When I got out of college in 1967 and started work, most companies were run by technical people who supported research and development.
In the lab we were allowed a lot of latitude to work on related projects that may not have an immediate payout.
This lasted for a few years, but with the change in economy, many companies started to shift more and more to the “Business School” model. If it had settled to a happy medium that would be good, but that did not happen. The business-types took over more and more companies. This resulted in the near failure of several car companies and others.
Some companies have shifted back, but the general rule in the business world today is that the bottom line is the only concern. This has hit the general aviation world in many ways.
It has hit us especially in the lack of new technology and new products.
I know there is that liability problem, but that does not explain all of the problems.
The latest scheme in business is the super jobber or distributor. In the past, a manufacturer would sell their product to a network of distributors or jobbers, who would then sell the product to the end user.
The new scheme is the manufacturer sells only to one or more super jobbers or distributors who then sell the product to the regular jobbers or distributors, who then sell to the end user.
There are several advantages of this scheme for the manufacturer. The first is a reduced sales force. With the old system, the manufacturer needed enough sales personnel to call on and provide service for all of their distributor and jobbers.
In the new system, companies can reduce their sales force since they only need to call on one or more super jobbers and distributors.
In the old system, the distributor and jobbers developed a relationship with their sales person, who would help them if they had a sales or technical problem. These may not sound like a huge savings, but if a company can reduce their sales force and technical personnel by a few people, it means a significant savings.
The second advantage for the companies is reduced inventory. Every manager gets a monthly report, and inventory is a fixed cost that goes against the bottom line. If the super jobber and distributors carry much of the inventory, it improves the manager’s bottom line.
The other big winner is the super distributor and jobber. They get to add a handling fee for all products and have closer contact with the factory. They also have a huge competitive advantage in the marketplace because of their reduced costs and direct factory support compared to the regular jobbers and distributors.
So what is the down side to this scheme and who is the big loser?
The big negative is that all products and parts will carry a surcharge, which means that the cost will be passed on to all of us.
An additional negative is the reduced competitive nature of the general aviation business.
There is also a reduction in the technical information pathway and increased delays in getting deliveries.
The other big losers are the regular jobbers and distributors who must pass on the increased cost and now have less direct information and sales path to the factory.
This marketing scheme is hitting all industries from automobiles to farm equipment and, of course, general aviation.
The problem is that the general aviation community is small and these increases in cost and decreases in service are a significant negative.
I’m certainly no expert in business economics but isn’t the threat to GA more about lack of marketing and sales?
Over the past twelve months I’ve contacted hundreds of flying schools, clubs, and commercial flight training companies in the UK, Europe, and North America. I’ve visited their websites, given them a call, and sent follow-up emails. I’m left with the impression that many of those that remain hang by a thread.
Isn’t the case the GA businesses undermine themselves by neglecting areas over which they have complete control?
I put all my thoughts on this subject in a video: 7 Reasons Why General Aviation Businesses Fail To Prosper – https://www.youtube.com/watch?v=Vaq0RofgbMg
Have I made any valid points?
I don’t see Taxes as “the Problem”. I also don’t see liabilities as “the Problem” They are there, but problems of General Aviation is, get this…. the people.
A GA Business, be it a “Flight School” or a stand alone FBO, or a combination, is rarely operated by a real “businessman”, meaning, one who has a sense for proper business structures and planning, capitalization and developmental structures. Almost everyone is created by an individual who loves planes and flying and thinks they have a better way of running a (“flight school, FBO, etc.)
In the realm of the “flight school” the aircraft costs, and the imaginary need to discount jades the thinking of the owners to the point where I can point to two operations with planes looking tired, with “inop” stickers on items and planes that cannot be flown as there is no money to replace the engines.
The owners allowed expenses to overrun their discounted pricing and a new customer comes in and sees a sad looking operation, leaves and heads out.
It does not help that people have to come to us as we are bound by the need of the airport. Boat dealers can take their wares to the Mall or downtown for promotional activities and create that lust. Pop the wings off of a plane and display it at Nordstroms? Guess what? One company did many years ago and I signed up right then and there (I was already an easy mark then anyway….)
It further does not help that my airport is growing increasingly GA UNfriendly. Airline service starts in September and the ever so subtle efforts get GA out have been noticed for a few years. I predict no GA here by 2025
A free market will sort out the winners and losers but when the market shrinks and the non protective costs (taxes) increase then there will be a poor outcome. The businesses will close and jobs will be lost. The buggy whip companies all died because the need died and the skills atrophied. I think that this maybe the future of GA. It’s been a great ride but after 80 years I can see the writing on the wall. Enjoy it while you can.
If you wanted to destroy a nation where would you start? Education system? Think MBA!! Non value added sence of entitlement. I could jump up on a stump and go on for hours. What, you want me to get my hands dirty??
Most of these comments display profound ignorance about business economics. These businesses operate in a fair, competitive market. The issue is the market itself – declining demand caused by many factors including substitute recreational opportunities. Recreational GA is a throwback to the period surrounding WWII. Further, the ongoing attack against the middle economic class exacerbates affordability. The result is a non-virtuous economic cycle resulting in high, and increasing, unit costs caused by from low production volumes.
“An additional negative is the reduced competitive nature of the general aviation business.”
Seriously??? Spoken as someone that has never run a business. No clue at all. If anything, those of us do not charge enough for our services and products. As a reference, I’m 43 years in the Avionics field, and 33 years plus, running a business. And I’m telling you….. you lost me totally with that statement.
I could go into a long long long essay about this. But the bottom line is that most of us (little guys) do not charge enough for our time, and do not charge enough markup. Our markups are driven thin, by those that are willing to sell their products nationwide at razor-thin markups.
The financial impact of “bottom line” thinking affects commercial aviation as well as general aviation. This is particularly true when it comes to maintenance. Repair station management is being recruited by investment firms from business schools. Fewer repair stations are being managed by individuals with aviation experience. I represented a major carrier doing business with a large MRO in Florida. The airline wanted a long-term relationship with this provider. Their manpower and infrastructure was stretched to the limit. They continued to take on more work than they could effectively handle. As a result they were unable to deliver on time without quality escapes. Ultimately, millions of dollars in maintenance contracts were lost as the airline pulled out of the facility completely. The provider is still in business, but they have not recovered this lost opportunity. The MRO’s top level managers have no prior aviation experience. Their focus on quarterly results coupled with ignorance regarding the importance of on-time delivery and zero quality escapes, cost them vast amounts of money relative to what they were trying to save. They attempted to maximize profits by operating on the feathered edge.
You are conflating two different ideas and making a conclusion not in evidence. Examples of entrepeneurs starting a successful business with no experience in their industries is more common than not…vision and tenacity are far more important than experience.
Of course the goal of any business is and should be profit. But when the business side becomes primary over the product development side, the goal becomes a strong short-term bottom line to satisfy shareholders, with little consideration for long-term development of the company. Innovation costs money, and if it is only seen as a drain on the corporate balance sheet it will be given short shrift at budget time. It takes a creative and visionary management group to protect the long-term viability of the company, and they are becoming rare.
Not how it’s done in the USA. And the way the USA does it has worked for two centuries. A business is in business to make money. And paying back stake holders is only possible when money is made.
Product and business development are aspects of the business but not the central focus. Sales takes precedence of all over functions. Revenue generation.
If a product or service does not make money it must be quickly abandoned. Too many of those mistakes and the business eventually fails.
There may be some small amount of criticism aimed at distribution methods, but this does not explain why historically the most utilitarian trainer aircraft, the C-150 was discontinued, and has had nothing like it to replace the past production numbers, nor with similar relative affordability. I would also debate the idea that new product innovation has been stifled. Witness attempts to produce a C-150 alternative, or the many designs trying to make the ADS mandate simple and affordable. Aviation is a narrow market, and thus maybe more specific demand driven than in a market where advertising can influence new ideas in consumer taste.
The CEO of a simulation company I worked for used to always say: “Anything beyond good enough is too much.”
There was never a time when the bottom line was not first order for a real business. Sure companies blow money on R&D if they can afford it but make no mistake….there is no R&D without a bottom line. There are plenty of drawing board ideas that are never took to the air because the company went out of business.
Respectfully, the REAL problem is the onerous taxation placed on each phase of production/distribution including the costs of accounting. At last count, there are over 1000 taxes on a loaf of bread before it makes it to the final consumer. All these taxes are added in along the way and passed to the final consumer. Ultimately, if a product is not profitable it quits being produced. If a company is not profitable, it goes bankrupt. The distribution changes these companies are being forced to make are the result of smaller and smaller margins, largely due to increased taxation.
Allan is probably paraphrasing Ronald Reagan who famously remarked that there were “151 taxes” in the cost of a loaf of bread. Like many of his off the cuff witticisms, Reagan cited no authority in support. Allan has added 850 of his own “taxes” and assures us that was “at last count”. The problem is, no one is counting, not Reagan and certainly not Allan himself.