Business aviation may still be brimming with righteous indignation over recent attacks by President Barack Obama (in the row over bonus depreciation) and The Wall Street Journal (over the Block Aircraft Registration Request issue), but it now faces bigger and more tangible problems.
The return of the global financial crisis signaled by the downgrading of the U.S. government’s credit rating and mounting national debt melt-downs in Europe pose a far greater threat to bizav’s well-being than any perceived sense of hurt inflicted by a grandstanding commander-in-chief and sanctimonious hypocrisy of reporters who eat their daily bread from the sweaty palm of discredited press baron Rupert Murdoch.
History shows us that business aviation’s fortunes go hand in hand with that of world stock markets and, at time of writing, these were distressingly volatile. With the U.S. Congress in the thrall of the Tea Party’s cutting-edge economic theory and the Standard & Poor’s credit agency taking the precipitous decision to strip Uncle Sam of his Triple-A rating, a staggering $5 trillion in equity values evaporated from the world’s stock markets in barely five days of trading that saw more violent fluctuations than those seen in markets in the days before the start of the last two World Wars. August 9 brought some recovery, starting with a minor rally on Wall Street, but few in the financial community are convinced that we have yet dodged the dreaded double-dip recession.
In New York trading on August 9, the stock of Gulfstream-parent General Dynamics closed at $62.42–just over 12 percent down from its price at the start of 2011 and below where it had been at the turn of 2009/2010, which many consider to have been the nadir in business aviation’s most recent downturn. Textron (owner of Cessna) was down more than 26 percent since the start of 2011 and marginally below where it had been at the start of 2010. Embraer’s stock was almost 22 percent down on the start of 2011, but slightly above where it had been in January 2010. Only Bombardier’s stock has risen slightly this year, as indeed it has since the start of January 2010. Of course, none of these groups owe all of their fortunes (or lack thereof) to business aviation.
Meanwhile, on the other side of the Pond, the European Central Bank is battling to stop Italy and Spain from joining Greece and Ireland in the budget deficit gutter at a potentially vast cost to leading economies such as Germany and France. On top of this, there are now reports that growth may be slowing in key emerging economies such as China and India, on which business aviation’s hopes of a full recovery have largely been founded. We haven’t yet seen the extent to which serious concerns over public debt in major economies could lead to a renewed tightening of the credit needed to fund aircraft acquisitions.
Business aviation was slow on the uptake at the genesis of the last global financial crisis, which was triggered four years ago on August 9 when French bank BNP Paribas froze three of its hedge funds that were up to their necks in U.S. mortgage debt. At that year’s NBAA show in Atlanta, the industry was still congratulating itself on what at face value appeared to be an unassailable backlog of aircraft orders. Within months the near-collapse of credit channels resulted in widespread order cancellations and tumbling aircraft values.
But the business aviation community was in good company in its state of blissful ignorance. It took most of us until the collapse of the Lehman Brothers bank in September 2008 to realize that the party was over. I’ve been to funerals that were more jolly than the 2008 NBAA show, staged just a month later. We all know what the industry has been through since then, and most of us allowed ourselves to take a degree of encouragement from the tentative recovery gathering pace until just a few weeks ago.
Which brings me back to my starting point. Why have political leaders wasted time and energy in hubristic debates over the nature and origins of public debt when the markets needed to see resolve and unity of purpose? Equally, why have business aviation leaders–in my opinion–wasted their breath in fruitless squabbles over a perceived lack of respect for this mode of transportation when the industry faces far more serious macro-economic worries?
When Barack Obama and bizav came to blows in late June it was over the rights and wrongs of the bonus depreciation tax break and whether it could be justified at a time when the U.S. government faced an urgent need to balance the books. But bonus depreciation is a red herring. It is extremely questionable how many new aircraft sales have actually been stimulated by the ability to take a 50-percent depreciation in the first year of aircraft ownership. It is clear that its abolition would have next to no impact on the state of the public coffers.
Equally, why fret over what The Wall Street Journal thinks of private jets, when the global economy could be on the verge of another meltdown? If millionaires in China stop buying aircraft next month, it won’t be because they cherish the opinion of the Journal’s jackasses; it will far more likely be because they see their investment portfolios collapsing or because they fear America won’t be able to repay its vast debts to the People’s Republic.
For what it’s worth, The Wall Street Journal is part of Rupert Murdoch’s News Corporation, which has been forced to admit widespread phone-tapping on the part of its employees involving, among others, victims of London’s July 7 terror attacks, and the families of dead British soldiers and murdered school children. So why anyone would take seriously its opinions on whether business jet owners are entitled to privacy in their travel plans is beyond me.
As for Standard & Poor’s, a McGraw Hill company, so acute is its acumen in assessing credit risks that it conferred a Triple-A credit rating to much of the dross that turned out to be America’s sub-prime mortgage business and also to the shysters at Enron. The Obama administration claims that the company’s math was out to the tune of $2 trillion in assessing America’s public debt liabilities.
But one thing Standard & Poor’s did call correctly was the debilitating effect of ill-informed, doctrinal posturing of Washington’s windbag politicians on the country’s ability to resolve its financial problems. It simply lost confidence in Congress’s ability to put things right, and who can blame it?
All this notwithstanding, I have every confidence that business aviation leaders can show far greater resolve in the face of continuing adversity, as long as they pick their fights a bit more carefully.