The Dow Soars, Airplanes Don't

  • E-Mail this Article
  • View Printable Article
  • Text size:

    • A
    • A
    • A

As the Dow soared to new and unseen heights this week, the financial press is cautiously wondering if the market spike signals a major new long-term bull market. Me, I'm clutching my pearls and dabbing the sweat on my upper lip with my hanky. Pantywaist that I am, September 2008 seems like just last week. That's the same 2008, by the way, that the financial press never saw coming.

click for (very) large version

What's this got to do with airplanes? Just this: Brokers and salesmen have, from time to time, suggested that aircraft sales are tightly linked to the Dow Jones average. "When the market tanks," one broker once told me, "my phone stops ringing." There's some truth to this. Take a look at the accompanying graph which plots the Dow's yearly highs against aircraft sales. There's an unmistakable correlation between the two indices between 2003 and 2009. Sellers of luxury goods have always observed that when the market does well, people feel rich and are more inclined to buy $110,000 imported saloons and engraved Rolexes. And buyers who aren't into those trinkets might spring for a new Cirrus instead.

Speaking of which, Cirrus is responsible for a healthy amount of that aircraft sales growth since 2002, but definitely between 2005 and 2008. With some 4286 airplanes produced by the industry in 2007, that represents the recent high water mark for GA production. That's also the year that the Dow peaked, a high just bettered this week at 14,253, 80 points higher than the 2007 mark. Last year, about 2100 airplanes were produced, some 41 percent of them piston aircraft. The proportion of total sales represented by pistons, by the way, has been in decline for the entire decade. Light sport production—not included in the totals here—has filled in some of the gap, but not enough to move the overall curve meaningfully.

Just looking at the graph, I think there was a point of departure of sorts in 2009. Note that the Dow's yearly averages have been on the upswing since then but that hasn't lifted the flat line curve of GA sales. I suppose one could write a book theorizing why this is so. Perhaps aircraft sales are more linked to housing prices or the unemployment rate or GDP growth pork belly futures. Beats me. (Unemployment hovered at 4.5 percent during 2007; now it's almost 8 percent.)

But one thing is clear: A four-year bull run that shows signs of accelerating evidently isn't enough to ignite GA sales. Yet. If the bull keeps bounding for another year but aircraft sales don't, I think we can conclude we've had a sea change with regard to where light airplanes fit into the general economy. Maybe by then we'll be able to explain it, because I sure can't now.

Comments (41)

Paul:

Not that I'm trying to create more work for you, but could you prepare a different version of the graph for us? Keep the existing Y-axis scale for the stock market. Show three graphics for aircraft: pistons, turboprops, and jets. Expand the Y-axis for aircraft shipments. I suspect that this will highlight both the amplitude and the duration of the decay of shipments of piston machines.

GA always has been comprised of two marketplaces: personal-use vehicles, and business/commercial-use ones. I fear that the collapse of the personal-use market reflects two irreversible trends: the retirement (from flying) of the post-WW2 generation of pilots, and the dramatic increase of cost (real dollars) of piston vehicles. That's a self-reinforcing feedback loop of higher cost and lowered demand.

On the bizjet side of the industry, the financial debacle didn't help matters. But the continued demonizing of "corporate jet owners" by our demagogue-in-chief may be keeping some buyers out of that market –even when their accountants tell them that a bizjet is a good investment for the company. And the N-number crisis didn’t help matters, either.

Anyway, if you feel like spending another few minutes in Excel, it would be interesting to see the squiggles. Thanks.

-YARS

Posted by: Thomas Yarsley | March 7, 2013 6:20 AM    Report this comment

It seems to me the big difference "This time" is the apparent fact that the stock market is responding to all the free (freshly printed) money the Fed is pumping into the economy. Alas, this doesn't seem to be having any noticeable effect on any other part of the economy outside the stock market.

In past times the stock market has reflected the general economy and aviation and the market marched together. Now the stock market is divorced from the rest of the economy and aviation suffers while the stocks soar.

The bad news (prediction) is that when (not if) the Fed stops creating so much free money the stock market will fall and so will the rest of the economy. That might mean the depression Bernanke has been so afraid of has just been delayed by all his efforts rather than avoided. Aviation won't improve at that point either.

Posted by: Paul Mulwitz | March 7, 2013 6:31 AM    Report this comment

It would be interesting to throw homebuilt/kit airplanes into the mix. Could it be that some of the entry-level single engine piston sales have been parasitized by homebuilts? I would think the scratch-built would be a very low number, but many fairly sophisticated kits are do-able in a year or so of steady work. I, for one, chucked my 206 and built a kit (at a reasonable price) for my "$100 hamburger" retirement flights rather than downsize to a new-production commercially built entry level aircraft (at ridiculous prices!).

Posted by: John Austin | March 7, 2013 8:04 AM    Report this comment

Aircraft sales by type: http://www.bga-aeroweb.com/General-Aviation.html ...slow death for pistons

Posted by: Cyril Gibb | March 7, 2013 8:05 AM    Report this comment

my link didn't show up.. I'll try again http://www.bga-aeroweb.com/General-Aviation.html www.bga-aeroweb.com/General-Aviation.html

Posted by: Cyril Gibb | March 7, 2013 8:08 AM    Report this comment

I wonder if the correlation really matters in the long run. I bought my aircraft after the market tanked. Interestingly the discount the manufacturer gave me to make the sale about equaled the loss I took cashing out shares. I'm not smart enough to figure out the capital loss value I get to claim over time, but my gut says the deal would have worked out about the same no matter the state of the market. I would hypothesize a robust DOW is mainly of psychological value.

Posted by: Robert Mahoney | March 7, 2013 8:08 AM    Report this comment

Well, answered my own question! EAA says homebuilts are registered at about 1,000/yr ... that's a pretty big number relative to your numbers, BUT, I don't know if it has always been at that rate or this represents an increase vs. a few years back?

Posted by: John Austin | March 7, 2013 8:09 AM    Report this comment

Plot the price of Avgas against aircraft sales. You might have your answer.

Posted by: Sriram Narayan | March 7, 2013 8:10 AM    Report this comment

To the forum owner... I can't seem to embed a link to answer the question above ? slash slash www dot bga hyphen aeroweb dot com slash General hyphen Aviation dot html

Posted by: Cyril Gibb | March 7, 2013 8:11 AM    Report this comment

Plot the price of Avgas against aircraft sales. You might have your answer.

Posted by: Sriram Narayan | March 7, 2013 8:12 AM    Report this comment

Sorry you're having trouble with the links. Our forum software strips out clickable links, otherwise we get killed by spambots--and so will you.

To post a link, just paste it in and manually replace http with www and it will work fine. But it will not be clickable. Our new forum software, in the works, will allow this. Stay tuned.

Posted by: Paul Bertorelli | March 7, 2013 8:27 AM    Report this comment

The Dow is a very limited picture of the economy, 30 large companies. It is certainly not reflective of what is happening in the real world. We are still over 2 million jobs shy of the number in 2008, the pay and benefits of those jobs created since 2008 are well below par. There seems to be no leadership in Washington, nor does there seem to be any intelligent life there. Ah, the hell with it, I'm going to the airport.

Posted by: Richard Montague | March 7, 2013 9:02 AM    Report this comment

As the Dow increases so does the wellbeing feeling of the flying population. I feel good, my students feel good, therefore we fly. Not complicated. End of story.

Posted by: Rafael Sierra | March 7, 2013 9:39 AM    Report this comment

Paul’s chart is just another example that quantitative easing failed to revive the U.S. economy. The fat cats are getting fatter at the expense of everybody else. And don’t expect changes any time soon with our new “Secretary of the Debt” Jack Lew who received a $950,000 bonus check from Citigroup after its taxpayer-funded bailout. Our current administration is clueless thinking a country can simply print money and tax itself into prosperity.

Posted by: Michael Kauffman | March 7, 2013 9:50 AM    Report this comment

The Dow is going up because of the artificially low interest rates on bonds, cds and other investments. When interest rates spike the stock market will take a big tumble. I would suggest getting out of the market and buying your plane now so you can enjoy it during the coming depression.

Posted by: Rodney Hall | March 7, 2013 10:04 AM    Report this comment

"As the Dow increases so does the wellbeing feeling of the flying population. I feel good, my students feel good, therefore we fly."

Not in my neck of the American woods (the Northeast). The Dow is at an all-time high; local GA activity is at an all-time low. Seriously. I've been flying for almost 50 years, and I've never seen it this bad.

Where are you based, Rafael? Just wondering if the good times (or the bad ones) are geographically variant.

Posted by: Thomas Yarsley | March 7, 2013 10:18 AM    Report this comment

The market may have come back, but housing didn't--we all felt flush for awhile there.

Posted by: Thomas Reilly | March 7, 2013 10:31 AM    Report this comment

Plus, the iPhone was introduced in 2007--from what I can see Gen Xs & Ys seem more interested in phones than cars, motorcycles or planes. If they don't start flying, it's never coming back.

Posted by: Thomas Reilly | March 7, 2013 10:35 AM    Report this comment

The decline started in 1980 and has not stopped. In 1980 we delivered 17,000 piston engines and 13,000 piston aircraft now it is down to 3,000 engines and less than 2,000 piston aircraft. Our new starts are down by about 40%, flight schools are down from 4,000 to less than 1,800. The active pilot population is down by about 200,000 all this based from 1980 statistics. Fuel, maintenance, overhead is up. Any good news is good news no matter where you are. I have seen the good times in aviation and the now. I am glad to see a rebound.

Posted by: Rafael Sierra | March 7, 2013 10:35 AM    Report this comment

Perhaps worth mentioning is the obvious fact that "past performance does not guarantee future results," as the mutual fund prospectus always says. (Post hoc ergo propter hoc, for the highbrow types who clutch pearls and have hankies.) The behavior that leads to spending a ton of money on a Cirrus is dependent on dozens of factors, including expected future income, present savings and income, perceived total economic outlooks, price of the airplane, avgas cost . . . It just happened that those other items also correlated with the Dow in years past. While I'm not one of thos who could ever afford a Cirrus--I fly a 1968 182 with a run-out engine--I can say that my own income is still down about 50% from 2008, so I won't be overhauling the engine and staying in aviation. Having a better balance in my retirement account is nice, but it doesn't improve my discretionary spending ability.

Posted by: David Chuljian | March 7, 2013 10:48 AM    Report this comment

Tom Reilly, please go to the Coachella Valley Youth Aviation Program in facebook. The interest from the young has not stopped. It is simply too expensive, programs like this one, free to all High Schoolers, should be implemented nationwide.

Posted by: Rafael Sierra | March 7, 2013 11:00 AM    Report this comment

Related to high current fuel prices is also the fear of disappearing avgas. I assume that over the next five years avgas is going to become increasingly expensive and hard to find at any price, like it is now in the rest of the world. For a buyer to feel good about buying a new plane this year they also need to have a reasonable expectation that in the future there will be some kind of widely available fuel. Unless a miracle fuel is found, Diesel/JetA and mogas are likely to be the available choices. Neither of those are ideal for current turbocharged engines that power many of the transportation oriented GA aircraft.

Posted by: Dan Montgomery | March 7, 2013 12:04 PM    Report this comment

The link referenced by Cyril Gibb shows the data mentioned here is accurate. The demand (therefore shipments) is just not there. Additionally, the loftly expectations of the FAA in terms of the Future Size of the US GA fleet is seriously optimistic. I am no econnomist but I don't buy their projections. Based on the 2011 fleet of 224,475 aircraft and the forecast to have 270,920 aircraft by year 2031 would mean the US will need to add on average approximately 1% year over year to the U.S. fleet. Mathmatically, thats over a gain of 2200+ aircraft per year. Given 2011 (according to GAMA) shipments were 2120 TOTAL aircraft with 486 of those exported. Thats 1634 new U.S. aircraft. But wait, lets throw in the NTSB accident statistics for 2011. We had 1837 accidents of which 1683 had substantial damage or were destroyed (which is pretty average over the last 5 years). If our production stays constant, we continue to export an average of 32% of what we make, contine to have normal attrition, you can easily see we are in a decline in the fleet. NOT an increase. I hope my math is incorrect and indeed the FAA's forcasts are acheivable, but I'd need some proof to dispute these statistics.

Posted by: Michael Piervy | March 7, 2013 1:07 PM    Report this comment

If you plotted a slightly different set of data, revenue from new aircraft sales per year, you would find a much better correlation to the Dow. The growing number of new kerosene burners versus piston aircraft generates a lot more GA bucks. Just not the kind that trickles down to the local FBO, where, if you're a predominantly 100LL operation, you're DOA. At my home field, the piston FBO's have dried up and blown away, along with the flight schools, the maintenance hangars, the rental operations. Leaving two big jet FBO's where you might be able to park your Bonanza in the penalty box while the red carpets roll for the jets. As Mr.Sutton observed about robbing banks, that's where the money is.

Posted by: Robin White | March 7, 2013 1:10 PM    Report this comment

Dan, I don't know about future availability of avgas, but I do know that nearly all mogas is contaminated by federal mandate with ethanol. This makes it unusable for aviation.

If it does turn out avgas becomes unavailable then general aviation depends on elimination of the ethanol mandate.

Posted by: Paul Mulwitz | March 7, 2013 1:19 PM    Report this comment

Rafael: The Coachella Valley Youth Aviation Program looks terrific, exactly what we need. Where I live on Long Island there's a lot of kids who could afford to fly, but we need programs like this to get the awareness level up.

Posted by: Thomas Reilly | March 7, 2013 2:05 PM    Report this comment

@Tom Yardsley. KTRM where operations have increased from 25,000 in 2000 to 72,000+ in 2012 strugenly after a shift of airport businesses from KPSP some 20 miles away.

Posted by: Rafael Sierra | March 7, 2013 2:16 PM    Report this comment

The reason is pretty simple. Most people in the US have significantly less disposable income than we did 10 years ago. I can go into all the economic factors but the primary reason is caused by government policy.

Posted by: Dana Nickerson | March 7, 2013 9:53 PM    Report this comment

Rafael: Ah, palm Springs! A literal AND metaphoric oasis! I'm at KBAF, where the picture is quite the opposite. I'm starting to have dreams about the Dallas area, though........

Posted by: Thomas Yarsley | March 8, 2013 6:30 AM    Report this comment

Paul M. Getting non ethanol auto gas is not that big a deal. It is about 10% more costly than the more commonly available ethanol contaminated fuel

Posted by: Richard Montague | March 8, 2013 8:25 AM    Report this comment

Not only airplane sales, but other parts of the industry are affected by the present economic conditions. I'm an Air Charts Systems subscriber for their IFR chart update service. Yesterday, I got this notice in their cycle update e-mail:

Dear Air Chart Subscriber: Important Notice: Due to adverse business conditions and the increasing use of electronic charts, we will not be publishing our atlases or renewing next cycle. Thank you for your past support.

I can't reach them by phone or e-mail. Do you know if they have gone out of business? Sounds like it to me.

Posted by: david dooley | March 8, 2013 6:50 PM    Report this comment

Quite simple, actually: it's the "iPad effect" ... a paradigm shift, if you will. Physical movement of humans for the purpose of conducting business is dying as an enterprise model.

The influx of all that new internet and wireless technology just *has* to have an effect on the (now ancient) concept moving people, when moving electrons does an equal or better job.

I'll go even further by saying that because of the aforementioned paradigm shift, the collapse of the airline industry is almost a foregone conclusion, and that the collapse will occur within the next 5 years.

For all the luddites out there still hearing the lonesome sound of steam locomotives, I have some stock in Penn Central I'd like to sell you.

Posted by: Phil Derosier | March 9, 2013 7:38 PM    Report this comment

You may have a point Phil; my employer has gone to all-telepresence meetings except where absolutely necessary, and then it takes signatures at the VP level.

Posted by: A Richie | March 11, 2013 10:40 AM    Report this comment

Well...I have to point out that the figure of 41 percent of GA sales being pistons is quite meaningless...

The meaningful number is that piston airplane sales by dollar value now make up just TWO PERCENT of GA annual sales...according to GAMA...the other 98 percent is bizjets and turboprops...

Go to the GAMA website and download their statistical factbook for 2012...which gives all the figures...and in fact it gives yearly sales figures going back decades...

So if we go back to 1978 we see that there were 17,000 piston airplanes produced...and less than 800 executive aircraft (turbine jets and props)...

Even more interesting...dollar sales of piston airplanes were a lot more than executive aircraft...so the little guy flying a piston was the backbone of general aviation...

Today bizjets and turboprops are 98 percent of a vastly bigger GA industry...today the industry sells about 2000 executive aircraft at an average price of $10 million each...for annual sales of about $20 billion...

So there are nearly three times as many big spenders buying turbine equipment as there were in 1978...and the average price of that new turbine airplane today is nearly three times as much in today's dollars...

That is a TENFOLD INCREASE IN SPENDING POWER by the big spenders...

Meanwhile the little guy is on life support...who can afford to pay three quarters of a million for a new cirrus...?

Posted by: Gordon Arnaut | March 13, 2013 1:48 PM    Report this comment

What does the DOW have to do with GA? not a lot really. GA has been sold down the river by our leading corporations,it never was about pilots, GA or the love of flying. It was about protecting revenues of Lycoming, Cessna, Continentall, Beech and all their ilk. Think about it, after twenty years of the planned demise of leaded fuel, we have virtually nothing to show for all the so called time and money. The NASA GAP project, after selling the rights to TCM, the company produced squat and then sold to AVIC. Why can the Chinese run their GA aircraft on unleaded, but we can't. Simply because the profit margins are not high enough for corporate America. Ly coming is just coming around to tell us that MOGAS will work on most engines, though only reluctantly. I see the value of legacy aircraft declining each day and fuel for those birds become more expensive and hard to get. This will create a new generation of pilots? Not likely, as most are priced out of the market but don't think that will stop our corporations from looking east where wealth can afford a $150000 basic trainer. It's time to tell these companies where to go and demand our government take the lead. NASA needs to restart GAP pro games but not in bed with private industries but at universities and colleges to challenge our brightest minds to build a legacy diesel. The

Posted by: Paul Dobrovolskis | March 13, 2013 9:31 PM    Report this comment

What does the DOW have to do with GA? not a lot really. GA has been sold down the river by our leading corporations,it never was about pilots, GA or the love of flying. It was about protecting revenues of Lycoming, Cessna, Continentall, Beech and all their ilk. Think about it, after twenty years of the planned demise of leaded fuel, we have virtually nothing to show for all the so called time and money. The NASA GAP project, after selling the rights to TCM, the company produced squat and then sold to AVIC. Why can the Chinese run their GA aircraft on unleaded, but we can't. Simply because the profit margins are not high enough for corporate America. Ly coming is just coming around to tell us that MOGAS will work on most engines, though only reluctantly. I see the value of legacy aircraft declining each day and fuel for those birds become more expensive and hard to get. This will create a new generation of pilots? Not likely, as most are priced out of the market but don't think that will stop our corporations from looking east where wealth can afford a $150000 basic trainer. It's time to tell these companies where to go and demand our government take the lead. NASA needs to restart GAP pro games but not in bed with private industries but at universities and colleges to challenge our brightest minds to build a legacy diesel. The

Posted by: Paul Dobrovolskis | March 13, 2013 9:31 PM    Report this comment

What does the DOW have to do with GA? not a lot really. GA has been sold down the river by our leading corporations,it never was about pilots, GA or the love of flying. It was about protecting revenues of Lycoming, Cessna, Continentall, Beech and all their ilk. Think about it, after twenty years of the planned demise of leaded fuel, we have virtually nothing to show for all the so called time and money. The NASA GAP project, after selling the rights to TCM, the company produced squat and then sold to AVIC. Why can the Chinese run their GA aircraft on unleaded, but we can't. Simply because the profit margins are not high enough for corporate America. Ly coming is just coming around to tell us that MOGAS will work on most engines, though only reluctantly. I see the value of legacy aircraft declining each day and fuel for those birds become more expensive and hard to get. This will create a new generation of pilots? Not likely, as most are priced out of the market but don't think that will stop our corporations from looking east where wealth can afford a $150000 basic trainer. It's time to tell these companies where to go and demand our government take the lead. NASA needs to restart GAP pro games but not in bed with private industries but at universities and colleges to challenge our brightest minds to build a legacy diesel. The

Posted by: Paul Dobrovolskis | March 13, 2013 9:31 PM    Report this comment

What does the DOW have to do with GA? not a lot really. GA has been sold down the river by our leading corporations,it never was about pilots, GA or the love of flying. It was about protecting revenues of Lycoming, Cessna, Continentall, Beech and all their ilk. Think about it, after twenty years of the planned demise of leaded fuel, we have virtually nothing to show for all the so called time and money. The NASA GAP project, after selling the rights to TCM, the company produced squat and then sold to AVIC. Why can the Chinese run their GA aircraft on unleaded, but we can't. Simply because the profit margins are not high enough for corporate America. Ly coming is just coming around to tell us that MOGAS will work on most engines, though only reluctantly. I see the value of legacy aircraft declining each day and fuel for those birds become more expensive and hard to get. This will create a new generation of pilots? Not likely, as most are priced out of the market but don't think that will stop our corporations from looking east where wealth can afford a $150000 basic trainer. It's time to tell these companies where to go and demand our government take the lead. NASA needs to restart GAP pro games but not in bed with private industries but at universities and colleges to challenge our brightest minds to build a legacy diesel. The

Posted by: Paul Dobrovolskis | March 13, 2013 9:31 PM    Report this comment

What does the DOW have to do with GA? not a lot really. GA has been sold down the river by our leading corporations,it never was about pilots, GA or the love of flying. It was about protecting revenues of Lycoming, Cessna, Continentall, Beech and all their ilk. Think about it, after twenty years of the planned demise of leaded fuel, we have virtually nothing to show for all the so called time and money. The NASA GAP project, after selling the rights to TCM, the company produced squat and then sold to AVIC. Why can the Chinese run their GA aircraft on unleaded, but we can't. Simply because the profit margins are not high enough for corporate America. Ly coming is just coming around to tell us that MOGAS will work on most engines, though only reluctantly. I see the value of legacy aircraft declining each day and fuel for those birds become more expensive and hard to get. This will create a new generation of pilots? Not likely, as most are priced out of the market but don't think that will stop our corporations from looking east where wealth can afford a $150000 basic trainer. It's time to tell these companies where to go and demand our government take the lead. NASA needs to restart GAP pro games but not in bed with private industries but at universities and colleges to challenge our brightest minds to build a legacy diesel. The

Posted by: Paul Dobrovolskis | March 13, 2013 9:31 PM    Report this comment

government needs to legislate the use of MOGAS ( standardized) and jetA as the two fuels for general aviation and force the companies to get on board or get out. It is time to stop companies such as Lycoming for demanding everyone march to their tune and put all fuels out the, it's just not feasible and GA won't survive that. Time to write your congressmen, senators and local politicians and demand better.

Posted by: Paul Dobrovolskis | March 13, 2013 9:32 PM    Report this comment

Paul D. You're looking to the government to save GA?! Is that the same governmentthat can't pass a budget, that goes on vacations as the country goes over the fiscal cliff, the same government that has shown total indifference to GA for years? We have a better chance appealing to the tooth fairy.

Posted by: Richard Montague | March 15, 2013 10:09 AM    Report this comment

Add your comments

Log In

You must be logged in to comment

Forgot password?

Register

Enter your information below to begin your FREE registration