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Overcapitalization In Aviation

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From The CEO’s Desk

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by Aeronautical Aviation

Overcapitalization In Aviation - Thoughts and Feelings

Aero SA showcases the spending attitudes of aviation. There is a growing trend to see investment in your aeroplane as overcapitalisation, here are my thoughts. 

With Aero SA coming up, I find myself thinking about the spending attitudes in aviation. I’m constantly being told by my clients that they do not want to spend too much money on their aeroplanes because they do not want to over capitalise on their planes. To me that is a very concerning outlook to have in terms of both safety and functionality. In my opinion, thinking about your aeroplane in terms of overcapitalisation is the wrong way to look at it.

Let’s use an example. Many customers are more than willing to buy a new X5 right out of the showroom, knowing that you will lose roughly 20% of its value the minute you drive it off the floor. Now, think about the fact that a car is something that you can pull over to the side of the road, push a button so that your hazard lights come on, and you can phone for assistance. You can’t do that in an aeroplane. There is no pause button. In an aeroplane, you can’t stop.

When you buy a car, you take the time to ensure that it has the right airbags and other safety features - why are we not prepared to spend the money to ensure that our aeroplanes are safe? If we worry about the cars we drive, surely, we should worry about the capability and safety of our aeroplanes - for ourselves and for our families who we put inside those planes.

I believe that the term overcapitalisation is being used far too much, and worse incorrectly in the aviation industry. We seem more worried about ‘getting our money back’ than we do about the safety, reliability, and situational awareness that comes with the upgrades that we are able to put into our aeroplanes. In my opinion, the peace of mind that it affords me as a pilot, and as a family man, is invaluable.

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I will concede that this is a long debate to be had, fraught with the potential to be lost in the broadness of the topic. However, when it comes to my own experience, using my own aeroplane as an example, I did the numbers. To buy a brand new Baron 58 out of the factory would have cost me a fortune. To buy a 1979 model, with relatively decent time on it, and then do the upgrades that we have done on it, I have now achieved an aeroplane that is as good as the new one, at a fraction of the price (roughly a quarter of the price to be more exact). Have I overcapitalised on my aeroplane? I don’t believe that I have.

Over the last two years, blue book values on the aeroplanes that have got the upgrades in them are far higher, are under more demand in the market, and are actually selling in the market as compared to the aeroplanes without the upgrades. People are far more willing to buy a plane that they can climb into immediately and fly, reassured that they can do so safely with all the upgrades, and pay more for that plane, than they are to buy an aeroplane that still needs a lot of work done to it while suffering the down time required to get it done.

In my mind, overcapitalisation should then simply not be a determining factor in spending money on your aeroplane. I am not saying that you should spend double the plane’s value on doing upgrades, but I absolutely believe that as human beings we work very hard for our money and spending any less on my aeroplane than I would on my car just does not make sense. We work hard to make our money, we have earned the ability to buy that car, or that aeroplane, and we should then use the same attitude in making our aviation spending choices as we do for our cars.

I personally am more than happy to spend money on the plane that I can’t just pull over to the side of the road. I hope that more pilots and aeroplane owners will see the value of their investments as they visit AERO SA this year, and look for the right upgrades to make their planes as safe and as reliable as they can be. I would never tell you to get an upgrade that you do not need, but I will also remind you that your plane needs to be treated with the same attitude as your car. See you all at AERO in July.

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