Sanity In Aircraft Sales

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While Greg Lane and I were shooting a video on the Waco Classic for tomorrow's Sun 'n Fun coverage today, I got into a conversation with Wayne Fischer from Mooney. Fischer has been in the airplane sales business forever and has seen more downturns than most of us have seen birthdays.

But with experience comes wisdom and he told me he's wondering if the current downturn hasóor maybe shouldóreset the clock on the standard business model for aircraft makers. "I think it's time we think about having sales drive production rather the other way around," he says.

This is a good point and it's not the first time the concept has been advanced in one form or another. All businesses are cyclic to some degree, but aircraft manufacturing is downright bi-polar. It tends to boom along in high gear and bypass the trail-off stage into full nosedown pitchover, only to recover and repeat the cycle.

Fischer thinks maybe a more sane model would envision airplanes not being build until they're actually ordered. Heretofore, the factories have tended to base their economics on a certain presumably profitable output and then flog the sales and marketing department to move the merchandise.

It reminds of a story former Lycoming prez Phil Boob told me once about his days as a sales exec at Piper. In one of the countless downturns, the frustrated CEO asked, "You mean in the entire world, we can't sell just one Cheyenne?" The answer was a timid yes.

I don't know if such a re-tooling can work or not. Those of us not in the arena can make great sport of telling other people how to run their business or their industry. But Fischer knows the business and the industry. His idea rings true to me.

Comments (24)

Second marriages have often been termed "a triumph of hope over reality" but perhaps that epithet equally applies more to aircraft sales in our wildly cyclical economy?

In reading this blog entry I can't help recalling photos from the just post WWII period of fields of unsold Pipers, Taylorcraft and Cessnas that were produced for the forecast "post war aviation boom" that never materialized. Instead we had a recession in Feb-Oct 1945 and another one Nov 1948 to Oct 1949 that put an end to that illusion and it took a long time to sell those planes. You think we would have learned by now.

Posted by: Adam Hunt | April 14, 2010 5:39 AM    Report this comment

Seems like common sense; no leftover inventory and the factory runs only when needed. Now the trick will be to get Detroit to buy into the idea!

Posted by: Andy Manning | April 14, 2010 7:24 AM    Report this comment

I think the main problem is that you can't plan production in advance, only need people to come to work to build planes when there are planes to build and forecasting profits and losses for the year would be a challenge! You may just lose your labour force to more regular work!

Posted by: Adam Hunt | April 14, 2010 7:27 AM    Report this comment

Yeah, sure - the sales and marketing guys are tired of being flogged. They always are. The sales guys would rather the flogging be aimed at the factory as they try and keep costs down and quality up while managing start-stop production of a complex hand-built product. Suppliers all along the supply chain will starve waiting for the sales guy to make a sale.

Sales guys need to be motivated. And there is nothing like a bit of flogging and buildup of inventory to be sold to do it.

Posted by: Allen Wolpert | April 14, 2010 8:50 AM    Report this comment

A. Hunt: "...only need people to come to work to build planes when there are planes to build... You may just lose your labour force to more regular work!"

As well as still be incurring fixed costs and inefficiencies associated with a sometimes idle plant.

Competition complicates things too. If the other guy doesn't play by the same build to order rules, i.e., he has some product available when a demand hits, he may gain sales because of it.

Posted by: Mike Holshouser | April 14, 2010 9:25 AM    Report this comment

What you're describing is known as "pull driven" production. In other words, the previous step in the production process is driven by the "pull" (demand) from its immediate consumer. Ideally this process extends all the to the sales room. It is one of the core principles of "Lean Production".

A couple of links: http://en.wikipedia.org/wiki/Push%E2%80%93pull_strategy http://en.wikipedia.org/wiki/Lean_production

Posted by: Geoff Sobering | April 14, 2010 12:25 PM    Report this comment

Sorry, links ran together...

http://en.wikipedia.org/wiki/Push%E2%80%93pull_strategy

http://en.wikipedia.org/wiki/Lean_production

Posted by: Geoff Sobering | April 14, 2010 12:26 PM    Report this comment

A long time ago I was an industrial engineer, working at LTV on the S3-A project (we built the wings, tail...just about everything except the fuselage). Aircraft construction back in the early 1970s was a VERY manual process, and people, being people, had incredible learning/experience/production curves: the more they did, the faster they got. I think we were running at about 45% realization on the S3-A project when I left in 1975, but over on the long-established A-7 production line, they were running in excess of 100% realization. That means that we industrial engineers figured out how fast an airplane could theoretically be put together if everything, and I mean EVERYTHING, went just absolutely perfect and after however many years the A-7 was in continuous production, those workers were exceeding theoretical perfection.

There were also considerable costs associated with starting and ending a shift. I think Union rules prevented us from running four nine-hour days, but we in the Industrial Engineering department figured that we could produce more, at less cost, if we worked four 9-hour days rather than five 8-hour days.

Figuring in the cost of starting and stopping, and worker efficiency, I don't see how a human-based assembly process could be efficient if it was 100% demand driven. But then again, maybe there's a little more automation since the "old days" when I worked in an aircraft factory.

Posted by: Gary Kerr | April 14, 2010 1:27 PM    Report this comment

Gary's point is well put. The point of Lean/Pull production isn't to be "100% efficient", in fact some production-efficiency is sacrificed in favor of flexibility and low-inventory. The basic point is that an item produced at "100% efficiency" costs quite a bit sitting around waiting to be sold, or brings less revenue/profit if it is sold at steep discount. The idea of lean is to maximize the efficiency of the entire production/sales process, rather than "locally optimizing" the production process at the expense of the other parts of the organization.

I should point out that this isn't fringe theoretical concept. It's a common (maybe even dominant) production process in the world (including Detroit). Google "lean production" for tons more information.

Posted by: Geoff Sobering | April 14, 2010 1:44 PM    Report this comment

Lean is an excellent way to make a production process more efficient but a "Lean" stop and go production is not going to be as efficient as "Lean" continuous production. Stop and go is a nightmare for lower tier suppliers resulting in higher material costs and higher start up/shut down costs as well as workforce difficulties. I know, my company has been in this on/off production mode for the last 18 months.

Posted by: Richard Montague | April 14, 2010 3:35 PM    Report this comment

My experience is in the Motor vehicle industry: there production has to be pre-sold. However Toyota factory orders could not be varied by more than 10% month on month.

Posted by: Jim Campbell | April 15, 2010 8:15 AM    Report this comment

It is great news to hear that these companies and especially Mooney are gearing up in a way to survive. It still is a great product for those that perfer legacy metal aircraft over the new glass ones. Just hope any outsourcing produces the same standards as factory grown...

Posted by: Chuck West | April 18, 2010 10:57 AM    Report this comment

I think the challenge would be hitting a lead time for delivery that the customer would accept. For example, it might be only xx weeks to build the plane, but are you going to hold inventory of engines, props, avionics, etc. If you are going to order these only when you have an order in hand, your overall timing is going to be much longer... If I was a subsupplier to aviation, I would not hold inventory for you - and you don't have a choice bc you can't switch sub-suppliers like Dell could.

Posted by: ERIC PANNING | April 19, 2010 2:01 AM    Report this comment

So sales wants to sit around waiting for someone to walk in and say "I want to buy a plane" and then collect their commission for filling out an order? Why not have customers just go to the company web site and order a plane directly from the factory? Be careful what you wish for...

The problem is that sales people refuse to "sell what's on the truck". I've seen this for years in the computer industry. "If only our product did this, I could sell a million of them..."

Posted by: Jerry Plante | April 20, 2010 10:56 AM    Report this comment

Nobody mentions one reason why it is hard to sell new airplanes - the insane price tags. Companies should try a little harder to bring down the cost - it hard to justify buying a brand new Cessna 172 at over a 1/4 million dollars when you can get a used one that does the exact same thing for $50,000. Throw in some new interior, give it a new paint job and you can't tell it from new anyway.

Posted by: PETER THOMAS | April 21, 2010 11:39 AM    Report this comment

P. Thomas: "...it hard to justify buying a brand new Cessna 172 at over a 1/4 million dollars..."

Insanity. All the 'intro the young-uns to flying' programs you can imagine ain't gonna overcome that aspect - the COST.

Posted by: Mike Holshouser | April 21, 2010 12:43 PM    Report this comment

I agree !! the a/c companies should lower the cost of new airplane's, let's face it, all the new airplane's are, is 1950's & 60's design with glass screen's up front and overdone paint job's ! I say get back to the basic's,

Posted by: Howard Rogers | April 24, 2010 5:00 PM    Report this comment

Well that was the idea with the LSA category - but prices are generally higher than expected and sales have been pretty darn slow.

Posted by: Adam Hunt | April 24, 2010 5:32 PM    Report this comment

About the only people buying new LSAs are older guys who want to avoid the medical hassle and have spent a lifetime accumulating enough cash for one. And then they find they still have to lease them back to a flight school to make ends meet - which is the only way a flight school can afford to have one in the line up. LSA has totally missed it mark, with most of the better ones now selling for upwards of $150,000. It is mindboggling to me that they sell ANY!

Posted by: PETER THOMAS | April 24, 2010 6:54 PM    Report this comment

your right ! and most of the lsa's are composite with so much avionics inside, your paying for about 70 percent of the total cost of the airplane in just what's in the panel. Gps and glass screen's are great if that's what you want, but that's what is one of the main reason's for these over the top price's in these new airplane's. Give me old school any day ! I would like to see a basic radio and avionic stack in these new airplane's,that would cut the cost and for new pilot's it would teach them what the basic's of navigating is.

Posted by: Howard Rogers | April 24, 2010 11:00 PM    Report this comment

A question rarely asked, but definitely a part of this conversation is, what is the liability insurance premium the type-certificate holder pays per aircraft sold? How does that impact the sales cost and what can be done about it? I heard a rumor once that a manufacturer was once advised to "Buy back and destroy" all copies of a certain twin as that was the least expensive way to cut their insurance costs (payback supposedly well less than a decade). If that is the case, I can't see prices falling any time soon....

Posted by: Peter Buckley | April 28, 2010 1:18 AM    Report this comment

Buying back and scrapping fleets has certainly happened, see the Beechcraft Starship for one example http://en.wikipedia.org/wiki/Beechcraft_Starship Although the reason given was the fleet was too small to support, it is possible that the real reason was more to do with liability costs versus income from selling parts.

Posted by: Adam Hunt | April 28, 2010 6:05 AM    Report this comment

Buckley brings up a valid point in remembering that the airframe mfr. is on the "hook" for years to come if there's a proveable(or sometimes not, since the insurer folds before court) problem w/ its product. That cost is not insignificant, and the mfr. who chooses to go w/o coverage is likely to be short-lived.

Since as others have noted the production of an aircraft is largely a hand-built item, the issue of production efficiency can only be achieved when everyone in the line is working at peak performance, both in terms of time spent on a task, and the "do it right the first time" portion of efficiency.

Without much "tribal knowledge" of the experienced hands on an aircraft line, the efficiency drops dramatically and the man-hour cost climbs rapidly. Unless and until robots can build aircraft, the problem of efficiency will always linger. It's much like marching a platoon of troops...the front few ranks flow smoothly, while the rear ranks alternately run or stand still. Tribal knowledge is a valuable commodity, and it comes with a price...steady employment.

So...from the standpoint of both a former retail acft. salesman, and a former member of factory sales management, the only solution I can postulate is to lower production to a consistent flow (that is profitable), reduce G&A expenses to minimum levels, and give the buying public a product that will make their mouths water...and not give them "gas" in their wallet.

Posted by: r.w. burnley | April 30, 2010 7:53 PM    Report this comment

This model could keep a very small number of most common configurations available for those who can't wait. I think most people heavily customize something as expensive as a Mooney or for that matter an LSA. As for my family, with their kids, they read practically daily of parents, friends, families wiped out in crashes and want nothing to do with any airplane. Fewer pilots, fewer planes. Until the safety problem reality or perception is dealt with, expect fewer planes of all varieties to be sold. This is a long term trend.

Posted by: ROBERT M SHERIDAN | May 10, 2010 6:50 PM    Report this comment

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