The World According to Mac: Why New Airplanes Prices Are So High.

[Floatsflyer]

Mac poses the question in his latest blog on the EAA website. He sets out that prices of new GA aircraft(I'm going to assume he's only talking about single engine piston models) has raced far ahead of the rate of inflation in the past 30 years, some 2 to 3 or more times the rate of inflation.

You can all read it yourselves but to precis, Mac opines and contends that it's because more expensive airplanes are what pilots will buy because they want more capability, performance and more bells and whistle options as standard equipment. Further, buyers looking for more are not shopping price, he states. At the other end, he says, stripped down lower priced new models don't sell. He provides aircraft examples(including LSA and E-AB) to support these claims. So, the conclusion is that lower priced airplanes don't sell and that's why new ones cost so much because the OEMs only build what sells.

Well, by this view, I'm glad that car manufacturers don't think like airplane manufacturers or 99% of us would be riding public transit
as our sole mode of transportation.

I looked at some recent GAMA sales stats for the past 5 years and they illustrate that no one is selling much of any models, low or high priced. For the first 9 months of 2012, 597 single engine piston shipments were made from manufacturers worldwide. In 2011, total single engine piston shipments were 749 from all manufacturers worldwide. S-LSA sales stats published by an authorized body like LAMA are very hard to come by, in fact I find it perplexing that LAMA does not do this at least for its members. The stats I did find come from Dan Johnson who researched the FAA registry but they are a cumulative total, not year over year numbers. From Nov. 2006-to Sept. 2012, 2,385 LSA aircraft were registered. Simple math shows then that the yearly average is 398. That's more than 53% of certifieds, not a great number but imo, not bad comparatively for a category in its infancy. So pilots are definitely buying lower cost airplanes-- because they want them or is it because of medical issues? Much deeper research would need to be done. In any event, lower cost LSA numbers should dramatically increase over the next few years when you factor in just the over 1000 Icon A5s on the order book to date.

[WLIU]

Mac M's insights are interesting but his writing suggests that he does not "get" the homebuilt movement. I believe that more RV's have made their first flights every year than have certified aircraft and RV's are only part of the new homebuilt population each year.

And what Mac M writes about is not recreational aviation. He comes across as a guy who uses airplanes to make transportation more convenient and enjoyable, with some personal challenge mixed in. But when you separate out personally owned aircraft from the overall population of airplanes, I am sure that you will see that VFR hours far exceed IFR hours. Which might suggest that the largest part of the EAA target audience might be less interested in reading about IFR and expensive airplanes.

That said, EAA is a big tent, and when I read web site the magazine I always find content that I like. I do not feel obligated to read any particular article if the first paragraph tells me that the content of that page isn't relevant to me. So I get a lot out of Mike Busch's writing, and from the technical stuff like what Ed Kolano and others contribute.

If 75% of the content is valuable to me, I've gotten more than enough value for my dues. Your mileage may vary.

Best of luck,

Wes
N78PS

[David Pavlich]

I read the article and it's hard to argue with the stats. But the volume isn't very high so it can skew the numbers a bit. Being a neophyte, I can only look at what individual pieces of an airplane costs. On a Toyota Camry, AC is pretty much standard equipment, but add it to a Diamond DA40 and it's a $14,000 option (this is installed by Premier in Florida since it's not a factory option). Relatively low volume drives up the price. Here's a video of a Diamond being built. Compare that to building a Ford Focus:

http://www.youtube.com/watch?v=4LhN_T5tGK8


http://www.youtube.com/watch?v=4LhN_T5tGK8

Add the immense expense of FAA demands and you have an expensive piece of machinery. Why do the expensive ones sell better? I guess there's enough pilots out there that can afford a $600,000 SR22.

David

[CarlOrton]

Just a few casual thoughts and observations...

Who buys new, Part 23 certificated a/c? I'd wager a guess and say businesses do. Whether it's an oil exploration company or an FBO, those that do, can write them off and take depreciation. The guy in the hangar next to my Sonex just traded-in a 2005 A36 Bonanza for a 2012 Baron. Why? His company has some ranch land in NM and West TX, and he wants just a bit more speed. Is *he* paying for it? Of course not - it's a company plane. The owner/pilot is a great guy; we have some great times hangar-flying. But, he's *Mac's* primary target, not Hints for Homebuilders. Files IFR for every trip, and every trip is write-off-able. He's not going to the monthly Chapter fly-ins.

Next, on why a/c cost so much. It costs a lot of money to keep the lights on in a facility, even if they turn off the lights to conserve. By that, I mean that Cessna has to pay property taxes of a fixed amount every year whether they sell 1 182 or 5,000. They have to water the landscape. Pay for EPA audits. Maintain machinery, even if it's not active. It's called overhead. The lawyers, gov't compliance folks, quality, machinists, etc., all collect their paychecks. And don't get me started on insurance. Just as your insurance (whether home or medical or auto) have skyrocketed in recent years, think about how much it must go up for such litigation-prone product.

[Bill Greenwood]

Wes, I like your "EAA is a big tent"idea. That's mostly what I feel at Oshkosh, but sometimes on this forum it feels awfully separated into fractions.

I have not read this article. It's sort of ironic that he is writing about low end single engine airplanes, since I think he owns or flys a twin, and doubt if he spends much if any time in the market that this article seems to cover.

One aspect of most marketing if that you make a larger profit, ie a higher margin, from selling higher up in the prices scale.
Southwest Airlines for instance makes a good profit off bargain rate tickets, but when they sell the last minute business class ones profit grows even more.
Apple computer is another, always 2 or 3 times more than a basic Dell, but there are buyers.
And what self respecting wife would ever want to buy a house with anything but a granite countertop in the kitchen? Or what husband or realtor in his right mind would even suggest one?
I used to own 4 apartments that I rented out, and they ranged from nice to bare minimum, and the price reflected that. Over the years I had very little trouble or even turnover in the high end unit, and often a lot of trouble in the cheapest one. No more bottom end units for me, not worth the trouble and not as profitable.

Pilots do seem to want all the computer gadgets on their panels, even in many cases if it is an RV.
And there are low priced airplanes, a good Champ might be no more than new car, or $30,000 but it won't go fast or be ifr equipped or have any techno gadgets in the panel to play with, or an autopilot.

[WLIU]

I have read Mac M's article and I think that the part of hte puzzle that he has overlooked is that airplane marketing has been done using a 1950's view of the world. The legacy aircraft companies have continued to expect customers to walk in the door looking to spend money and missed today's reality that for recreation, airplanes compete with many other options, and for business travel, the company accountants compare an owned airplane to flying Southwest. In both cases, the general aviation airplane only wins if the target individual is already predisposed towards aviation and that population of individuals is growing smaller for many reasons. Cessna/Piper/Mooney/Beech are in a sort of death spiral where they can not justify to their accountants a long term investment in attracting, training, and retaining new pilots, but their industry will collapse without a significant improvement in new pilot numbers and demographics. To put it another way, why didn't Beech invent IFR clubs? Why didn't Cessna turn Cessna Pilot Centers into fractional ownership clubs? Other folks are being successful with those concepts but the implementations are really a day late and a dollar short.

So the industry has reached the point of selling high end 4 seaters that are the aviation equivalent of Ferrari's and Lamborghinis. All of us admire them on the ramp but 99% of us won't ever own one. And perhaps each of us preaches the gospel of aviation to our friends one at a time. But but our disjointed individual efforts at recruiting new pilots won't solve the industry's problems.

Best of luck,

Wes
N78PS

[Joe LaMantia]

Interesting topic!,

I've not been able to find Mac's blog but I did read the gist of it a few weeks ago. What he is describing is the push to sell high end models and the de-emphasis of basic stripped-down aircraft. That is exactly what has happened for several reasons. Given that the average pay for a "middle-class" worker has been very flat for many years, the market for low-end aircraft should have increased. Here's what has happened, the major producers of aircraft in the 50's, 60's, and 70's got caught with higher fuel costs and big liability issues in the 80's. Cessna stopped production completely, Beech shifted emphasis away from non-business use and Piper got caught with the wrong product mix and little development money. Meanwhile, lots of new technical improvements in both design and manufacturing gave the kit plane world a big boost. If you look back at Van's early "kits" and compared them with those shipped today you can see how effective CAD/CAM can be in improving quality at low cost. I would contend that we have shifted the low-end aircraft production to the home-built movement. Other technical improvements in aircraft equipment have added cost but again the quality and features available today are very impressive. As the "market" for single-engined certified aircraft shrinks, the producers are forced to go after the high-end buyer where profits are higher, but volume is down. The result is a continuing "shake-out" of producers, i.e. the recent re-organization the Hawker-Beech. The only "bright spot" is the LSA market. Given that the pilot population is aging and shrinking we will soon be faced with a glut of older used aircraft that will eventually be priced to sell, but to a smaller pilot population at even lower prices. Today there a many "hanger queens" sitting in airports all over the USA waiting for their owners to die. Aircraft that fly 10 hrs a year or less will be up for sale via estate liquidations and may experience a period of depressed prices. Too may sellers and to few buyers, just like the recent housing market.

Joe
:cool:

[WLIU]

Mac M's thoughts are easy to find. http://macsblog.com/

Best of luck,

Wes
N78PS

[martymayes]

You can all read it yourselves but to precis, Mac opines and contends that it's because more expensive airplanes are what pilots will buy because they want more capability, performance and more bells and whistle options as standard equipment. Further, buyers looking for more are not shopping price, he states. At the other end, he says, stripped down lower priced new models don't sell. He provides aircraft examples(including LSA and E-AB) to support these claims. So, the conclusion is that lower priced airplanes don't sell and that's why new ones cost so much because the OEMs only build what sells.


Well, by this view, I'm glad that car manufacturers don't think like airplane manufacturers or 99% of us would be riding public transit
as our sole mode of transportation.

Car manufacturers do think that way. When I bought a new truck, I wanted a stripped down basic farm truck, vinyl seats, hand crank windows, etc. No dice. Special order and ultimately, by the time it was delivered, it was only a few hundered dollars less than a truck on the lot with bells, whistles and options. Ask why and the response is "we don't stock stipped down trucks because they don't sell. Nobody [except a commerical fleet operator] wants a truck like that."

[Joe LaMantia]

Thanks Wes,

I used the link and re-read the article. What Mac is saying is that more is better. I agree that higher end product offerings sell and also yield a higher profit. What Mac doesn't say or maybe know is the change in volume. How may Bonanza's were built in 1977 vs 2012? Nobody would buy a new 2013 Bonanza with 1977 type equipment. The total new single engine aircraft is a lot smaller because the high price drives most out of the new market. The affordable market is clearly the used aircraft or for a growing segment, building a kit. In both cases you can upgrade avionics to suit your needs and budget. If you just want to get into the air a 60's/70's vintage C-150 is clearly the affordable way to go.

Joe
:cool:

[Kyle Boatright]

It all comes down to economies of scale. Lycoming probably ships a couple of hundred new 0-320's a year. More O-360's, because of Van's, and probably a couple of hundred new 0-540's. In total, maybe 1,000 new engines a year. Even if you go crazy and assume 5x that, the volume is tiny compared to the number of each of its engines Honda builds. That matters. A lot.

Radios, GPS's, etc. Same thing.

We get killed on economies of scale.

[steveinindy]

Wes, I like your "EAA is a big tent"idea. That's mostly what I feel at Oshkosh, but sometimes on this forum it feels awfully separated into fractions.

I am glad to know that I am not the only one who feels like that. To each and to their own as long as they do their thing in a safe way that improves or at least maintains GA's reputation.

[cluttonfred]

While I understand the logic of Mac's point, I wonder if there might still be a role for a lower-cost option. Seriously, when is the last time any general aviation manufacturer actually tried to build and market a true entry-level aircraft? Cessna markets that Skycatcher at well over $100k! I am not necessarily saying that there are millions upon millions of dollars to be made being the Volkswagen Beetle of aircraft, but there does seems to be a niche that needs filling. But I just don't see any company with Volkswagen aspirations, everybody wants to be Porche.

[redbarron55]

To observe the markst since the 1970's you find that Cessna and the others realized the market for new airplanes was limited, but the used aircraft market was more robust. So how to manufacture used airplanes? The answer was dealer operated flight schools, lease back etc. The dealers operated the new airplanes purchased at cost, depreciated and earned income as rental and then sold used.
The flight training drove the manufacture of used aircraft through rental from the fbos.
This training activity at that level no longer exists and the rental market is not the same either.
The main market has always been for used and business aircraft. No difference there, only the level of activity has changed so the economies of scale have changed.
This was changing in the late 70's when the manufacturers overproduced light aircraft and the market has not consumed them yet! Fileds were covered with unsold light Cessnas awaiting owners.
Fortunately for us these aircraft are still operational if properly maintained.
The ready availability of these planes along with the declining utility and market have kept the demand for new aircraft relatively low and prices high further inhibiting growth.
I wonder what the average age of pilots might be? If the average age gets one year older each year we are in trouble!
Flying does not seem to be attracting young people like it did since the romance and glamor has been dulled over the years.
Recreational dollars can be more easily spent in other activities that are advertized on TV and internet while aviation goes begging. The young eagles not withstanding there is little promotion to attract the young upwardly mobile who could possibly afford to fly.
Reduced utility and the interstate highway and better more comfortable cars have displaced the small airplane as a mode of transportation at the 100-300 mile trip that is the probable mission.
Better cars, less utilization, higher cost, lower interest, equals less demand and higher costs.

[WLIU]

So engine manufacturers seem to make money selling factory reman engines, but Cessna/Piper/Mooney never tried that.

Car dealers seem to make money selling "Certified Pre-Owned".

I can buy a second hand RV-x for less than the cost of a new LSA.

I saw some hint on the internet that some big flight training operation is selling off their Cessna Skycatchers in favor of older C-150's due to the economics.

There has to be a viable business model in aviation somewhere that attracts and holds new pilots. I hope that the new EAA Eagle program helps. Anyone participated?

Best of luck,

Wes
N78PS

[Floatsflyer]

The 2012 annual report for S-LSA sales is out as compiled by Dan Johnson. There were a total of 259 shipments for the year. The top 5: Skycatcher(94); Cubcrafters(48); Aerotrek(13); Flight Design CTS and American Legend tied with 11 each.

By comparison, GA piston shipments for '12 were 881(down by 2% over last year).

An interesting telling stat, though I'm not at all surprised, is in the E-LSA category where the leader was Vans RV12 with a total of 203 registered in 2012. One can only think that Vans should become the S-LSA leader for this year as they and a partner are now producing factory built ready to fly RV12s ($105-115K).