The VLJ Price Fantasy

0

Surveying the wreckage that is what’s left of the very light jet market-remember them?-one thing is obvious. If this market exists at all-and I’m not convinced it does-no one has come even close to either proving it or getting the delicate relationship between investment, sale price of the airplane and potential volume just right. Although there are still true believers out there, every VLJ effort has been the equivalent of a dry hole. There must be oil out there somewhere, reason those who continue to strive.I’m not so sure. The most spectacular failure has been Eclipse, which tanked for a multitude of reasons related to hubris, out-of-control costs, inappropriate technology and just ordinary mismanagement, in my estimation. But looming over the entire project was Eclipse’s concept of building jets and selling them at or right around the $1 million mark. Among other things, Eclipse proved that this can’t be done, or at least it can’t be done the way Eclipse tried it.Now comes Cirrus promising initial buy-in owners a $1.39 million price and a maximum price of $1.55 million. These are higher, of course, than Eclipse’s initial offer of around $850,000. As it marched steadily toward bankruptcy, Eclipse kept raising the price in increments through a contorted arrangement of escalators that position holders frequently complained about.So, with its simpler single-engine design, has Cirrus got the price right? We don’t really know and there’s almost no way to predict such things. Even the companies who have attempted to build such airplanes have got the numbers consistently wrong and have paid the price for the error. With the exception of Cessna, whose successful Mustang isn’t really a VLJ according to most people in the industry, all have been failures.My own view is that Cirrus is, once again, too low on its price. My guess is that even a modest, simple single-engine jet should hover around the $2 million mark-a little less, a little more, maybe. That’s because these projects have always proven more difficult and time consuming to certify and more expensive to build than the companies originally estimated. The idea here is not to just deliver a couple of hundred airplanes to the market-which Eclipse, in fact, did-but to build a business that is sustainable over the long term. You know…one that stays in business, answers the phone, has parts and customer service, that sort of thing.Coming into the market with a loss-leader price does no one any favors-not the initial buyers, not the company and certainly not the industry as a whole. Some 250 Eclipse owners may yet be stuck with an expensive airplane that won’t be sustainably airworthy. Several people in the industry have told me that the only way to make these projects work is to prime the pump with an initial cheap offer, then raise the price later.That may be true, but it hasn’t worked yet. VLJ projects have thus far proven to be a one-way ticket to bankruptcy. They are consumptive of cash and resources and represent a dangerous, dark hole for companies who attempt them. That’s not an argument that they shouldn’t be attempted, but I think companies need to build their business plans on realistic prices, even if such prices make the sales staff wince.I think it’s critical for Cirrus (and Diamond) to succeed with their single-engine jets. I’m just not sure they’re asking customers for enough money to make that happen.

LEAVE A REPLY