The year in review: Diversification is key to survival during recession Company: Conklin & de Decker

Feb. 1, 2002
The Year in Review Diversification is key to survival during recessionBy Bill de Decker

The old year is drawing to a close as I'm writing this and the week between Christmas and New Year's is always a time to reflect on where we have been, what's changed, and what the new year may bring. There is no question that the terrorist attacks on September 11 were the dominant event of the year and their impact on aviation in all its many forms was instantaneous and wrenching.

However, let's not forget that prior to September 11, there already was a recession in the economy in general and in the aviation business in particular. In fact, the numbers for our business show that the slowdown started about October 2000. That was the first month that we saw a distinct downturn in our business of selling databases. One year into the recession and our business (knock on wood) continues to be good. In addition to the great people at our company, there are a number of factors that have contributed to this. Three of them are that we have diversified, that we have a good and growing website, and that we have much better information about our business.

Often, diversification is an effective way of protecting your business from the impact of a recession, because not all segments in an industry are affected the same way by a recession. This may not seem intuitively obvious, but consider that when an organization decides not to get a new aircraft (bad for aircraft sellers), they may well decide to completely refurbish the aircraft they have (good for the completion centers). We have a good example with our own company. In 1991, databases represented 85 percent of our business and consulting 15 percent. In 2001, the databases were only 57 percent of our (much larger) business, while consulting and maintenance management software accounted for 43 percent. This was good, because during this recession, database sales shrank, while the other businesses surged. As a result, overall sales for the year were satisfactory. Another example is what happened after September 11. Airline and general aviation were hit hard and have yet to recover. Business aviation on the other hand is doing reasonably well. In short, by diversifying and offering more than one product or service, you stand a better chance of sheltering your organization from the full impact of a recession. How can you diversify? Look at your business and you'll see that you probably have more than just one service or product. So, one approach is to analyze your current business and classify it according to type (for example transient maintenance, heavy maintenance on jets, and avionics repair). Next, figure the percentage contribution of each to sales and profits. And then see if there is one that is a small percentage of sales with a larger percentage contribution to profits. If you find one with those characteristics, that's the one to expand. Another way is to talk to your customers and find out what they suggest. Often, the customers have a much clearer view of other things your organization can do. Yet another way is to see what your competitors at other airports and other cities are doing that you are not. Once you have the ideas, they still need to be evaluated as to their profit potential, but that's the subject of another column.

The Internet
In 1990, the Internet was unknown to most people in business, and the number of organizations that had a website was essentially zero. Today, if you have a business and you don't have a website you are missing out on a very powerful sales tool. And it doesn't matter whether you are selling $50 accessories or $500,000 "D" checks. We have had a website for about four years, have sold our databases over the Internet for about three years, and have delivered software updates for our maintenance management software through our website for about a year. During this time, our Internet sales have gone from nothing to almost 20 percent of our total sales! Our website has also proven to be a very effective means of letting our prospects know who we are and what we do. It is frankly often more effective than a brochure, much cheaper, and much easier to access for those that live outside the United States.

If you have a website, make sure it's up to date and easy to use. In particular, keeping it up to date takes a lot more time than you might think (at least that's what we have found). Making it easy to use means that users can find what they want without getting lost and can get back to the homepage from anywhere. And if you don't have a website, get one! Frankly, to establish or maintain a website it is best to get professional help. If your organization is large enough, it's cost effective to get your own web master. If your organization is smaller, the best thing is to get a contractor to help you set it up and maintain it. You will still have to supply all the information, photos, charts, etc., but a contractor can put it together quickly, effectively, and probably for a lot less than you think it will cost.

The computer has wrought a revolution in the information that is available to us as managers for the operation of our businesses. For example, in 1990, we used a manual accounting system and did not get the results for each month until three to four weeks after the close of that month. We had no access to any other reports and made many of our decisions based on gut-feel. Today, we get our preliminary monthly financial results on the afternoon of the last day of the month. We also get weekly and sometimes daily reports on sales, expenses, receivables, inventory, and just about any other aspect of the business we are interested in. In addition, we have a fairly sophisticated sales and expense projection report. This data has been invaluable, since we don't have to guess anymore about so many aspects of our business. Looking at just one example - inventory - will suffice. In 1991, our ratio of sales to inventory was 8:1. Today, the ratio is almost 20:1. In other words, in 1991 it took $1 of inventory to support $8 in sales and today that same $1 supports $20 in sales. Given that each dollar of inventory costs 25 cents per year in carrying costs, this is a significant savings.

A typical aviation maintenance organization can easily have many millions of dollars tied up in inventory. At 25 percent carrying costs, each $1 million of inventory costs $250,000 per year. The investment in the required software, a system to establish inventory control and a person to run the system and the software will cost a fraction of that. This will allow you to actually manage your inventory, decrease the total inventory, yield significant savings, and result in greater profits. The software is available from several sources (full disclosure: our company is one of the companies that sell inventory-tracking software). The rest is up to you.

Our detailed sales data also gives tantalizing hints that the recession may be coming to an end.

In short, recessions are a real challenge. But remember, they do come to an end and meanwhile, the slower pace gives you a chance to implement some of the things we've talked about in this article. AMT

Bill de Decker is a Partner with Conklin & de Decker Associates, publishers of aircraft operating cost databases. MxManager® integrated maintenance management software, and consultants on cost analysis and fleet planning. He has over 35 years experience in fixed and rotary wing design, marketing, training, operation, and management. He also teaches a number of aviation management courses.