Incipient Panic

"Incipient panic" is how Look Out, This Crunch Is Serious, an opinion piece in The Washington Post, began. Incipient means “beginning to appear”. From where I sit in Virginia, a long way from Wall Street, it would seem we are past the beginning of a panic. Panic in the credit markets has spilled into the equity markets with all the averages & indexes we use setting new record one-day declines and then record advances, then repeating this extreme up and down cycle a few days later as the next injection from the Central Banks or the collapse of the next hedge fund or mortgage lender is announced in the press. If not a panic, it is the lead story on the evening news and fodder for a full hour recently on Larry King live.

The first question from every analyst who has called me in the last week has been, “How is the meltdown in the credit markets affecting the business jet industry?" So I decided to give myself a refresher course, grabbed my dog-eared copy of the classic Extraordinary Popular Delusions and the Madness of Crowds, the more recent and in my mind classic, When Genius Failed, and sat down for a Sunday of reading. I also ordered Devil Take the Hindmost: A history of Financial Speculation, by Edward Chancellor, the author of the afore-mentioned Post article. I also have calls into some good friends whom I consider the best business jet marketers in the business. I looked through the program guide for the National Business Aircraft Association (NBAA) convention, only a month away, and could not find any seminar on the credit markets. Nevertheless, I will be listening for any tremors while I am at NBAA next month.

Last week I wrote about this industry surviving a perfect storm, and warned of a possible approaching tsunami that would test our industry’s ability to survive an even larger Perfect Storm.

I invite you to read along with me and share your thoughts on these interesting times. Remember as a wise man once said, “In Adversity there arises Opportunity”. My partners and I will be looking for those opportunities.

Irrational Exuberance

Just over ten years ago in a speech to Congress Alan Greenspan proposed that the reason for the rising stock market was Irrational Exuberance.

I have watched the range of multiples paid for general aviation service companies double over the last seven years.

Most of the fundamentals for the GA industry have been strong. Business jet sales have reached new highs almost every year, backlogs are at record levels, and the number of hours flown has steadily increased. All this has occurred in the face of what I have called the perfect storm – the dot-com meltdown, 9-11, and record high fuel prices. More waves from this storm are reaching the shores of general aviation as I write this:

• An antiquated Air Traffic Control System;
• An FAA with no funds or direction from Congress to improve this situation;
• Airlines increasing the size of their fleet with smaller aircraft;
• An airport infrastructure unable to accommodate these changes;
  

And then there are the collapsing worldwide debt markets… Could all this mean a tsunami is approaching?

On the bright side, after 1996 when Greenspan tagged the stock market with Irrational Exuberance, the market set record highs for the next four years until the real irrational exuberance of the dot-com era burst that bubble.