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Thielert's Recovery: Call Us Skeptical

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Even before the market tanked this week葉aking Asian and Euro stocks with it briefly悠 held out only lukewarm hope that Thielert Aircraft Engines will right itself and recover to survival, never mind profitability. The company convened a press conference via phone from Europe on Tuesday to discuss the latest develops.

Far be it from me to shutter the windows against the gathering sunshine, but I didn't hear much that makes me confident that Thielert can devise an economically viable model for the four-cylinder diesels that once seemed so promising. Although the company reports that it has ramped up operations and is now running two shifts to deliver parts and completed engines and it contends no one should be AOG on Thielert's account, the economics continue to be unappealing.

When pressed on the issue, Bruno Kubler, the outside insolvency master brought in to tidy up Thielert for sale falls back on a stock answer: German law prohibits any insolvent company from running at a loss. What follows is the rather simple math of adding up the total costs and dividing it by units sold to set parts prices. As a result, a Diamond DA42 Twin Star owner can expect to pay about $21,000 for gearbox and clutch inspections every 300 hours, or about $70 just for that maintenance, never mind fuel and other routine costs.

In Tuesday's press conference, Kubler and Thielert's Gunter Kappler said increasing these inspection intervals to 600 hours is a high priority, but neither gave a timeline for this. It may very well happen under the watch of the new investors, a deal which may be completed by the end of year. Kubler says he's pleased with the number of suitors interested in Thielert and is confident the offer will get the company back on its feet.

As Kubler sees it, the inherent value of company is in the installed base of engines用rimarily in Diamond aircraft葉he type certificates and parts manufacturing authority. But even a casual observer will note that this is likely to be a wasting asset for the simple reason that Diamond is furiously developing its own diesel葉he Austro line葉o replace the Thielert 1.7 and 2.0 powerplants. It therefore stands to reason that the new engine and parts orders Thielert sees as having value won't grow, but will in fact erode. The installed base will erode even further given Diamond's stated intention to offer sweetheart deals on converting Thielert diesels to Austro installations.

Kubler assured us Tuesday that all of this will be made abundantly clear to the new investors. He said they'll also be told that the pro-rated economic model that Frank Thielert originally launched the company with was a disaster and that customers will expect clarification on how things are going to be in the future. Any investor who comes into this deal thinking that owners will continue to sit still for paying $21,000 every 300 hours for gearbox inspections will be in for a rude surprise. Job one will be to devise more realistic economics so the whole thing doesn't devolve into 50 owners paying a half-million each for engines because the market is too shallow to support rational numbers.

What I predict will happen here is a bleeding war. As Austro comes online, it will necessarily run at a loss as it essentially pays to acquire the market that Thielert now owns. It has the advantage of being able to yank the rug out from under Thielert through the simple decision of not buying Thielert engines in favor of Austro engines. For its existing customers, it can further hurt Thielert by converting existing airframes to Austros.

Other customers? Sure, there are a few. Cessna nibbled, but Thielert says that deal is on ice while it sorts through its insolvency. General Atomics uses the Thielert engines in the Army's Sky Warrior UAV, but how much volume is that? The federal government may stupidly pay five times as much for an engine as the private sector can afford, but sooner or later, the GAO will come knocking and, in fact, it already is.

I dunno. Maybe the investors Thielert has lined up are way smarter than I am and they see something I don't. I wish them, and Thielert, the best. I'm just not seeing how, in the current capital markets, that this engine maker is a good buy.

Comments (8)

My club owns two DA40s. both AOG and I understand there is no intention to pay Thielert's blackmail prices. In my opinion, Austro can make money right away (why not?), provided they are able to avoid the gigantic warranty costs caused by the flaws in Thielert's engine. Have Austro done their technical homework despite the huge time pressure? God knows. I also bet Diamond will earmark the initial engine supply for their new aircraft business, and use the argument that the STCs for the "upgrades" are not yet available... Once they start upgrading existing DA42s and 40s they can "sell" us the increased performance and economy, so that they can still get a decent price for the upgrade. I hope my pessimistic view of the future of existing DA40/42s will be proven wrong, will be proven wrong, but most importantly, I hope the Austro will be a good, troublefree engine...

Posted by: Antoine Edde | September 16, 2008 3:57 PM    Report this comment

I have talked to a test pilot who is involved with the austro engines. It seems that they are really strong especially in higher altitudes. I canエt wait to fly them. (This being the optimistic side of me)

Posted by: Irmin Kerck | September 16, 2008 11:37 PM    Report this comment

Mr Moller says, "....even if Diamond Aircraft switches to their own Austro diesel engine, as they have said they plan to do, Thielert has enough other customers to keep the company viable."

He is obviously a spokesman without an entrepreneurial bone in his body. How expensive would avgas have to be to make this engine, even at 600 hours gearbox inspection time, economical?

They are dreaming, and you can call me skeptical, too!

REK

Posted by: Ron Koyich | September 17, 2008 3:08 AM    Report this comment

I think it is a big problem that now two engine manufacturers - Austro and Thielert - will have to share that small market. I cannot see how it is reasonable for Diamond to build and certify an entirely new engine ($$$!) when Thielert had already done that. They could just have bought Thielert... I heard Frank Thielert and Christian Driess (Diamond) don't get along well. It's sad if that makes them throw back this direly needed new technology for years...

Posted by: Simon W | September 17, 2008 8:44 AM    Report this comment

Austro is at least using a torsional element to handle the power pulse from the diesel engine, this may eliminate the issues coming from the gearbox side pf the problems. Some of the Thielerts have been sidelined due to cracks in the heads. Since Austro is using the same MB engine, but boost the manifold pressure to achieve more horsepower, will we se more stresses on the combustion side. For my $$, I'd stay with a conventional engine until the reliability of the replacement is proven. I would still prefer to see a clean sheet design without a gearbox such as what Deltahawk is working on certifying. Lycoming and Continental seem to be moving in that direction as well. It would behove anyone with a yen to go for a new design engine to do an analysis like Paul Bertorelli did for the Thielert before putting cold hard cash on the barrelhead.

Posted by: Ray Damijonaitis | September 17, 2008 12:27 PM    Report this comment

I think that anywone who uses modified automobile technology for an aircraft engine is barking up the wrong tree. The PSRU alone makes it a bad choice. A direct drive engine is the most logical, and there are a couple of them already out there. Ron R.

Posted by: Ron Rose | September 17, 2008 1:49 PM    Report this comment

I think it is time for the Airframe Manufacturers who encouraged and approved the switching from Angas to Diesel engines to issue modifications and Service Bulletines to help the unluky operators to return back to the original Avgas engines. They will help in the Approval and Economical aspects. And the unluky operators will sware to them not to make this mistake again.

Posted by: ABDELATI KABEEL | September 18, 2008 6:23 AM    Report this comment

I don't agree, that a direct drive engine is the best solution. It's what we got used to, ok. But a reduction gear is no rocket science and it should be possible to make it bullet proof. Modern engines can easily handle more rpms than a propeller. That leads to lighter and quieter engines and propellers. And a potentially better fuel economy. Rotax engines aren't doing that bad after all... In Europe thousands of them are runing.

Posted by: Simon W | September 20, 2008 9:58 PM    Report this comment

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