The recession isn't just stripping the middle class of their prize possessions. The wealthy are losing out, too.
It's just like real estate, the wealthy have lagged in home foreclosures, but that's changing. The plane repo business reflects another way the wealthy are playing catch up in losing assets. The repo issue is the same ugly dynamic as real estate and it's moving to the wealthy.
In the past few weeks, Ken Cage, who specializes in repossessing private planes, says he's recovered two jets worth a combined $7.1 million.
And while business has ebbed a bit compared with last year, it remains four times what Cage saw before the recession.
"I think we picked up 15 (planes) that were $1 million or more, including one $20 million jet," says Cage, president of International Recovery & Remarketing Group in Orlando, reflecting on the past 12 months. "We'd never picked up anything close to that before."
"The small, single-engine Cessnas and Pipers are being repossessed all the way on up to 747s," says Terence Haglund, founder of the Aviation Law Center in Williamsburg, Va., who represents many lenders. "It's definitely recession-related, and it's been increasing for the last couple of years."
He doesn't see the repossessions dipping significantly any time soon. "I think it'll continue," he says. "It has not slowed down yet."
The glut of planes now plus the future plans turning upside down just like real estate suggests the problem persists longer than anyone wants to admit.
The beleaguered owners include businesses that have acquired corporate jets, affluent professionals who may choose to cruise the skies in small Pipers, and the fabulously wealthy who once had their pick among all of the above.
"A lot of what we're seeing is ... their aircraft are no longer worth what they were when they paid for them (and), they can no longer afford to operate and maintain them," Haglund says. Some owners, he says, also get into trouble when they lease their planes to charter companies that then fail to pay what they owe for fuel, airport access and other services. That leads to liens on the aircraft.
In the meantime, sales and production of new business aircraft remain down from 2008, a peak year, with a meaningful rebound not expected until 2011 at the earliest, some manufacturers say.
"We really don't see an uptick in significant activity until late 2011, and that's across the board from single-engine pistons, as well as business jets," says Doug Oliver, spokesman for aircraft maker Cessna.
Good luck with 2011, I doubt they will see plane sales pick up because less demand and greater supply will keep used plane prices low. It will be cheaper to buy a repo than a new plane. It's no different than real estate where it's cheaper to buy a foreclosure than a new home.
"In 2007, we picked up a lot of single-engine planes worth $20,000 to $40,000," Cage says. "This year, the average value of the aircraft we've picked up was $400,000."
"I would say 70% of the people we repossess from ... are in the real estate market," he says, noting that they range from salespeople to those in construction and related businesses. "A lot of people made good money in '04 and '05 and '06. By '08 or '09, things just collapsed around them. It was such a deep hit so quickly after a high point that it caught a lot of people."
No big surprise the issue is concentrated in plane owners from the real estate industries. But just like real estate foreclosures, the problem will spread to plane owners from other industries. And when they're upside down on their plane, all of sudden that payment doesn't look so attractive. The strategic repo back to the bank looks like it's on the way.
The plane repo issue is just like the real estate foreclosure nightmare, but it's concentrated in the affluent who are plane owners, and it reflects it's their time to share in the American experience.
It wouldn't surprise me one bit if the boat ownership industry is actually worse than the plane industry. Neither one are a true necessity.
Hope all is well.