I attended an airplane convention a couple weeks back and, as usual, I looked for the economic aspect of all I saw. Airplanes are expensive machines and the revenue numbers from the manufacturers can be a strong indicator of our economy. When times are bad, sales can be dismal since businesses not only can’t afford financially to upgrade their fleets, but they can’t afford it politically either. If you think back to the economic crisis of 2008, you will remember the investor outcry at companies whose executives were hopping around the country in nice corporate jets while revenues were falling. In an effort to calm the public outrage, we began to see a parade of CEOs openly flying, not only on commercial airplanes, but, heaven forbid, flying in coach.
At the same time the used market for airplanes was so flooded from companies dumping their jets, that I would be a rich person today if I had picked up some of those beautiful birds and just put them into storage for a couple of years.
Ten years later aircraft sales are booming and 2018 is shaping up to be one of the best in history for several manufacturers. Piper aircraft, nearly bankrupt a few years ago is now reporting record sales with back orders of some of their most popular models well into 2021. Interestingly, many Piper trainer airplanes are heading to China, a country just getting the taste of economic prosperity. For those of you worried about a trade war with China, keep in mind that the newfound love for limited capitalism in that country is not something they are going to want to walk away from anytime soon. I suspect both sides will quickly find a way to solve their differences.
The other big point that came from the convention was the update on the use of 3D printers. What was science fiction a few years ago has now become an economic reality that could dramatically improve corporate efficiency and profits. For example, manufacturers are now capable of printing many non-structural airplane parts. A simple landing light cover for my plane, a clear piece of plastic, currently costs hundreds of dollars. The high price results from the cost of producing and storing a part for which there is a relatively small market. With 3D printing technology that same part can now be printed on demand for less than $10. The efficiency of this system translated over thousands of other parts will dramatically reduce the costs to the manufacturer and to owners, resulting in a more efficient and profitable market for everyone.
Corporations tell us on a regular basis how they feel about the future when they give forward guidance, but sometimes an even better economic indicator is to watch their actions. People tend to vote with their wallet and companies and individuals spending record amounts on new aircraft is another sign to me that corporate America is feeling pretty good about itself right now.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
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