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Emerging From the Long Winter

Business Aviation has been burdened by unprecedented events that suppressed our community for nearly a half decade- observes Jack Olcott.

Jack Olcott   |   1st March 2014
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Possibly the world’s most recognized advocate, if not expert on the value of Business Aviation,...
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Witness the Shoots of Recovery...
Business Aviation has been burdened by unprecedented events that suppressed our community for nearly a half decade- observes Jack Olcott.

September 15- 2008- the day that Lehman Brothers declared bankruptcy- marked the unofficial beginning of the Great Recession. Exceeded in size only by financial giants Goldman Sachs- Morgan Stanley and Merrill Lynch at the time of its demise- Lehman Brothers Holdings Inc. was a major player in investment banking- security trading- research- investment management and private banking. Since its beginnings in 1850- the firm transitioned from cotton merchant to prominent provider of financial services after becoming a member of the New York Stock Exchange in 1887. In many ways Lehman Brothers was the epitome of what the public calls “Wall Street”.

In his recent book entitled The Map and the Territory- Alan Greenspan- Chairman of the Federal Reserve of the U.S. from 1987 to 2006- stated that “In early 2007- the composition of the world’s nonfinancial corporate balance sheets and cash flows appeared in as good a shape as I can ever recall”.

With the exception of a few pundits who expressed concern about the financial sector’s highly leveraged positions and the housing industry’s willingness to offer mortgages to borrowers with questionable credentials- there existed broad acceptance that the economy was robust and sustainable. The Standard & Poors 500 index peaked at 1-576 on October 11- 2007- then started a modest yet steady decline interspersed with the occasional bump.

On the day of Lehman Brothers’ collapse- the S&P 500 closed at 1-192 and then fell precipitously in the months that followed. On October 11th of 2008- exactly one year since the S&P’s record close- the head of the International Monetary Fund warned that the world’s financial system was on the “brink of systematic meltdown”.

By March 9- 2009 the index bottomed out at 676- a drop of nearly 60 percent from its level just 17 months earlier. The wealth effect that had contributed to a record 1-853 shipments of turbine-powered business aircraft in 2008 rapidly turned negative.

Unprecedented Impact

While the events following Lehman Day (reinforced by headlines in the financial press) created reality checks among entrepreneurs and high-net-worth individuals- the market for business aircraft among corporations was stymied by a rather sudden and widespread lack of liquidity. Banks simply stopped making loans. Business Aviation wasn’t the only sector to be affected. Business capital expenditures in all aspects of the U.S. economy nearly ceased- dropping to their lowest level since the Great Depression. According to Chairman Greenspan- such a breakdown on so global a scale was without historical precedent.

Uncertainty- the killer of investment- compounded the problem; the prospects for prompt recovery were absent. Optimism that had led the U.S. out of previous financial crises was nowhere to be found. Such an atmosphere of financial gloom prevailed throughout the next four years. Only recently have there been indications that financing is returning.

The lack of financing for business aircraft is reflected in research conducted by Mike Chase- a monthly contributor to World Aircraft Sales Magazine- based upon data provided by JETNET. Prior to Lehman Day- approximately 50 percent of pre-owned business jets were financed. By 2Q 2009 that percentage for retail sales had dropped to less than one-third. As of 4Q 2013- only 22 percent of retail transactions were financed- with banks electing to loan mostly to companies that had a previous relationship with the lender.

Additional Challenge

Less than 35 days following Lehman Day- Business Aviation experienced a calamity of its own making when CEOs of our nation’s three largest auto manufacturers were silent in response to Congressman Gary Ackerman’s question about how they travelled from Detroit to Washington to request bailout funds (they arrived via company aircraft). Rather than mention their need to travel efficiently or be in several locations on the day of Congressional hearing- they avoided the question. The optics were bad- and Business Aviation was vilified.

Recognizing the need to advocate the benefits of Business Aviation- The National Business Aviation Association (NBAA) and the General Aviation Manufacturers Association (GAMA) resurrected No Plane No Gain- the community’s communications effort that was launched in the mid-1990s and had been successful in conveying the benefits of business aircraft during the advocacy program’s previous existence.

Thanks to the professionalism of the current No Plane No Gain team at NBAA and GAMA- coupled with impressive lobbying efforts by both associations on Capitol Hill- the good news of Business Aviation is being communicated consistently and effectively. The optics of our community- while still challenged by some politicians and media- now are more of a mild distraction than a barrier.

Looking Toward Spring
Acceptance of Business Aviation is returning to a positive position. The No Plane No Gain program provides a persistent and compelling message that business aircraft facilitate economic growth and improve quality of life. The theme is finding traction. Forecasters say the overall economy is improving. Companies are generating profits for shareholders and investing in capital equipment. Some financial institutions are willing to loan funds for business aircraft.

The need for Business Aviation has never been greater. Airline consolidation has reduced the travel options for businessmen and women. Departures by scheduled airlines have been cut across all segments of transportation hubs. Flight and duty time regulations have changed- with as-yet undetermined impact on service.

Like other sectors of our economy- Business Aviation felt the debilitating effects of the Great Recession. But we survived. Optimism is returning and uncertainty- while not gone- is diminishing. Business Aviation is on the cusp of emerging from its multi-year winter in the wilderness.

 

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