✈ October 18, 2017, Avicor Aviation Inc.
When assessing the value of an aviation business, the valuator considers many different factors. Of course, the assets, liabilities, revenues, expenses and bottom line are all a major part of that picture, but there are other elements that affect value either positively or negatively. Among those elements are your company's products or services.
The products it sells or services it provides are at the center of every aviation business. Whether sold direct to the end user or some part of an OEM or other distribution chain, without the products or services there would be no reason for the business, no reason for customers to even know about you. The products or services also define in which sector of the aviation industry your business operates and a key factor in the value of your business is your company's position in that sector of the industry.
Two factors that are looked at when considering a company's products and/or services are diversity of products and/or services offered, and the life cycles of those products and/or services.
Specializing allows a company to become really good at what they do, the services they provide or products they produce and/or sell. Your company may be known for producing a certain type of equipment used in a specific aircraft model. Everyone knows that you are who they should go to if they own that model of aircraft. Even your competition knows and doesn't really try to compete much in that segment of the market. OK. So that segment of the market is sewn up, but what happens when a competitor does introduce something new and/or better? Or regulations change? Or that model becomes dated or the market becomes saturated? What might that do to the value of your company?
Diversifying your product or service offerings can provide a buffer for your business if demand for some products or services wanes or changes. It comes down to the old adage about "putting all of your eggs in one basket." There can be substantial inherent risk in a single product or single service company, and the valuator must take that risk into consideration when determining its value.
Maybe you run a repair station and have developed a reputation for doing inspections and checks on a specific model or aircraft. Unless you build proficiency in repairing newer equipment, for example, or expand your capabilities otherwise, you may be limiting the value of your company. On the other hand, there are instances where that speciality knowledge, ability or capability may give you an edge in the market and be a benefit. And of course, it is also possible to be so diversified that it dilutes your corporate value.
In a good, healthy aviation business, there is a constant process of developing new or upgrading existing products or services in order to stay current with or ahead of changes in the market. It can be easy to become entrenched in doing the same thing you have always done, or thinking that you've got a good thing going so you should stick with it. While that can be true for a period of time, we live in an aggressive, quite rapidly changing world and if you are trying to build the value of your business, staying ahead of the curve is important.
If you hold STCs, for example, and believe that much of your corporate value is in owning those STCs, consider what the market for the products that can produced under those STCs really is. Are they for aircraft models that are beginning to diminish? Are your costs (and your related expenses) competitive? Are they for markets that are growing? Can they be altered or added to in order to secure additional STCs that would open up additional markets for your company?
Periodically, it is important to take a look at your product or service offerings and consider how they might affect the value of your company. It may turn out that you are in the best position possible, but there may also be room to reduce risk and add value!
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