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Greetings! In the April issue of this newsletter I wrote about the very bullish outlook for most of the general aviation industry. My main reservation concerned the DayJet model and the Eclipse. As summer draws to an end, the tea leaves for most of the business jet industry still look positive, but I have some concerns. I have covered most of these concerns and other subjects in Hangar Talk. In this issue I will highlight them in case you missed what I wrote earlier. I want your comments and feedback, especially If you think my vision is blurred or that we are just wrong on any point. (If you would like to forward this newsletter to someone you feel would be interested, please use the "Forward email" link at the bottom. This way, if he or she is on this list, they will not get two copies.) Jim Haynes
When my wife told me that her dog sitter was worried about her investments and that she had just seen Larry King explain the volatility of the stock market, I knew that some were thinking P with a capital P and that stands for PANIC. The same night each of the evening network news shows led with stories of the markets' crazy swings. The morning talk shows all now open with news of the Asian and European markets. Wall Street is populated with some of the brightest and creative minds. But when the supposedly smartest of all investors began buying mortgage loans, it seemed a bit strange to me. Years ago I worked for a bank that was in the home loan business. After the most intrusive investigation of the borrower, we would most generously lend him and his wife, and anyone else we could get to cosign the note, 75% and maybe 80% of the value of the house, which we would personally visit, sometime with the appraiser. We would expect the loan to be repaid in 15 to 20 years. "Interest only" were words that did not exist for a home mortgage. What marketing genius came up with the term "sub-prime"? These loans with no collateral were made to borrowers with no credit. This was junk if there ever was junk. Only Wall Street can make silk out of a sow's ear, and sell it to hedge funds. I guess no one really understands hedge funds so no one questions their investments - until... Remember "When Genius Failed - The Story of Long-term Capital Management"? Here we go again. It is too soon to predict how these developments will affect general aviation, but it is worth doing some extra homework. I mention some history I am reviewing in Incipient Panic and an interesting article in this week's Washington Post, Look Out. This Crunch Is Serious.
In the last issues I wrote about Dubai Aerospace's discussions with The Carlyle Group for the purchase of Landmark Aviation. That deal closed in late July. Earlier in the summer Dubai Aerospace announced that they did not intend to keep the 33 FBOs under Landmark brand. In late July, Merrill Lynch began circulating an investment memorandum for Landmark Airport Services, a spin off that included the FBOs, to qualified investors. The list was narrowed down in early August to include only those that indicated a preliminary willingness to pay the highest price. After reading some of the articles in the aviation press, it sounds like a feeding frenzy is taking place over Landmark. (Buyers Lining Up To Bid On Landmark FBO Network) If the multiples I am hearing are correct, there may be some very disappointed investors when they look under the covers and start building their investment models. As Yogi would say, "It ain't over till it's over".
Last spring after a very unpleasant experience on a trip which included a change of planes in Dallas, I wrote about my experience in Hangar Talk, predicting "A Summer of Discontent", It turns out that the summer was even worse than I predicted. Stories like the one on the front page of The Washington Post about two 12 year-olds stranded in Chicago with no cell phones when their flight was canceled are not uncommon news to any of us that travel regularly on the airlines. Unfortunately there is no quick fix, and with Congress bogged down and unwilling to do any creative thinking in an election year, the trains and highways will become even more crowded, except for those fortunate enough to have access to a business jet. Nevertheless, there is some creative thinking happening. As I write this I found in today's Wall Street Journal an opinion piece Fixing the Air Traffic Mess by Dick Army, the House majority leader from 1995 to 2002. Army understands politics and understands the air traffic problem. I encourage you to read the article he wrote.
Subscribe to our RSS feed on Hangar Talk and you will receive each new article as it is published. There is no set schedule. We only "Talk" when we have something to say worth saying. That's something my mother taught me. I hope you agree that what we write is worth reading. Thanks for doing so.
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