What’s not to like about a private jet? These days, plenty.
Kevin Moloney for The New York Times
“A year ago, there would be 30 people looking for one airplane,” said Jay Mesinger, a corporate jet broker. “Today there are 30 airplanes looking for one buyer.”
After enjoying a long run as an enviable perk of corporate America — justified to shareholders as time- and money-savers for globe-trotting executives — they are rapidly becoming symbols of high-flying excess.
Congress, in particular, is frowning upon companies that ask for taxpayer bailouts while still enjoying the comfort of their private planes or placing orders for a new one.
Detroit automakers learned that lesson late last year, and announced they would sell their fleets after being questioned in Congressional hearings. Now Citigroup has said it would not take delivery of a $42 million Dassault Falcon 7X jet that it had planned to buy.
“It’s getting to be a black eye to own a corporate jet,” said Paul Nisbet, an aviation analyst with JSA Research. With so many companies deciding to sell their planes — both for cost-cutting reasons and to avoid public relations headaches — the used-jet market is being flooded with inventory, and the prices of private jets are falling faster than the value of McMansions. On Wednesday, Starbucks said it would sell two of its three corporate jets, a Gulfstream 550 and a Gulfstream V, to save money.
“A year ago, there would be 30 people looking for one airplane,” said Jay Mesinger, a corporate jet broker, who said that prices had fallen 30 to 40 percent since late 2007. “Today there are 30 airplanes looking for one buyer.“
With the economy continuing to sour, more airplanes will most likely be chasing even fewer buyers.
“After the automakers came to Washington and after the Citibank silliness, there’s been a rush to get out of these airplanes,” said Clark Onstad, president of Solutions 4 VIP, a Denver company that outfits large corporate jets. “Price is not an issue. They are selling for image purposes, and the operation of a jet is a small overall cost in relation to a company’s image. So they are saying, ‘dump.’ ”
Manufacturers are hurting. This month Cessna, maker of the popular Cessna Citation, said it would lay off an additional 2,000 workers — its second round of cuts — and that the company would probably shrink production in 2009. Last week, employees at Hawker Beechcraft, another corporate jet maker, were told to prepare for another round of layoffs after 500 job cuts last December. Business at Cessna, which had been anticipating an upturn in orders in 2009, had a steep decline in the third quarter of 2008.
“Very recently this market has taken an extreme turn down,” with customers worldwide canceling orders and delaying deliveries, Douglas Oliver, a Cessna spokesman, said Wednesday. “We are looking at a brave new world compared to three months ago.”
The trade association for the corporate jet business said that its members were being unfairly maligned. “We are concerned that actions in Washington are disparaging and discouraging of general aviation being used for business purposes,” said Ed Bolen, president of the National Business Aviation Association.
When the global economy was surging, airplanes commanded a premium above sticker price, and manufacturers enjoyed a three- to five-year backlog. Given that shortage, buyers were even paying new plane prices for a used jet because they did not want to wait.
In the current depressed market, Mr. Mesinger said that Citigroup could pick up a used 2003 Bombardier Global Express XRS — which, like the Dassault Falcon, seats 12 to 14 people and has trans-Atlantic capability — for about $30 million. That same 2003 plane would have sold for $48 million in late 2007.
Another plane that can accommodate about the same number of travelers is the Gulfstream V. A 2003 model would have sold for $42 million to $44 million during the boom. Today a seller would be lucky to fetch a price of $25 million or so, brokers said.
The pool of potential buyers is also drying up because of the difficulty in obtaining credit.
“Until the banks start financing, the amount of planes on the market will continue to grow,” said Richard Santulli, chief executive of Netjets, a private jet company owned by Berkshire Hathaway. When credit eases, he added, “the market will open up because interest rates are so low.”
Mr. Nisbet of JSA Research said that the makers of smaller corporate jets were hurting more than companies selling bigger jets.
Indeed, General Dynamics, the parent company of Gulfstream, reported higher fourth-quarter profits Wednesday at Gulfstream as a result of strong 2008 sales.
The plane maker’s fourth-quarter profits rose 25 percent, to $264 million. It expects to deliver 124 planes in 2009, down from 156. But this drop will be offset by the fact that more of them will be bigger, high-end models. The company has a backlog of 246 orders for the next two and a half years.
These bigger jets, Mr. Nisbet said, “are often bought by billionaires who can dole out $55 million for a plane and fly it off.”