketplace.
- Deposits in escrow with a handful of title companies in Oklahoma City
- Pre-purchase inspection bookings
- Number of resale transactions (obviously)
The first two would be the earliest indicators of activity, followed by the number of transactions six to eight weeks later. Now I’m sure that you are all wondering just what these numbers are telling. Unfortunately, I am writing this Blog on an airplane on a Sunday afternoon and have not been able to talk to the title companies or pre-buy facilities just yet. The number of transactions for May have also not been compiled yet, so you will all just have to wait for next week for my findings.
The good news is that I am traveling to California to oversee a pre-buy that is starting on Monday morning. In the last two weeks we have accepted offers on two of our listed aircraft and have several more currently in negotiations. It has been well over a year since we have had this much activity.
The jet resale market has always been one of feast or famine. Right now just about everyone I talk to seems to be drinking out of a fire hose, so that’s my first indicator that things are headed up. But I will admit that I am as curious as some of you are whether the indicators I reference above will agree with my prediction of eminent recovery.
Toby J. Smith
Vice President
JBA JETS, Inc.
918-834-9100
toby.smith@jba.aero