If we have learned anything in more than a century of building airplanes, it's that the business is wildly cyclical. If the mainstream economy is a road through rolling hills, the airplane economy is a neck-snapping, looping roller coaster. And usually, the airplane business is a sensitive leading indicator of a sharp economic downturn ahead. Or so goes the standard wisdom.
But something curious is happening right now. For an article I'm working on for the December issue of Aviation Consumer, I've been calling around talking to brokers and aircraftdealers, expecting to hear the worst. Like everyone else, I've been watchingbut notobsessing overthe Dow and it's generally assumed that because airplane purchases are discretionary, they're paid for with discretionary earnings from stock investments. If that's true, it appears that it's not universally true.
All of the brokers I've talked to report that sales aren't nearly as bad as the Dow's wild swings would suggest. "We haven't seen a downturn, even with the market down," Howard Van Bortel told me. "For October, single-engine sales are up slightly. I don't know if we're an anomaly or not." Other brokers report softness in sales and pricing and slower sales activity than a year ago, but sales aren't in free fall. "Then again," says Fred Ahles and
Premier Aircraft Sales, "it may be early."
That's another way of saying that if we aren't in a recession now, we might soon be. Maybe that's true and maybe it isn't. If airplane buyers think we're in a recession, they're not yet acting that way. Further, if you examine the data, the economy isn't in recession at all. For the first quarter of 2008, GDP growth was .9 percent and for the second quarter, it was 2.8 percent, well in line with the average growth since 2000. The Bureau of Economic Analysis is due to release third quarter estimates on October 30.
So, with airplane buyers apparently operating counter logic, are fears of a recession imaginary, fanned by incessant media reports of impending doom? Alan Klapmeier of Cirrus thinks so, as he explains in this this podcast. More accurately, he thinks exaggerated media coverage sharpens and deepens economic fears. Cirrus has reduced its production and factory hours to balance its output with soft demand. But it hasn't shutdown.
Klapmeier has a point about news coverage. If you watch enough of it, you'll be dragged into a dark swirling vortex of despair and you'll lose sight of one constant truth: media reports are merely snapshots of the world taken through the narrow lens of the news organization's or the reporter's biases, intended or not. If reality were a brick wall, a single news report is but one brick and may be a faulty one at that. News consumers often forget this.
Carrying this logic forward to the bitter end, would we be in the current crisis if reporters simply didn't do stories on the economy? If you believe that, you may also believe that a million home foreclosures and declining home values don't represent a drag on the GDP. When the history of this crisis is written, I think it will conclude two things: The Dow's wild swings are just old-fashioned investor panic, but the crumping of the housing market is a genuine, first-order effect caused by widespread bad business and consumer
decision-making unrelated to panic psychology. Taken together, the toll on the economy is more real than it is media-fueled imagination.
But the silver liningand there always is a silver liningis that the used aircraft market strongly favors buyers at the moment. Despite disruption in the mortgage market, credit is available for qualified aircraft buyers, even if terms and interest rates aren't the best. Inventory is high and there are an unusual number of good deals to be found in late-model used airplanes.
Unfortunately for sellers, this has put downward price pressure on older airplanessay 20 years and olderso owners have to be realistic about what they can get for those aircraft.They'll sell eventually, but brokers say they have to be priced right. For buyers, there's never been a better time to find a high-value deal on a serious, high-performance airplane with good equipment.
That oft-quoted Rockefellerian advice to buy when there's blood in the streets applies to more than just the stock market. The blood isn't quite flowing unstaunched in the used airplane market, but there's enough red for a confident buyer to find a nice deal or two. Keep what you read in the paper and see on the television in the right perspective and you'll be just fine.
Blog update October 30th: Released at 8:30 a.m. this morning, Bureau of Economic Analysis preliminary figures for the third quarter 2008 show a .3 percent decrease in GDP.
Alan Klapmeier interview