The money’s not in the bank
In the movie It’s a Wonderful Life, George Bailey was able to stop customers withdrawing their money by appealing to their better nature. In 2023 bank runs spread on social media with depositors transferring funds online. Bailey’s only hope now would be to record a humorous TikTok dance and hope it goes viral.
There is a tragedy in every bank run. Silicon Valley Bank, which was building a strong aircraft finance team, supported tech start-ups through tough markets just as Bailey Building & Loan did in Bedford Falls, Upstate New York.
Some think bank runs are a clear sign that a US recession is on its way. In a research note, Dhaval Joshi of BCA Research, an independent economic consultancy, listed the three signs that a US recession is coming: banks failing, falling housing prices and unemployment rising. We have seen the first two.
Whatever is happening to the US economy, demand for business aviation is falling from last year’s record high. WINGX says that business jet flights are 8% behind 2022 for the past month. AMSTAT data shows that 3.5% of the total business jet fleet is for sale compared with 1.3% this time last year. This is nothing to worry about – and still below average. But that can change. In the second quarter of 2007, AMSTAT said that 1,613 business jets were for sale. One year later there were 2,034. In the second quarter of 2009 the number peaked at 3,166 aircraft.
Business aviation is in a very different place than 2007. Manufacturers have not over-produced and banks have not overfinanced. But everyone is watching closely. “We are not panicking but things are definitely slowing down,” says one European banker. “We are concerned that many of the new US buyers in the last two years are about to be hit with their first real maintenance bills just as things get tight and may need to sell. But who knows?”
Aircraft finance is still available, but bank credit officers (who are paid to worry) are getting more cautious. “Things are definitely a bit calmer today than they were at the start of the week. But our credit guys are nervous,” says one US banker (speaking before bank stocks fell again today). “They also remember what happened to business jets in 2009.” His bank had a record lending year in 2022. He forecasts that this year could be the worst for new deals.
Spare a thought for regulators trying to deal with the turmoil. The governors of the Federal Reserve have impressive credentials, but no academic study tells you what to do when Robinhood or Twitter is driving markets. Jerome Powell, chair of the Fed, is 70. Which means he is probably only on Facebook