Too Much Money

When too much money chases too few goods, prices rise – Economics 101 – and weak business plans get funded. It looks like that idea is being applied to the emerging VLJ industry. I count 14 manufacturers that have entered this space or have announced they will very soon. Seven air taxi business plans are being circulated amongst the investment community. There seems to be no shortage of capital waiting to be wasted away on this dream that has yet to fly a single commercial flight and, so far, has only one viable aircraft (the Cessna Mustang) capable of flying a paying passenger. I have no doubt that VLJs will be produced in quantity, but far lower than almost all forecasts. I feel equally strongly that the VLJ air taxi models will fail and the manufacturers that are basing their production plans on these models will be sadly disappointed. Most of these manufacturers will also fail.

2006 was the best year ever for business jet manufactures. Backlogs are high and the outlook for 2007 is very promising. But with the exception of Embraer, Cessna, and Honda, the VLJ companies are skating on very thin ice – ice being capital. The ice supporting the VLJ air taxi companies is even thinner. A hiccup in the economy or a VLJ accident could cause big problems for the under-capitalized companies.

At the moment there seems to be plenty of ice. It is 19 degrees outside my window. Watch out - warmer days are coming.