Investing in vintage warbirds: savvy deal or just plane crazy?

New York

COLLECTIBLES markets are driven by passion, not rational thought. But the aircraft-collecting market has seen a split in recent years between those who purchase and restore for love and history and those who are new collectors with an interest in return on investment.

The owners of Redondo Beach-based Platinum Fighter Sales claim to have brokered more than US$300 million in classic aircraft and warbirds (military planes) to both types of buyers over the past three decades.

In the last few years, Simon Brown, co-owner of Platinum, has noticed an influx of investors. These clients may not even know what kind of plane they're buying, but they know a good return on investment when they see it. "Over the last 40 years, these airplanes have doubled in value every 10 years," Mr Brown says. Adjusted for inflation, the historical average annual return on the S&P 500 since its inception in 1923 is only about 7 per cent.

The fear among collectors and those who love the planes for their history over a return on investment is that these rare birds will be kept under lock and key instead of shared with enthusiasts. Many are transported abroad from their country of origin and privately hangared, effectively taking them out of circulation at air shows and similar historical events.

"From a financial or commercial standpoint it's good, but you don't see the airplanes fly as much, which kind of defeats the purpose of telling the history of the airplanes," Mr Brown says.

Greg Herrick, owner of the Golden Wings Flying Museum outside Minneapolis, owns 38 vintage aircraft. Most date from the golden age of aviation, the period between the two world wars.

"It's not just the airplane, it's the history that it represents," Mr Herrick says of what drives him to collect. Among his collection are five Ford Tri-Motor aircraft, manufactured in the 1920s and known as the first luxury airliner. "One of them is the oldest flying metal aircraft in the world," he says.

He isn't opposed to buying aircraft for investment purposes, but he prefers the historical adulation shown by many collectors and the public access they allow.

"The preservation of this is so important, but if someone (has invested) and created value, then maybe they incentivise other people to collect and restore them," he says. "These planes should be appreciated."

Sixty per cent of business at Platinum Fighter Sales is domestic, with the remaining sales tracking a flight path abroad. "We have people that buy an airplane in US dollars and hold on to it and then sell it just because the exchange rate is favourable," Mr Brown says. "They make more money off the exchange rate than they do off the value of the airplane sometimes."

A large portion of his international sales are from Europe. There are also buyers in Australia and New Zealand, with sales in Eastern Europe and Russia growing.

Buying or selling a vintage aircraft can be an emotional exercise for a collector. Investors, however, just want the best deal, Mr Brown says.

"If someone wants a particular airplane, we take the emotion out of it for them," he says. "We don't want them to pay too much. We want them to be treated fairly."

The purchase price is often only the first in a long line of expenses for both collectors and investors. Returning a vintage aircraft to its former glory (or even just a flyable state) can be an expensive task.

For Mr Brown, it comes down to the individual choice of love vs money. "Some airplanes you can do a restoration and be financially still in a good situation," he says. "Other airplanes you are going to restore can be that much more labour-intensive, and you may end up upside-down on it and never get your money out."

Mr Herrick admits to investing more than US$10 million into purchasing and restoring aircraft, but he thinks certain planes should be left as is.

Of the first diesel-powered plane, the 1928 Stinson SM-IDX Detroiter, he says, "That's an artifact and is in its original condition, and any restorer, no matter how good they are, is not going to rebuild the airplane exactly like it was."

On rare occasions, an aircraft's history can be more important than its condition.

In 1942 a Lockheed P-38 fighter crashed in Greenland during a delivery flight from the US to England. Encased in a glacier for the next half century, the warbird was recovered from beneath 80 metres of ice in 1992 and then restored by Kentucky businessman Roy Shoffner.

Known as Glacier Girl, "it's one of the most famous planes in the world because of the history of it being under the ice," Mr Brown says. Glacier Girl was purchased by Rodney Lewis, president and chief executive officer of Lewis Energy Group, for an undisclosed amount and now forms part of his extensive warbird collection.

Warbirds with infamous pasts aside, many vintage aircraft can be obtained for prices of about US$50,000 or less. Trade-a-Plane.com has an exhaustive list of available craft from all eras.

Platinum's Mr Brown says anything British is super-hot right now, especially Spitfires and Hurricanes. "This year is the hundredth anniversary of the Royal Air Force," he says. "It's made them the flavour of the year. Anything that is British, in fact." BLOOMBERG