New Planes from old companies

"Mike Rapoport" wrote in message
hlink.net...

Cessna and Piper are tooled up to produce metal airplanes while most
successful new designs are composite. Cessna, Piper and Mooney have the
wrong tooling and their workforce has the wrong skills to produce "modern"
light aircraft.

Since when is a composite aircraft "modern" and a metal one not?

Mike Rapoport wrote:

"Matt Whiting" wrote in message
...

Mike Rapoport wrote:


"Brian Sponcil" wrote in message
...


"Matt Whiting" wrote in message
...


I don't think Cirrus has come even close to making money yet, on a total
investment basis. I haven't keep track of the total amount of venture
capital they've secured, but I think it was north of $200MM. That will
take a long time to recoup. They may well be profitable at the
operations level, but that isn't the same thing as "making money"
overall.

I'm sure you're right but a quick look at the numbers makes me wonder how
they AREN'T going to recoup that $$. Cirrus is selling something like 50
planes a month. You'd think their profit margin on a 300k airplane would
be at least 20k. If so, that's roughly 10Mil in profit every year and a
20 year break even on the initial 200Mil investment.


The gross margin on aircraft is much higher than 6.7%, it is more like
35-40%. Of course they have SG&A and R&D to cover but they are making an
incremental $100K+ on every plane.

Where did you find Cirrus' financial statements? Last I knew they were
privately held and I've been unable to find any financial statements,
audited or otherwise.


Matt



Acutally I got it from a different, publicly traded company but you can
probably approximate it from Textron's 10K if you spend long enough at it.
Looking at it another way, I get at least one invitation a month from jet
manufactures to fly their products. I have never taken them up on it but
this portion of their selling cost would eat up the entire gross margin if
that gross margin was 7%. High gross margins are required to recover high
development and certification costs on small volume of airplanes.

I heard a story (from the president of the bank that eventually financed the
airplane) of a prospective buyer being given a two week trip to Europe from
the US by the manufacturer of the airplane and then he bought it for over
15% off the official price. This was in 2001 when the bottom fell out of
the turbine airplane market. Planes have high gross margins. Keep in mind
that the cost of developement is not in the COGS.

Yes, but that was precisely my point. You need a lot of gross margin if
the investors are to ever recover their initial cost of development
investment. Most airplane manufacturers over the last 20 years, other
than bizjet makers, haven't been able to sustain such gross margins over
a long enough production run to recoup the initial investment. Maybe
Cirrus and Diamond will be the exceptions, but I'm not holding my breath
and I'm certainly not investing in a new GA manufacturer! :-)

As much as I like aviation, I know enough about business to know that
this is truly speculation. I don't have enough disposable cash yet to
do a lot of speculative investment.


Matt

C J Campbell wrote:

"Mike Rapoport" wrote in message
hlink.net...

Cessna and Piper are tooled up to produce metal airplanes while most
successful new designs are composite. Cessna, Piper and Mooney have the
wrong tooling and their workforce has the wrong skills to produce "modern"
light aircraft.


Since when is a composite aircraft "modern" and a metal one not?



Uh, I think that was Mike's point in using quotes around modern. That
is a common conception, but I don't believe Mike was stating that as
reality.


Matt

I heard from a Diamond guy that the owner was more concerned about liability
than profit, and didn't care a bit about market share. Apparently, his main
goal is not to LOSE money. If this is true, he at least has the right
expectations.

It has to cost more to build the SR20 than the Star, but they are closely
priced. It really makes you wonder.



"Matt Whiting" wrote in message
...
Mike Rapoport wrote:

"Matt Whiting" wrote in message
...

Mike Rapoport wrote:


"Brian Sponcil" wrote in message
...


"Matt Whiting" wrote in message
...


I don't think Cirrus has come even close to making money yet, on a
total investment basis. I haven't keep track of the total amount of
venture capital they've secured, but I think it was north of $200MM.
That will take a long time to recoup. They may well be profitable at
the operations level, but that isn't the same thing as "making money"
overall.

I'm sure you're right but a quick look at the numbers makes me wonder
how they AREN'T going to recoup that $$. Cirrus is selling something
like 50 planes a month. You'd think their profit margin on a 300k
airplane would be at least 20k. If so, that's roughly 10Mil in profit
every year and a 20 year break even on the initial 200Mil investment.


The gross margin on aircraft is much higher than 6.7%, it is more like
35-40%. Of course they have SG&A and R&D to cover but they are making
an incremental $100K+ on every plane.

Where did you find Cirrus' financial statements? Last I knew they were
privately held and I've been unable to find any financial statements,
audited or otherwise.


Matt



Acutally I got it from a different, publicly traded company but you can
probably approximate it from Textron's 10K if you spend long enough at
it. Looking at it another way, I get at least one invitation a month from
jet manufactures to fly their products. I have never taken them up on it
but this portion of their selling cost would eat up the entire gross
margin if that gross margin was 7%. High gross margins are required to
recover high development and certification costs on small volume of
airplanes.

I heard a story (from the president of the bank that eventually financed
the airplane) of a prospective buyer being given a two week trip to
Europe from the US by the manufacturer of the airplane and then he bought
it for over 15% off the official price. This was in 2001 when the bottom
fell out of the turbine airplane market. Planes have high gross margins.
Keep in mind that the cost of developement is not in the COGS.

Yes, but that was precisely my point. You need a lot of gross margin if
the investors are to ever recover their initial cost of development
investment. Most airplane manufacturers over the last 20 years, other
than bizjet makers, haven't been able to sustain such gross margins over a
long enough production run to recoup the initial investment. Maybe Cirrus
and Diamond will be the exceptions, but I'm not holding my breath and I'm
certainly not investing in a new GA manufacturer! :-)

As much as I like aviation, I know enough about business to know that this
is truly speculation. I don't have enough disposable cash yet to do a lot
of speculative investment.


Matt

I would say you took his comments in a way not intended.

I have to wonder about the wisdom of a metal fuselage for a new small piston
plane anymore though. Wings, sure, but not the fuselage. The composites
would seem to have too many advantages. At least until someone can make
more progress in ways to get more curves, and more strength, with less money
than is currently happening in the metal world. Which, someone likely will.

"C J Campbell" wrote in message
...

"Mike Rapoport" wrote in message
hlink.net...

Cessna and Piper are tooled up to produce metal airplanes while most
successful new designs are composite. Cessna, Piper and Mooney have the
wrong tooling and their workforce has the wrong skills to produce
"modern"
light aircraft.

Since when is a composite aircraft "modern" and a metal one not?

The power of the database is its depth. Assuming you could get 10% of
pilots
or so to use it, it would give us a lot more insight into this market.
Assuming that insurers are indeed milking us, or certain segments of the
market, this would also provide a data set that would help convince a new
company to enter the market.



Well, what I am shooting for is for a more responsive insurance market that
provides information on the safety of the planes through pricing. In the
long run, the more dangerous planes would be reduced, while the safer ones
would thrive, and the overall result would be added safety with lower costs
for everyone. The insurers would supposedly benefit from lowered claims
unless you believe in the theory that they LIKE larger claims.



I doubt it has that much effect. We're talking about toys that cost
anywhere
from a quarter to half million dollars, and it is a pretty rarefied group
of
people that can afford that. Yes, there are probably a few marginal
customers who just can't justify another $500 per month to own an SR-22
versus a new 182, but I doubt it's significant.


You know, I hate to admit this, but you seem to be absolutely correct.
People ARE buying a new Cirrus despite the price of insurance. However, I
think buyers may be different from the used ones.

This makes me wonder what happens to the resale values. How much is the
free training worth as part of a new Cirrus. If you want a used one, do you
haev to pay for the school to get insured?


A much more interesting insurance question right now is the Sport
Pilot/LSA
segment of the market. This is going to be much more price-sensitive and
potentially a lot larger. It will be interesting to see how this evolves.


I can't figure out how it will get very large unless Sport pilots are
allowed under the class B umbrella. I know they are not allowed in the
Bravo, but can they go under? Can the LSA's go into B with a PP as PIC? Is
that all decided?


Okay, I hear you. But what if Avemco only discounted the Mooneys, and
charged the same or more for the others (based on Richard Collins data
being
proved out in claims)? Would they not then be more profitable than the
competition by attracting more than their fair share of the better
retract
business?

Well, I suspect this *is* going on, particularly with light twins. If you
read insurance threads here you'll often see cases where one insurer
offers
a significantly (15%) lower rate than the others. The issue is that
information moves much more slowly. Airlines, for instance, change fares
constantly, but they are all published onto the SABRE network in near-real
time so competitors see very quickly what's going on and can respond in
kind
if desired. Insurers probably need a minimum of a few months to see these
sorts of trends. Again, this is a case where a master database could help
accelerate things.

However, it does have a possible downside in that it diminishes the value
of
price-cutting. If an insurer starts offering significantly-reduced rates
on,
say, Mooneys, it will take some time before the other insurers notice. In
this time they will scoop up a lot of customers. Then the others will cut
their rates too, at which point the advantage will disappear. So the more
time it takes for your competitors to realize you cut your prices, the
higher the ROI on your price cutting. Now, you also need to consider that
cutting prices will initially cost you money since you're also going to be
offering lower rates to customers you already have. So the key is to catch
enough new customers to make up for lost revenue from existing ones. If
your
competitors can respond to price cuts more or less instantly, then it
eliminates the incentive to do so. This, coincidentally, explains why the
"we will not be undersold" guarantees you see in ads are actually ways of
discouraging price competition.

So in the end the key is to have a lot of companies in the market. This
way
you always have someone upsetting the cozy equilibrium that favors the
insurers and forcing everyone else to come along. The
four-is-few-six-is-many rule is derived by observation, and there remains
a
Nobel to be won by the economist who gives a good crisp mathematical
justification for it.


That's all good stuff, but it seems to me that if you lower the price on the
"good eggs" then you might have to raise it on the "bad eggs" to make up for
that. If you can successfully drive the more claims ridden planes to your
competitor you can really stick it to him, and he may never catch up. Even
if he does, you will have a stack of cash for your next move that he will
not have.


Also, what you say brings up an idea. Perhaps one year is not enough
data
for claims because each insurer does not have a wide enough pool.
Perhaps
they all need to provide their claims data to a third party, and then buy
back the overall fleet results in order to change rates to reflect the
total
fleet results.

I don't see how this would benefit the insurers. Assuming they are
overcharging, they have no reason to want to stop.


They are not overcharging, they are not being discriminating enough. This
has too affects. One, it raises claims because it does not discourage the
use of poorly designed planes. Two, it reduces overall safety by the same
mechanism.


with predictable results. Time will tell. Either way, rates will not
come
down without a pretty substantial reduction in accident rates and no
one
is
predicting that for anybody.

Hasn't Diamond had a reduced incident as well as fatality rate?

Perhaps, I don't know. Again, the key is to figure out why. Perhaps the
reputation of the Diamond as a "safe" airplane attracts safety-oriented
pilots who are going to be safer no matter what airplane they fly. I am
very
open to believing that a plane can be made more crash-worthy, and the
Diamond clearly is. I am less persuaded that there is that much more to be
done to make planes safer to fly in day VFR conditions. Is there that much
that can be done to improve stall-spin characteristics? Can we make planes
that much easier to land in crosswinds? Of course, there is always
something, but most accidents begin with bad judgment.


I have to say that Volvo does not make the safest cars by crash statistics,
yet I believe they do benefit from exactly this phenomenon. There is sense
in the safer population theory, but I think its so marginal as to be almost
a non factor. After all, did Cirrus NOT attract safe minded individuals
with the parachute and all their marketing?


Ahhh, but they did treat Diamonds like Cessna's and appear to be making
out
like fatcats. Besides, if they really do take that approach, isn't it
just
proving my point that they reduce innovation, and are therefore reducing
safety?


Well, this is the way of all flesh. Prices tend to go up quickly, and come
down slowly. Yes, no question insurers do occasionally milk certain market
segments.


PS I really appreciate your perspective on this, you are helping me
reshape
my opinions and sharpen some of my arguments.


IMHO the real problem is not insurers, it's the FAA certification process.
To answer one of my own questions, it would seem that the data stream
available in the G1000 ought to be sufficient to construct a warning
device
that could predict many of the potential stall-spin scenarios. For
instance,
if you're buzzing around pattern altitude near a field and have the
traffic
frequency tuned, you're probably flying the pattern. Now, let's watch the
airspeed trend, and sound an alarm if it starts slowing down rapidly on
the
base-final turn. "Speed up, speed up!" would probably prevent a
non-trivial
number of such accidents, though surely not all. You could construct
similar
routines for plenty of other scenarios. However, getting this approaved by
the FAA and your company's legal department would be a nightmare. Neither
of
these have *anything* to do with the insurance companies.

-cwk.


I here you there.

Since most of the new airplanes and all of the new high performance single
engine designs are composite. Metal is a great material for airplanes but
it is difficult to produce perfect shapes with in the thin sheets used in
light aircraft. If you want to get more performance from your new design it
is going to need ripple free compound curves over the entire fusilage and
this is really hard to achieve with .025 sheetmetal. In other catagories,
like utility aircraft, it doesn't seem (to me anyway) that a new design is
going to offer much more than current planes like the 182 or 206.

Mike
MU-2


"C J Campbell" wrote in message
...

"Mike Rapoport" wrote in message
hlink.net...

Cessna and Piper are tooled up to produce metal airplanes while most
successful new designs are composite. Cessna, Piper and Mooney have the
wrong tooling and their workforce has the wrong skills to produce
"modern"
light aircraft.

Since when is a composite aircraft "modern" and a metal one not?

Mike Rapoport wrote:

The gross margin on aircraft is much higher than 6.7%, it is more like
35-40%.

Or more. Back in the mid-90s, aircraft sales stalled. Cessna had announced they
were restarting production of the 172, but they refused to even estimate what
they would charge for it. Most light aircraft buyers sat on the fence during the
two years it took Cessna to set a price -- nobody wanted to lay out $50,000 for
a "cherry" but old 172 and then find out they could've bought a brand new one
for $60,000.

Prior to this, Maule was selling the MX-7-160 for $83,000. They cut the price to
$45,000 to keep the factory running. I was told that they were barely making
costs at that price.

George Patterson
If a man gets into a fight 3,000 miles away from home, he *had* to have
been looking for it.

Dude wrote:

I heard from a Diamond guy that the owner was more concerned about liability
than profit, and didn't care a bit about market share. Apparently, his main
goal is not to LOSE money. If this is true, he at least has the right
expectations.

This is a great expectation for a hobby, but not for a business! :-)


Matt

Dude wrote:

I would say you took his comments in a way not intended.

I have to wonder about the wisdom of a metal fuselage for a new small piston
plane anymore though. Wings, sure, but not the fuselage. The composites
would seem to have too many advantages. At least until someone can make
more progress in ways to get more curves, and more strength, with less money
than is currently happening in the metal world. Which, someone likely will.

Actually, technology exists to hydroform metal into large and compound
curved shapes. It would be easy to eliminate almost all of the rivets
in both the fuselage and wings with modern metal forming technology. I
can't imagine a new design that would use the rib and skin methods
developed more than 60 years ago. A truly modern metal airplane could
look just as smooth as a composite and probably be even cheaper to
produce given sufficient volume to justify the tooling costs.


Matt