Saturday, February 28, 2015

Repurcussions of Private Jet Set Avoiding Oil Patch?

Bloomberg reporters noted the vast difference in the number of private jets at Davos, Switzerland and Midland, Texas.   Davos overflowed with the private jet set.  Oil stressed Midland is now a private jet black hole.

The oil boom last year was easy to see at the airport in Midland, Texas, the gateway to the biggest crude- producing region in the United States. The 30 or so spaces for private planes were often filled.

On one day in early February, a lone corporate jet sat on the tarmac, the empty spots a harbinger of the slowdown looming in a city that is 85 percent dependent on the oil and gas industry.
The article posed the number of private jets as a possible leading economic indicator:

Private aviation's role as canary-in-a-coal-mine is being watched closely again. Even as airline traffic rose at Midland International in January, business-jet takeoffs slid along with smaller non-commercial aircraft, according to data tracker FlightAware. Private flights are poised to drop again in February.
History suggests how private aviation can foretell the end of a boom. In 2008, months before Lehman Brothers's September bankruptcy filing became a signal moment of the global financial crisis, U.S. business-jet flying peaked in March, then fell in every month save one for the rest of the year.

Fewer private jets in Midland is a bad indicator for its oil based economy.

The city's dependence on a single commodity means the downturn "will be significant," said Karr Ingham, an economist based in Amarillo, Texas, who specializes in the region's oil economy. "I don't think there's any escaping that at this point even if prices were to turn and go back north again."
Mr. Ingham's economic model for the Midland economy utilizes airplane boardings but does track private jet parking occupancy rates.   He predicts future pain for Midland and the region.  The question is how far this pain will spread?

CNBC's Jim Cramer believes private equity underwriters (PEU's) are ready to snatch up distressed energy companies for pennies on the debt dollar.  Generally, someone's pain is another's gain, but not always.  Sometimes everybody losses, at least for a while.

Two other March 2008 events seemed bigger canaries for our national economy than business jet flying.  The collapse of Bear Stearns and Carlyle Capital Corporation portended the financial crisis.  Bad credit bets took down both.  Bear went into the arms of JP Morgan, while The Carlyle Group, itself a PEU, sent CCC into bankruptcy.

If PEU's come with their fresh billions to invest in the oil patch, will they arrive in private planes?  It's something to ponder.