Thielert: How Big a Mess and Can Anyone Fix It?

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Give the board at Thielert credit for one thing—they’re not footdraggers. Late last week, the board wasted no time in moving the company into bankruptcy proceedings in the wake of an investigation into financial anomalies surrounding the company’s initial public offering in 2005 and the subsequent tanking of the stock. German securities regulators and law enforcement officials are looking into allegations that Thielert based its financials on doctored accounts receivable data. That was apparently enough to scare away potential investors so the board apparently saw no point in delaying the inevitable.

Not to put too delicate a point on this, but this is now a hell of mess—for the diesel engine segment in general, for Diamond and for Cessna and especially for owners of 400 or more diesel-powered Twin Stars, not to mention several hundred single-engine Stars and conversions of Skyhawks. Diamond is a standup company, so I don’t expect it to shirk its duty to support owners comprising something north of $200 million worth of airplanes. If I were Diamond, I’d take a page from the Johnson & Johnson Tylenol scare of 1982, which remains a case study in crisis management. And that means getting the information out quickly, honestly and without obfuscation of any kind. Furthermore, I would have the list of diesel owners on an e-mail loop with frequent updates, starting today. (If you’re a DA42 or diesel owner, let me know when the note from Diamond arrives. Contact avconsumer@comcast.net.)

Expect to hear soothing reports that Thielert will continue operations normally, delivering engines and parts. We will see, but I find it difficult to understand how a company that was getting hammered for poor aftermarket support when it was solvent is somehow going to do better while insolvent and in the jaws of a liquidity crisis. Even the lapdog aviation press ought to raise an eyebrow at that claim.

Cutting through the fog here, the principle issue at hand is whether the Centurion diesel line is technically and economically viable. We don’t have enough information to know that yet. I have interviewed and surveyed many owners flying these engines and have discovered a number of complaints, mostly related to reliability, less to do with performance. That’s not to say all operators are displeased with the Thielert engines for some are clearly thrilled with it. But many have had sour experiences, with weeks of being down for lack of parts and service. There have been reports of cylinder head cracking, unexplained stoppages, unrealistic labor allowances to change engines and parts and short TBO/TBR cycle times.

These complaints don’t necessarily mean the engine line itself is doomed. This is new technology and it’s unrealistic to expect no teething pains. According to Thielert, many of the initial model’s faults—the Centurion 1.7—have been corrected in the follow-on variant, the 2.0. Although Thielert has been cagey about the details, we can only hope the 2.0 engine will have a better service history. DA42 owners are counting on this.

But even if the 2.0 does just a little better, there’s always the chance that it won’t be enough. The critical thing we need to know about this engine’s economics is what we don’t know. What is the warranty payout ratio? At best, the profit margin on engines isn’t generous and if the thing is still too tender to perform reliably enough to keep owners from requiring large doses of expensive warranty support, the economic model for it may be a perennial loser. The test of this will be when potential investors begin sniffing around the company and get a look at the warranty numbers during due diligence—assuming that Thielert has reasonably accurate data on this.

Manufactured products have to find a sweet spot between the cost of producing them—how much is invested in quality manufacturing and quality control—and how many products come back needing replacement or repair. There's some profit built in there, too, and it can be eroded by higher-than-expected warranty incidence. It’s quite possible that the Centurion line just isn’t robust enough to find the sweet spot at a price customers are willing to pay for it. If that’s true—if it’s even possible to determine that at this point—investors won’t find any value in Thielert and its future will be grim.

But remember what diesels are about—it’s fuel availability first, economy second. At current fuel prices, the Thielert engines are economically competitive with Lycoming IO-360s over the life of the engines. That's true because even though the Centurion costs twice as much as the Lycoming, its life cycle fuel costs offset the difference, and then some.

But if the Centurions have been selling at a price too low to support their warranty load, it may prove that diesels need a higher life cycle cost to survive in the market. So what is the cost Delta over gas engines? Is it 25 percent? Or 50 percent? It may very well be and buyers may still choose to pay it. Jet A remains—and will remain—the world’s commodity aviation fuel. If you can’t get avgas, a Jet A piston engine may be attractive at a much higher price than a gasoline engine because that’s the only way you’ll be able to fly.

Stay tuned. It's gonna get interesting.

Comments (19)

As a Twin Star owner, I have heard nothing from Diamond or Thielert. My plane went in for an annual on the 26th, and came up with a cracked head! Mechanics are following the usual AR process, but have also heard nothing from Thielert. My best source of info so far has been AvWeb.

Posted by: Ryan Hilliard | April 28, 2008 10:10 PM    Report this comment

My God in Heaven: what is going on with companies/executives/accounting departments??? I mean, build an aerodiesel, get it certified, sell some... no problem right? Oh, sorry, monumental task. Now we get to see it killed by some crook in accounting?! Oy vey.

Posted by: Martin Rey | April 29, 2008 1:01 AM    Report this comment

As to my personal tally, obviously incomplete but extensive, very near 100% of the Centurion engines need important warranty work. It is what bled Thielert, both financially and operationally. Now, the precise extenf of warranty costs is something Mr Thielert could not afford to let investors know, hence the books' "window-dressing". Good report, Paul, however you did not mention another, even cheaper and more ubiquitious alternative fuel to 100LL than Jet-A, mogas. There is nothing wrong with using mogas in aviation PROVIDED ENGINES AND FUEL SYSTEMS ARE DESIGNED FOR IT. If it is not more widely available on US airports, that's because the demand is insufficient. Look at Germany and Austria for example, where mogas is distributed on over half of GA airfields due to the modest demand of the Rotax-powered fleet.

Posted by: Francois Badoux | April 29, 2008 2:27 PM    Report this comment

But wait a sec : bankruptcy could alter the equation, and further improve the odds for diesel engines. Here's the thing : bankruptcy for Thielert could mean it gets stripped from all its debt and gets a fresh start. Too bad for early investors, but for pilots this could be a very good evolution. Think ahead one year : Thielert is bought (by Diamond?) from the liquidators; weak spots are tackled, both in the engine and in support/parts; everybody happy ! Perhaps similar good fortune is ahead for Adam, but the case for Thielert is stronger, given the existing market, the existing STC's, the evolution of oil prices etc. Thielert is dead, long live Thielert !?

Posted by: Peter De Ceulaer | April 30, 2008 3:20 AM    Report this comment

Diamond might be in a pickle in the short term, but they have a long-term plan: Last year, fed up with bad customer service, a difficult business relationship (apperently Frank Thielert and Christian Dries don't get along) and a slow development pace by Thielert, they founded Austro Engines, and are in the process of developing a 2.0l 185hp Diesel I4, like the Centurion based on the Mercedes 2.0 diesel. Essentially, it will be a stronger Cenurion 2.0, and will be retro-fittable to the DA42 and DA40TDI (and perhaps other planes with the Centurion, but word isn't out yet on whether Diamond plans to sell the Austro engine to third parties). New DA42s with the Austro engine will have a raised MTOW to make use of the extra power.

At the time, I wasn't sure the Austro engine was a good idea, but now, it looks like it was a very smart move. In addition, with their own engine company starting up and Frank Thielert out of the picture, Diamond buying Thielert doesn't sound unrealistic. Diamond is waiting for the 350hp diesel to put into their DA50, taking over some or all of Thielert's assets could jump-start Austro in the development of the big diesel.

Posted by: Anno von Heimburg | April 30, 2008 3:52 AM    Report this comment

Reliability and longevity of an engine are functions of how much it is pushed. Mercedes rated its 1.7l diesel at 125hp in a street duty application, i.e. 30-40hp on average. Thielert rated the same engine block at 135 hp on an aviation duty cycle (i.e.100hp on average). The Centurion 1.7 was therefore pushed 2.5-3 times harder than the block was designed for. No wonder it had reliability problems. Thielert went to the 2.0l block without raising the power rating. Certainly a move in the right direction, although the jury is still out on the reliability of the Centurion 2.0. Then, Cessna wanted more power for the C-172 TD. So, Thielert took the same engine and cranked up boost pressure to achieve a rating of 155hp on the Centurion 2.0S. Extremely easy thing to do, but you so negate the reliability improvement you may have gotten earlier. If Austro Engine is really taking the same block and pushes it further to 185hp, it means that this engine will work at an average load 3-3.5 times higher than Mercedes designed this engine for. Even if critical parts are reinforced, this engine would be pushed to its mechanical and thermal limits, and probably beyond. An invitation to trouble. Although an early fan of turbo-diesels, I am slowly coming to the conclusion that this technology does not allow to achieve, in aviation applications, an acceptable compromise between power-density and reliability. Maybe 2-cycle diesels, with their higher power-density, will fare better?

Posted by: Francois Badoux | April 30, 2008 5:07 AM    Report this comment

Reliability and longevity of an engine are functions of how much it is pushed. Mercedes rated its 1.7l diesel at 125hp in a street duty application, i.e. 30-40hp on average. Thielert rated the same engine block at 135 hp on an aviation duty cycle (i.e.100hp on average). The Centurion 1.7 was therefore pushed 2.5-3 times harder than the block was designed for. No wonder it had reliability problems. Thielert went to the 2.0l block without raising the power rating. Certainly a move in the right direction, although the jury is still out on the reliability of the Centurion 2.0. Then, Cessna wanted more power for the C-172 TD. So, Thielert took the same engine and cranked up boost pressure to achieve a rating of 155hp on the Centurion 2.0S. Extremely easy thing to do, but you so negate the reliability improvement you may have gotten earlier. If Austro Engine is really taking the same block and pushes it further to 185hp, it means that this engine will work at an average load 3-3.5 times higher than Mercedes designed this engine for. Even if critical parts are reinforced, this engine would be pushed to its mechanical and thermal limits, and probably beyond. An invitation to trouble. Although an early fan of turbo-diesels, I am slowly coming to the conclusion that this technology does not allow to achieve, in aviation applications, an acceptable compromise between power-density and reliability. Maybe 2-cycle diesels, with their higher power-density, will fare better?

Posted by: Francois Badoux | April 30, 2008 5:07 AM    Report this comment

St-Ex, I think you are underestimating how fast the auto diesel is developing. The current 2.0l Mercedes diesel is rated at 170hp in street version, and diesels are expected to exceed 100hp/l soon.

Also, the engines will have no problem running at 70% or so continuously. If that would really be such a dicey proposition, I would be seeing much more broken-down cars on the sides of the Autobahn (and would have broken down myself a number of times, I think ;-) I expect time will show that the Thielert's early reliability problems were teething trouble.

Posted by: Anno von Heimburg | April 30, 2008 9:45 AM    Report this comment

Oh, I should add: The 185hp claim was met with some skepticism. We will see whether Diamond will be able to pull it off.

Posted by: Anno von Heimburg | April 30, 2008 9:50 AM    Report this comment

How significant is the Thielert demise likely to be to Diamond? Is this likely to impinge on Diamond's ability to finance its jet development, DA50 development or to continue its ordinary operations? Might Diamond be insured against extraordinary costs in this situation? Could Diamond disclaim responsibility (not that Diamond would do so, but if Diamond is in control of how much it contributes to the solution then that is better for Diamond than if they are contractually or otherwise obligated to fix the problems of the current Diesel owners)? Perhaps a reader here knows about Diamond's exposure and thus the exposure of current Diamond owners, even if they own conventional engines.

Posted by: Unknown | May 5, 2008 11:36 AM    Report this comment

Besides the liability issues - I see another area of concern: the type certificate for Thielert engines. The TC is owned by the bankrupt firm, which means to me, if there is a serious incident these days (i.e. a crash involving a Thielert engine) - there would be no one responsible for the procedings with EASA or FAA. Which in turn means as I understand it, EASA or FAA could ground the fleet. So I hope someone "buys" the TC soon.

Posted by: Guenter Mannsberger | May 6, 2008 1:55 AM    Report this comment

We now need 2 new gearboxes for our DA42 on 600 hours, the only way to get this is to pay the full price in advance ... with the remark to decide quickly because the stock is limmited.

Posted by: Jos Quirynen | May 6, 2008 3:52 AM    Report this comment

I'm sure Diamond and Cessna are in discussions with Theilert's receivers and creditors, and perhaps with each other. For obvious reasons they can't discuss these talks. As a DA42 position holder I am nervous and eager for more information. Anno, do you have any insight into when Diamond is planning to swith DA42 production to the Austro engine?

Posted by: Larry Pexton | May 8, 2008 9:12 AM    Report this comment

Larry, during an interview with the Financial Times Germany Mr. Dries was quoted as saying "if everything works out we should be able to deliver the aircraft with our own engines this year". As the new models are expected to be displayed at the ILA2008 May 27-June 1, I would guess, production has to start in fall. And BTW takeoff performance is 170hp, not 185. The said engine was on display at a Detroit motor show, presented by MB-Tech (the engineering firm of Mercedes Benz) who is the development partner of Austro Engine.

Posted by: Guenter Mannsberger | May 9, 2008 3:30 AM    Report this comment

Yup, 170hp, not 185. The same power as the regular street-going engine. In hindsight, I do not know from where I got the 185 number.

Posted by: Anno von Heimburg | May 11, 2008 4:16 AM    Report this comment

The Thielert situation has just claimed further victims.As an employee for Diamond UK [technician] i learned yesterday that myself and the entire workforce has just been laid off due to no new aircraft sales and with no assistance from its parent conpany [Diamond Austria] it looks like Diamond UK is to possibly fold.

Posted by: Steve Turner | June 5, 2008 5:08 AM    Report this comment

I have to alter my earlier comment as i have now learned that DAI UK may be saved by its parent in Austria. As a technician and working in the field with the Thielert engine, i feel the new 2.0l engine is much improved on its predecessor with lessons learned. I hope the knock on effect of Thielerts situation does not take out those companies who put their faith in them, using their engine in what is an excellent airframe.

Posted by: Steve Turner | June 5, 2008 3:30 PM    Report this comment

The Austro Engine is an enigma. No time table, no cost,no stc for retrofit, requiring gutting aircraft from firewall forward,no mention of production limitations for existing engineless da-42's on assembly line,AOG owners who signed liability release to get in line, etc. etc. etc. The FAA has not seen one piece of paperwork on certification application for Austro as of today 10-03-08. We are looking at DA-42 AOG with little hope of a remedy anytime soon.

Posted by: david akel | October 3, 2008 10:34 AM    Report this comment

Not one iota of support or meaningful communication from Diamond. Is this the behavior of a company with integrity, a company that stands behind their product, a company that will be around for the long term? Me thinks NOT. They have forced me to file Chapter 11 and to continue pursuit of recovery in the court house from Diamond and Premier Sales. D-Jet anyone?

Posted by: david akel | December 5, 2008 9:10 PM    Report this comment

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