Lending Appetite

Appetite - a simple expression of "desire" from a sales perspective. How "hungry" is the sales dealership? "Are they hungry enough to make the deal I want? If they're hungry, they'll agree to what I've proposed". But from another perspective, if a manufacturer has significant inventory, they may have appetite. In addition to slow sales and inventory, appetite can can change depending on positioning in the marketplace, a drive for higher market share, territorial competition, an investor or shareholder's demands for results, or new management.

Now fast-forward to the banking and lending community.

Appetite in banking may depend on a bank's capacity to lend, often a function of deposits and available liquidity. For example, if a bank has seen a decrease in depositors, they may also have a corresponding lack of loan appetite. Couple with this the actual source of funds a lender may use for loan offerings. A lender needs a source of funds for heavier borrowing, and if there is no liquidity in this market (i.e. if a lender "sells" their loans to Wall Street in packets), lending capability is restricted. If the neighbor's daughter has a lemonade stand but cannot get her hands on a steady supply of lemons, her capability to offer her product is likewise hindered.

A bank's appetite may also depend on it's current financial strength (profitability) and rating by it's auditors, and the recent reviews by same auditors. If the Fed audits a bank and clamps down on their lending practices, the bank will focus more internally on it's policies and procedures, and in booking loans consistent with the tighter standards. But as a result, tighter lending practices will be forced on the banks by the Fed who are in part auditing to ensure a strong financial system, and they're the same group trying to push liquidity into the market to encourage more lending.

Bank appetite may also vary depending on current default activity. If a lender is engaged in recovering assets from current note-holders, their focus may not concern ongoing expansion of their loan portfolio. From a practical standpoint, if the Titanic is sinking, the Captain isn't thinking about how to design a better boat, he's focused on preserving the ship and the people in it. If banks can quantify their losses through defaults and take the charges/ write-offs, they will bottom-out.

But new loan volume will at some point become important to the lending community again. Loans eventually go away, whether through refinancing, sale of an asset (and payoff of corresponding debt), maturity of the debt - full payoff, or through the default and resultant write-off. But at some point, loan portfolios will start to shrink and a bank will recognize the need to generate new loan volume, thereby resuming the hunt for income producing loans.

So we have sifted through the elements comprising appetite that will create a more favorable lending environment today and a return to loan growth. With a decrease in the current level of defaults, and a growing desire to start booking loans again, the system starts to clean itself, resulting in increasing profitability of the banks. As the market starts to heal and the banks start to heal, appetite will return.

Digging in Kansas

Attended Flying's "Parade of Planes" in Kansas a week ago (at New Century Airport in Olathe). Participating displays included Hawker-Beechcraft (2 King-Airs, a Premier, and a Bonanza), Cessna (a Cessna 400), Cirrus (the "jet" mockup and an SR22 GTS), CubCrafters with their new SuperSport Cub, Aviat with a Husky, Liberty, Gobosh, Pilatus with a PC12 , Diamond (DA42, DA40, DA20), and Piper (Matrix).

Overall, the weather did not cooperate (very windy and stormy, and the last day was actually cold with the wind). Paired with a somewhat removed location - a bit of a drive from Kansas City, and a poor economy, and the result was very light attendance. However, there were a few flashes of quality and optimism in the group.

Cirrus - hoping to sell another 40 aircraft in May, a repeat of the 40 aircraft sold in April? Somehow, the folks up in Duluth are figuring out how to sell airplanes in a market where there appears to be very little activity.

Gobosh - at a show with little "Sport" presence, Gobosh seemed busy throughout the event, and ran demos constantly. It seemed there was almost always someone at the Gobosh booth chatting it up with the Gobosh reps.

A couple of the resale, or late-model "used" aircraft sales folks reported nice activity starting around March. Although it's down for the year, they are still selling aircraft, and perhaps today's aircraft buyer is finding pretty attractive offerings with late-model used aircraft, especially for sellers who have been negatively impacted by our slumping economy and need to "blow the airplane out the door".

Sun-n-Fun 2009 Recap

Sun & Fun 2009 was an interesting event. Attendance seemed light, particularly as concerns the larger-dollar buyer-attendees. Overall, there were some big-ticket spenders in attendance earlier in the week, but the mornings were slow - and this is generally when we see the big-ticket spenders (new aircraft buyers). Later in the day, as the public and general aviation enthusiasts entered the show, many of the support services and support products saw increased traffic (i.e. pilot shops), in building to the afternoon show.

The weather was pretty phenomenal, albeit warm (near 90 a few days), but with no rain and lower humidity, it wasn't bad for a late-April dated show.

Piper announced G1000 in their Meridian - a great airplane just got better. The G1000 includes a 15" Multi-Function display (MFD) in the center of the console, with two 10.4 inch displays on each side. The MFD in the center continuously displays engine data, allowing the user to scroll through other screens.

Cirrus discontinued (or postponed) their LSA at Sun N Fun, but had heavy traffic throughout the event. Their sales groups seem to be clicking on all cylinders with above-normal activity.

The Mooney booth was modest given their well publicized factory shutdown, but was very well-traffic'd and displayed a new Mooney Acclaim with an awesome paint scheme - a checkerboard pattern on the nose cowl, wings and tail that represented Mooney's first-place finish in the speed contest.

Cessna had a nice and well-traffic'd booth. It seems like they didn't spare the expenses that were spared by other OEMs. They had their full range of products, and overall a nice and busy display.

Diamond's display highlighted the lycoming-powered DA42 Twin-Star (a long time coming and an engine configuration many are really looking foward to). Diamond had a better booth this year insofar as last year's mud bog had time to dry-out, and their attendance seemend to reflect better this year in part due to the weather. Diamond has a complex situation with their Twin-Star's ongoing development, along with the DA50 and DJet product development, so the booth reflected the "in process" nature of their fleet transformation.

Tiger had a suprising presence at the show - an old aircraft with a proven track record seems to have new legs (or new gear I suppose). They reported that they'll be restarting production in the next 2 months, then hoping to deliver their first aircraft off the new production line in Valdosta, Georgia in late 2009. Amazing to see them back again!

Otherwise, Beechcraft had the nicest booth I've seen them front in nearly a dozen years. They have a different sales approach in 2009 given the dispensation of their dealer network at 2008 year-end, so it's welcome to see the step-up in presentation.

CubCrafters had a nice show- with their new Sport Cub "sporting" a wonderful handcrafted paint scheme with flames along the cowl and airframe - looked awesome. Other LSA OEMs had nice booths as well - Legend Cub with a presentation "font and center" in clear sight of the show, and Flight Design with an always professional and polished presentation. Evektor had a stepped-up presence as well with their new management (the 3rd group in as many years) hoping to bring the aircraft back to the prominence it had when the LSA was first launched a few years ago.