May 30, 2014

Buyers want things today, but this is hard in an industry where things take time to make.

The below content was distributed by the Editor of Corporate Jet Investor, Alasdair Whyte, through the Corporate Jet Investor One Minute Week weekly newsletter. It has been posted with permission.

Corporate Jet Investor – One Minute Week No. 170

We live in an age where people want instant gratification. We download books to Kindles, watch movies on Netflix and read newspapers (and leading business jet websites) online.

The same is true for people who buy business jets (especially the bit about websites). This is a fundamental change, but one that is easy to miss.

Many of the world’s great old houses were built by Victorian entrepreneurs who were happy to spend years building and furnishing their houses. They would then wait for their gardens to grow. This behaviour is rarer now.

Leading estate agents say that the majority of high value properties in London – ones over $100 million – are sold with furnishings included. “When I started in this business I assumed that the rich would be happy to pay to change houses to their personal tastes,” says one agent. “I was wrong.”

The same is true with many corporates. It seems quaint, but 20 years ago companies transacted by phone, fax and telex. Now it is much more instant and many of the companies buying aircraft now live in this world.

A mining company that has to wait five years for a piece of specialist drilling equipment understood why they needed to wait three years for their aircraft. But how many companies now focus on five year plans more than quarterly earnings?

Someone who runs a hedge fund trading derivatives – where long-term is an overnight position – does not understand why they should wait three years for a business jet that they want tomorrow.

Perhaps they just need to understand the skills involved in building an aircraft. Super yachts, for example, take years to construct and owners accept this. But they are very different to aircraft.

Hermes famously had a six-year waiting list for its Birkin handbag. But in reality, the people who buy business jets were not made to wait that long. They walked out of Hermes stores with as many as they wanted.

This is a headache for aircraft manufacturers. Obviously all manufacturers want a backlog – particularly a strong one with sizeable deposits – but they also do not want to lose customers to rivals. There is no easy solution. You could, like Hermes, keep some stock for key customers, but how do you determine who is the most important? Increasing production cuts backlogs – if your key suppliers can do this – but it also leaves you exposed to the downturn.

Some manufacturers will not like this, but perhaps they should allow a few speculators in to give you flexibility? If people want an aircraft quickly they should be happy to pay a premium.

It is not just manufacturers who face this. New buyers do not understand why it needs to take six weeks to arrange legal documentation, why they should wait a month for credit committee approval or why maintenance takes so long.

Patience used to be regarded as a virtue. Now people think you are talking about solitaire.

Have a good weekend,

Alasdair Whyte
Corporate Jet Investor

The above was posted with permission from Corporate Jet Investor, Alasdair Whyte

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