Financial summary and brief description of a Michigan airplane brokerage.
The Business Located adjacent to a one-runway airport in southwest Michigan, this one-man operation sells used single- and twin-engine airplanes. The business comes with access to an 80-by-80-foot building -- on city land leased for $1 a year -- which comprises an office and hangar space for 8 to 10 planes. Each sale yields an average commission of 7% to 8%, which is fairly typical. The sale of the business, as well as the recent decline in revenues, is (partly) attributable to the owner's nascent political career.
Outlook The new small-airplane market has taken a real nosedive over the past 10 to 15 years: new-plane production dropped 95% from 1978 to 1992. That may be good news for the used-plane market, since demand for planes seems to be holding -- both the number of active pilots and the number of active aircraft remained relatively constant during the 1980s. Single-engine planes represent the largest -- and, insiders say, the most healthy -- part of the resale market, but it's the most healthy part of an industry in trouble.
* * *
Price Rationale This is a fairly classic case of an assetless business with a revenue stream that may disappear when the owner does. With few hard assets (he sells on consignment, so there's no inventory), the seller based the price on the building's estimated $85,000 replacement cost, and then added a little extra for a prospective-buyer list and for goodwill. Insider price estimates varied widely, depending on assessments of the building's value and of how transferable the revenue stream will turn out to be. With 1991 financials as the guide (assuming 1992 is unrepresentative because of the owner's political campaign), some experts projected a price as low as one times earnings ($45,000), while others went as high as 2.4 times earnings ($108,000).
* * *
Pros The paucity of new planes steers most buyers toward the used market. The deal on the lease is sweet. (Where else could you get a hangar for a buck a year?) And you could spend your days hanging around airports, flying planes to make pickups and deliveries...and write it all off.
* * *
Cons The goodwill may walk with the seller, and the hangar may be unnecessary at any price. (One expert claims this enterprise could be started up anywhere for the cost of a phone and a computer; you could meet prospective buyers at an airport without having a facility there.) Would this deal amount to buying a business in an industry you could enter practically free? -- Christopher Caggiano