Ag Aviation Business For Sale: Is $1.95M a Good or Bad Investment?

In this episode we take a close look at a unique business opportunity: an established agricultural aviation business for sale at $1,950,000.

This business brings in annual sales of $1,583,412 and has discretionary earnings of $519,231. It includes two Air Tractor planes with advanced technology worth $955,495. On paper, it sounds promising, but the hosts explore some key reasons why this might not be the best investment.

The listing:

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The Agricultural Aviation Business Overview

This business is all about helping farmers by spraying crops with protection products from the air. It's located in the Southwest US and has a loyal customer base. The company operates from private facilities with an airstrip available for lease. Along with aerial spraying, they offer ground spraying services too. The business comes with two well-equipped Air Tractors, making it a turnkey operation.

Pros:

• Established Business: The company has a solid, long-standing customer base and is well-established in its market.
• Turnkey Operation: Comes with two Air Tractor planes, equipped with advanced technology like Bantam Satloc/Intelliflow, ADSB & Comm.
• Potential for Expansion: There is room to grow the business, including offering more ground spraying services.
• High Discretionary Earnings: The business generates $519,231 in discretionary earnings, indicating good profitability.
• Support from Seller: The current owner/pilot is available to help with the transition after the sale.

Cons:

• Need for Skilled Pilot: The new owner would need to be a qualified pilot or hire one, which can be difficult and expensive.
• High Operational Costs: Maintaining and operating the planes is costly, and the business depends on expensive equipment.
• Drone Technology Threat: As drone technology improves, it could potentially replace the need for crop-dusting planes.
• Financial Risk: The business is priced at $1.95 million, with significant costs for planes and potential additional expenses for hiring a pilot.
• Seasonal Operation: The business operates mainly from April to October, which could affect cash flow during off-season months.

Challenges in Operation

One major concern the hosts discuss is the need for a skilled pilot. The current owner flies the planes, which poses a problem if the new owner can't do the same. Hiring a pilot could be tough, especially in a rural area, and would likely cost a lot, eating into the profits.

Bill D'Alessandro points out that understanding the financial side of farming is crucial. The pricing needs to be something farmers can afford without hurting their own bottom line. To make the business work, you’d need to expand its reach or charge more, but this isn't easy and comes with risks.

Threat from Drones

Another big topic is the impact of drone technology. Heather Endresen compares drones to those little robots that clean pools, suggesting that farmers might prefer buying drones and doing the spraying themselves in the future. Right now, drones can’t carry as much as planes, but technology is improving quickly.

Michael Girdley mentions that while a drone can carry 60 to 70 pounds, a plane can handle over 10,000 pounds. This makes planes much more efficient for big jobs. But as drones get better, they could eventually take over, which would be a big problem for this type of business.

Financial Issues

The financial setup of the deal also has some drawbacks. The price includes two planes, valued at about $500,000 each, which is a drop from their original price of $1-2 million. This depreciation shows that the planes are likely to need regular maintenance. Bill D'Alessandro also notes that paying two times the discretionary earnings seems thin, especially with the added cost of a pilot.

The hosts agree that any buyer would need a solid plan to grow the business and make more money. Financing the planes and setting up an earn-out based on future success might help, but it's a risky strategy.

Final Thoughts

After examining the details, the hosts conclude that this agricultural aviation business has too many challenges. The need for a skilled pilot, the threat from drones, and tight financial margins make it a tough sell. For someone without industry experience or the right skills, this might not be the best investment.

So, while the $1.95 million price tag includes significant assets and steady earnings, the operational and technological hurdles suggest that potential buyers should be cautious. The evolving technology and specific skill requirements make this a high-risk investment, best suited for those with a clear plan and deep industry knowledge.