The missing link – between the stock market and business jet deliveries


Source: Dean Roberts, Rolls-Royce


The 10th anniversary of the end of Lehman Brothers and the longest uninterrupted bull run in US stock market history, means now is a good time to question why the demand for business jets no longer tracks the S&P500.


Until 2008 forecasting light jet and medium business jet deliveries was easy.  You just had to look at the performance of the S&P 500 and you could predict how many aircraft would be delivered a year later.

But in 2009 this stopped working.

Small jets were strongly correlated until the fourth quarter of 2009. Since then they have completely underperformed the market.

There are lots of possible reasons for this. Citi’s lost decade thesis explains one reason for this is that OEMs produced an oversupply of aircraft, that – until recently – were competing with new aircraft.  This has changed. In August just 3% of the Embraer Phenom 100 fleet was for sale and there are signs that the correlation is returning.

Small business confidence is another reason. The US NFIB small business optimism index shows confidence only bounced back at the end of 2017. During this time their research shows that many small companies paused new investment.

“I think that the sharp drop off in valuations have been a large contributor, especially when you consider that SMEs are likely to have been using their own capital for the purchase,” says Rolland Vincent, creator/director of JETNET iQ. “Access to credit has recovered, but memories are still fresh about the financial crisis. For many SMEs where the aircraft is supplemental to their business – nice to have and productive but not fundamental to the business), they have presumably found that they have other and more compelling asset classes for their investment money.”

In fact the same has been true for large companies. Listed corporations have bought back $4 trillion of shares since March 2009 according to Bloomberg data (and paid out $3 trillion in dividends). The number of shares in S&P 500 companies have fallen 3 per cent during the bull run.

About 30 per cent of S&P 500 revenues come from outside the US, so it is not surprising that large jet deliveries do not track the US stock market closely. The large jet market was also slow to recover from the crash in 2000 but then bounced back first in 2012 (helped by demand in Asia and the first deliveries of the category-creating G650).

It is also interesting how demand for medium jets appears to be falling away – this could possibly because OEMs are focused on the large jet market.

Although it has made life hard for analysts and planners, the fact that there is no simple way of predicting business jet demand should be relished. It is just reflective of how fascinating the market is. After all there are not many other industries where the buyers for one asset can vary between a Nigerian Bishop, an Oklahoma chicken farmer and a Swiss hedge fund.