AVweb

« Back to Full Story

China vs. the American Dream

  • E-Mail this Article
  • View Printable Article
  • Text size:

    • A
    • A
    • A

When Leland Snow died a couple of weeks ago a chapter of a great American aviation and business story closed. What makes it so great is that it isn't the final chapter. The story continues and, with any luck, the theme will remain the same.

Snow was the founder of Air Tractor. He built his first purpose-built cropduster when he was just 23 and when he died at the age of 80, while jogging, on Feb. 20 he was still the much-loved president of the vigorous company he founded almost 40 years ago. Two years before his death, he essentially turned the company over to its employees through an employee stock ownership program that will keep the company in Olney, Texas for longer than most of us will have to worry about.

By all accounts, Snow was the American Dream personified and I think it's the image we have in our minds when we think of the term Made in the U.S.A. I also think it's that romantic notion (why does that adjective always come up in relation to aviation?) that is responsible for the vacant feeling that has settled over the industry now that the long-suspected sale of Cirrus to a government-owned aviation company in China has been confirmed. The hometown newspaper, the Duluth News-Tribune, called it "a sinking feeling of impending loss." Assuming the Chinese do any of the things they're promising, the sale is probably the best thing that could happen, under the circumstances. So, why the emptiness?

For one thing, Cirrus embodied that American Dream in its early days. The Klapmeiers were brash, brilliant and, although it took some time for people to realize it, right about most of the things they did and said. The truth is, however, that Cirrus has not really been an American company for most of its life. The Klapmeiers realized early that they needed big money to create the aviation renaissance they believed was possible and I'm sure they would have liked nothing more than to find home-grown financing for their dream. In the end, they found the money in Bahrain and as long as times were good it was a mostly amicable partnership from what I could see. It's worth noting that while Cirrus was at its peak, it was also for sale. and for a time, one of its main competitors, an American company, was seriously considering buying it and didn't. Whether that company will regret that decision might make interesting dinner conversation at some point in the future.

There's no need to go through the uncomfortable events of the last few years at Cirrus. Although the sale of the company may be sad in some respects, it pales in comparison to the effect the events preceding it had on families and life-long friends. That's the real tragedy here. But business is business and after we fold up the flags and wipe away the tears, we're left with trying to figure out just what the Chinese are up to here. So far Aviation Industry Corporation of China (AVIC) or its subsidiary China Aviation Industry General Aircraft Co. (CAIGA) has bought Cirrus. Continental Motors, Epic Aircraft, is reportedly in talks with bankrupt Emivest (formerly Sino Swearingen) and is even rumored to be talking to Mooney.

At first blush, it seems like a tidy assortment of companies covering piston, turboprop and jet products that look like the basis of a GA aircraft industry. But while Cirrus and Continental are as solid as aviation companies can be in these economic times, the others seem a little less attractive.

Emivest's SJ30 is a fast and generally well regarded little jet but it would be right in the middle of an eye-gouging, groin-kicking battle for market share with Embraer, Cessna and Hawker Beechcraft in the segment of the industry that is having the most trouble selling airplanes. Even if CAIGA spends next to nothing for Emivest, the odds of it becoming a player in the bottom end of the bizjet market seem remote. CAIGA picked up Epic for a song at $4.3 million but, thanks to a court-ordered shotgun marriage with kit owners who were sitting on unfinished airplanes when Epic went down, CAIGA doesn't call the tune in North America, at least. Also, there's a long road to certification for all the products covered by the Epic deal (homebuilts haven't really caught on in China) and the money waiting to be spent is enormous. Much as everyone loves Mooney, the company has been pushed to the brink by the latest troubles and its products are direct competition for Cirrus. It doesn't seem to make sense to spend money trying to revive the iconic brand for the Nth time when it will go head to head with the flagship airplanes.

Rather than a cohesive and well structured set of acquisitions, this looks like a Lego set. It's interesting, colorful and the pieces all sort of fit together but the result doesn't look quite real. In my mind, it leaves a few possible explanations.

The first is the much-vaunted "master plan" theory in which the Chinese quest for world domination will be accomplished economically and it's coming after our most coveted assets. In that scenario each of these purchases fills a particular need for China to build a world-beating GA industry that will eventually snuff out all other forms of aviation life. There are some serious issues with that theory, however. For one, to take advantage of the purchases, China has some serious spending to do on runways, airways and all the other stuff that keep an aviation industry running. Why build airplanes when there are few places they can be used at home? True, the rules are relaxing and an embryonic GA industry exists but buying up foreign factories seems to me like putting the cart before the horse.

Another is that ancient Chinese wisdom doesn't apply here; that when it comes to airplanes, Chinese brains turn to mush just like those in the rest of the world and with all their money they just couldn't resist. Although it's widely assumed that because the Chinese are loaded they are inscrutable business people, our limited research reveals they've bought into their share of clinkers. Is Cirrus just the latest shiny object to provoke an impulse buy?

A third possibility is that this is the natural order of things. For all its wealth, China is an emerging economy and it flat out needs indigenous industries that it doesn't now have to catch up to the West, which may or may not be the goal. Something that seems likely is that the government of China has decided it needs a small airplane industry. It could build that industry on its own but when companies like Cirrus and the others are going for pennies on the dollar why would it bother?

We who are smitten by the magic of flight are used to thinking of it as cutting edge but it isn't really. There isn't much we don't know about how to make aircraft that can do whatever we want them to do within certain physical boundaries and we can do it without pilots for the most part. In the meantime, social benefits notwithstanding, there's big money to be made curing cancer or Alzheimer Disease, saving the planet and growing hair on bald heads. Investors look for return and return comes from discovery and innovation. All we're really doing in aviation these days is tweaking it and most of the innovation is on the tech side. In the meantime, the U.S. is at the forefront of medical research, technology and even transportation innovations that have nothing to do with small airplanes that owners fly themselves. Time moves on.

Chinese participation in the aviation industry isn't necessarily a bad thing and the folks in Duluth and Grand Forks could have suffered a worse fate. In the absence of a sale, bankruptcy was a real possibility for Cirrus and it might have been hard for a trustee to justify operating the business with the numbers it was showing. As for where it leaves current Cirrus owners and those thinking of buying one, the sale is probably a positive thing. As seems to be the norm with airplane factory sales, the new owners will likely put some money into the company, maybe finish the jet, maybe develop some new models. Product support for the existing and future fleet seems likely.

This doesn't signal the beginning of the end of the U.S. general aviation industry by any stretch. General aviation is forecast to grow in importance and activity. But the actual physical construction of airframes may happen anywhere in the world, using technology and innovation developed in the good old U.S.A. and seeding development in countries that are looking for productive futures for their people.The sale of these companies to other countries isn't the end of the world. For some places, maybe it's just the beginning.

Comments (69)

So now RV's are the #1 personal piston aircraft produced by an American company?

Posted by: Mark Fraser | March 2, 2011 9:40 PM    Report this comment

Well put, Paul. This scene reminds me of the time in the late 90's when everyone was up in arms when Japan, Inc (actually Mitsubishi), flush with cash from their program of world economic domination, bought Rockefeller Center in New York. Seven years later they walked away from the deal after pumping in about $500 million into the property. Rockefeller Center was a vanity buy from people with more money than sense. I just hope that if the China deal implodes in a couple of years, that Cirrus can continue on.

Posted by: James Freal | March 3, 2011 5:53 AM    Report this comment

Russ,

I think you stated most of the ideas quite well, but I would put them in a different perspective.

First and foremost, China has always been much more interested in what happens inside their own borders than outside them. We like to pretend they are playing the same games as Europeans and Americans when it comes to business and world domination, but they just don't want to do that.

Second, China has oodles of dollars they have no great use for. They collect them by selling goods into the USA and by buying US debt. We must expect them to use some of those dollars to buy up American assets. If we prevent that then they will stop taking dollars. China also uses dollars to buy up energy and basic materials for their internal use, but that is a different discussion.

Third, China wants to have general aviation. They have made a number of moves to open airspace, train pilots, and build airplanes. Their general economy is about at the same stage as ours was when aviation was a growing industry here. As you pointed out, buying working airplane manufacturers that suffer hard times is a lot less expensive than building them from scratch.

I don't think we should feel distress about Chinese purchase of these or most other companies. If we really want to put an end to this practice we need to get the Big Spenders in Washington to start acting like responsible people.

Posted by: PAUL MULWITZ | March 3, 2011 6:02 AM    Report this comment

Being a child of the cold war, I feel an odd impending doom coming over me as I watch more and more American companies being snatched up by China. It's not China buying them that bothers me itís the US government not fostering an environment that allows US industry to thrive. Foreign goods flow into the US under low tariffs while US goods triple in price going out due to high tariffs. Counterfeit US products flow into the US unimpeded because we donít inspect goods flowing into the US. The EPA has made it impossible for industry to survive or start up. We canít drill for our own oil, so we are completely dependant on countries who are openly violent towards America. And if we do drill, we canít refine it because the EPA wonít let a refinery be built on US soil. Until the US govt decides itís going to look after the interests of America, we will continue to decline until this great Nation is just another 3rd world country. If you study history, it was America's industrial power that saved us during WWII. American industry swung into high gear and turned out military equipment at a rate that no other nation on this planet could match. Even sewing machine companies were building weapons. Maybe this picture I paint is too broad for some but I look at my Grandson whoís just beginning his life and I wonder if heíll have the same pride and love that I feel for this great country, or will he be told American Pride is not politically correct?

Posted by: Tony Tyalor | March 3, 2011 7:38 AM    Report this comment

I will never buy a cirrus now. Ruth

Posted by: RUTH PRESTON | March 3, 2011 7:50 AM    Report this comment

Always interesting to see pilots reveal their political biases and worldview in the context of an aviation-related story. On the plus side, Mark Fraser may be right :-)

Posted by: JOHN WIEGENSTEIN | March 3, 2011 8:34 AM    Report this comment

the Chinese model of growth is not sustainable and will likely result in civil war sometime in the future. Our government will have to step in and nationalize all Chinese holdings in the US. Cirrus will come back to being a US owned company. You heard it here first :)

Posted by: Mike K | March 3, 2011 8:38 AM    Report this comment

Ruth Preston said: "I will never buy a cirrus now. Ruth"

Or presumably anything powered by a Continental engine (also 100% owned the the Chinese government), or a Cessna 162 (built in China), or any Piper Product (100% owned by Imprimis which is owned by the Government of Brunei) or an Epic Aircraft (partly owned the the Chinese government) or a Liberty aircraft (Liberty Aerospace is 75% owned by the Kuwait Finance House, a wholly owned subsidiary of Kuwait Finance House of Bahrain) or even fly in a Boeing (many parts made all over the world including by Shenyang Aircraft (which is owned by the Government of China).

Of course before Cirrus was sold to the Chinese government it was 58% owned by Arcapita, formerly known as Crescent Capital, a company owned by the First Islamic Investment Bank of Bahrain). Not sure why you would buy a Bahrainian Cirrus, but not a Chinese Cirrus.

Posted by: Adam Hunt | March 3, 2011 9:00 AM    Report this comment

Russ, your last three paragraphs really sum it all up. It doesn't truly matter where the airframes are made, what matters is flight. With this sale, Cirrus is more likely than ever to survive and build (relatively) affordable airplanes, which is exactly what GA needs.

Posted by: Kim Elmore | March 3, 2011 9:41 AM    Report this comment

No-one in the US was willing to buy Cirrus as a company, naturally they looked elsewhere. It is like the great British motor car industry, now completely foreign owned apart from a few oddballs. The factories that remain are modern, highly productive and full of reasonably paid British workers. If they, or anyone else wants to buy shares in the owners and get some dividends, all it takes is a click or three on an on-line brokerage. Easier than in the old days when the bosses flew in private jets and the workers had bicycles (oh did I say something wrong......)

Posted by: Brian McCulloch | March 3, 2011 9:57 AM    Report this comment

I don't know which is worse: buying a government-owned GM product or buying an aircraft from China. The idea of Chinese tourists coming to the US to glance at our resources and National Parks is making some of us nervous about our nations debt.

Posted by: Rick Ferguson | March 3, 2011 10:43 AM    Report this comment

We might want to spare a care for our domestic producers who now compete rather well in foreign markets. Now consider a future where our Chinese friends are producing and selling, at lower cost as usual, similar or improved versions of these and future models (further developed from US technology, aircraft. Trouble for US foreign sales in all those BRICS and soon to be BRICS. Lowering production quantities here for a swath of domestic producers would mean higher unit costs to the rest of us including US built spare parts. No one says the Chinese are only buying up these assets simply to sell in China. So, Cessna, Piper, et al, must be viewing this quite differently that those who say, "Well, natural progression you see, move along, nothing to see here". And perhaps we should too.

Posted by: Larry Martin | March 3, 2011 12:08 PM    Report this comment

We can do without the racial slurs, my friends.

Posted by: Paul Bertorelli | March 3, 2011 12:29 PM    Report this comment

I think it is just a bit naive to think that there will be a need to produce the cirrus line in America in two to three years. Like the Skycatcher goes the cirrus. Arcapita has to of taken a very big sigh of releif to finally get their small financial albatross from around it's neck.

Posted by: Dirk Diggler | March 3, 2011 1:05 PM    Report this comment

There is one well financed American industry that is apparently on the upswing - Whining. The growth of which correlates quite well with the rising Co2 levels in the atmosphere by the way. All our woes are somebody else's fault - the government, unions, bankers, health care, the Europeans, deficit spending, the environmentalists, illegal immigrants, the TSA, the terrorists, gays, you name it. In the 1950's Europe and Japan's industrial base was trashed, the rest of the world was "developing" at best. It's no wonder we have such fond attachment to that time in our history. Our industrial base was at it's peak and not a competitor in sight. Times have changed. We need to start adapting more and whining less. As for all the smiley's and scratched skins on my RV project in the basement - it's clearly Obama's fault.

Posted by: Robert Carl Young | March 3, 2011 1:16 PM    Report this comment

We need to start adapting more and whining less.<<

I'll drink to that. It's absolutely on point.

Posted by: Paul Bertorelli | March 3, 2011 1:58 PM    Report this comment

"Always interesting to see pilots reveal their political biases and worldview in the context of an aviation-related story."

I take it that was in response to Tony Tayalors post--"Foreign goods flow into the US under low tariffs while US goods triple in price going out due to high tariffs. Counterfeit US products flow into the US unimpeded because we donít inspect goods flowing into the US. The EPA has made it impossible for industry to survive or start up. We canít drill for our own oil, so we are completely dependant on countries who are openly violent towards America. And if we do drill, we canít refine it because the EPA wonít let a refinery be built on US soil. Until the US govt decides itís going to look after the interests of America, we will continue to decline until this great Nation is just another 3rd world country."

Which of these statements is NOT true? I don't think that is "political bias"--that is recognition of reality--of what we have done TO OURSELVES.

Posted by: jim hanson | March 3, 2011 2:23 PM    Report this comment

As the Buddhists say: "Inability to accept change leads to suffering".

Posted by: Adam Hunt | March 3, 2011 2:27 PM    Report this comment

I agree with Tony; government policies are impoverishing us by hindering our industries and energy production. The result is that the Chinese have money to spend on aviation, but we don't.

Posted by: Wade ten Bensel | March 3, 2011 2:46 PM    Report this comment

Paul Bertorelli, This illustrates that GA is not "investment worthy". There is plenty of investment capital in the USA. No one in the USA was willing to back even a stellar GA company like Cirrus.

When the smart money is not on GA aircraft, then smart aviators already know where things are headed. This is a big deal.

Posted by: Mark Fraser | March 3, 2011 3:03 PM    Report this comment

No one in the USA to back even a stellar GA company like Cirrus.<<

First of all, pay attention to who wrote this blog. Russ, not me, although I agree with his views.

Second, you don't know the first thing about Cirrus's P&L. You don't know if it was ever genuinely profitable, where the trend lines were going, what its internal numbers are and you thus don't know if the Chinese got a good deal or not.

All you know is it sold around 4000 airplanes. I agree that there's plenty of western capital looking for a home, but just because it's "airplanes" and we like airplanes doesn't make it a viable business or a good investment. I like to think it could be and will be.

As Russ notes, the Chinese are perfectly capable of buying dogs and losing their butts. I don't know if Cirrus is or not. I didn't see its P&L, either.

We shall see.

Posted by: Paul Bertorelli | March 3, 2011 3:41 PM    Report this comment

I don't think the Chinese bought Cirrus and Continental in order to make a profit. OK, they didn't do it to lose money either. Profits aren't exactly the primary mover for a Communist country. Capitalism is taking hold on Chinese business, but the government is still very much Communist.

As I said above, I think they want to develop their aviation industry and activity. This is the sort of thing which should help China develop their economy and living style.

On the question of Cirrus and profits, if they were making lots of money they wouldn't have sold out. The changes in ownership suggest they were losing money on a large scale. If they could sell 4,000 airplanes and lose money in the process that suggests really poor management. That reminds me of the old (stupid) notion of losing money on each sale but making it up with volume.

Posted by: PAUL MULWITZ | March 3, 2011 3:53 PM    Report this comment

When Japanese auto competitors arrived in the U.S. 50 plus years ago few Americans took notice. I suspect few Americans will now take notice of China's investments in aviation.

My impression is that the U.S. is falling far behind other nations in educating advanced students in the physical sciences and engineering. Sure, we can do trick social networking, other slick G4 data stuff, but who will design and build the hard energy generation and transmission technologies we'll need?

No problem. India. China.

Posted by: Charles Clark | March 3, 2011 4:20 PM    Report this comment

Wow! I can't get around half these posts. No one can intelligently comment on this sale if you know nothing about the numbers. We know nothing. The Japanese rushed in here and bought all kinds of stuff years ago and found out later it wasn't what they thought. The French have bought a bunch of companies a few years back without due diligence and got burned when they found out what they had purchased. The Chinese probably bought the company for the blueprints and no more. Whether they paid too much only time will tell. Let's face it boys and girls, aviation hasn't been the place to make money the last few years and I suspect things aren't going to change anytime soon. Hence the lack of investors.

Posted by: Stuart Baxter | March 3, 2011 6:04 PM    Report this comment

I have to shake my head in disbelief at some of the comments here. Yes there is a big problem in our system, but first we have to understand what the problem is.

No it is not tariffs on American goods because there are no American goods made in America anymore. That is how the corporate mandarins that run this country have "re-engineered" the economy: by outsourcing the entire industrial production offshore. This includes more and more high skilled parts of industry like engineering and design. Or they bring in foreign engineers on work visas.

GE is a leading aircraft engine maker with billions of dollars in sales and hundreds of thousands of workers. More than half of its workers are outside of the US and more than half its revenue comes from outside the US.

Now about China, the Chinese would much rather buy GE than minnows like Continental or Cirrus, but the US government won't let them. The US wants the Chinese to buy our government debt (T-bills) and be our banker.

And lastly this whole system is breaking down because the economy has been "financialized" over the last few decades. The finance sector is now a third of the GDP, where in the golden years of the sixties it was less than 10 percent.

Finance, unlike industry, is an extractive activity that takes out from the "real" economy, which is making stuff. When you buy a car, half of its price tag is finance overhead, same with a Boeing (or a Cirrus or LSA for that matter).

continued...

Posted by: Gordon Arnaut | March 3, 2011 7:45 PM    Report this comment

This is clearly unsustainable. The only reason it has even managed to survive this far is because the dollar is the reserve currency of the world, which means that other countries use dollars to pay for trades among themselves.

This means that the dollar is the currency of world trade. This is why the Chinese (and Japs and others) have to keep lending money to the US (by buying US government bonds and other paper debt) because the US pays in dollars for all the stuff we buy from them, and what is China supposed to do with those trillions of dollars? They have no choice but to buy our paper.

It's a pretty neat racket, but like everything else that Wall Street has cooked up, it is on shaky legs.

Continued...

Posted by: Gordon Arnaut | March 3, 2011 7:58 PM    Report this comment

Once these countries decide to dump the greenback it is game over for the US economy, which would long ago be in 3'rd world shape if it wasn't for reserve currency status.

And this is exactly what the BRIC countries and others are cooking up, new trade arrangements that use barter or their own currencies, but not the greenback. Once oil trade dumps the dollar it is all over.

Why is this happening? Because obviously having to buy US paper debts is a pretty raw deal for the Chinese, Japs and everyone else who is making stuff for us. They send us actual products and we give them pieces of government paper in return.

And this is all orchestrated by Wall Street and the Corporate bigwigs. This is THEIR system, not something the Chinese want.

So let's be real. We are being steered straight for Niagara Falls by our captains of industry and finance. That's not China's fault.

And our government is bought and paid for by Wall Street, so they call the shots.

What do you think the Chinese executives would rather buy, a company like Boeing or more pieces of increasingly questionable government paper? (Thanks to trillion dollar deficits that were used to bail out Wall Street).

For some real straight talk on this read Paul Craig Roberts, who was Reagan's Deputy Treasury Secretary.

Posted by: Gordon Arnaut | March 3, 2011 8:08 PM    Report this comment

Gordon,

I generally agree with your comment, but I don't think you have really identified the real culprit. I agree with you that all the financing that is taking place in today's society makes huge impacts in the economy of individuals and the larger group. However, I don't think it is appropriate to blame the financiers for this situation. The blame belongs firmly on those who borrow the money recklessly.

Perhaps the real blame belongs on the horrible public education system that refuses to teach our kids anything about personal finances. There is a whole generation (or more) of graduates from the horrible public schools that believe the only way to buy stuff is to borrow the money. The notion of saving up to buy things just isn't part of this group's life style.

While the financiers (bankers) might be involved in this terrible way of life they are actually offering a product the "Buyer" feels he really needs. That isn't really a bad thing.

The problem is even worse when it gets translated to the government - especially the federal government that can print money. If we had responsible people running the government instead of the Big Spenders who accept millions of dollars from lobbyists to win their votes to spend taxpayer's money on the lobbyist's programs our national debt and economy would be in a lot better shape.

Posted by: PAUL MULWITZ | March 3, 2011 8:18 PM    Report this comment

The whole Cirus story just shows how shallow US engineering and manufacturing has become. Compare this with Diamond, who not only build successful composite aircraft (like Cirrus does), but also tackle the most crucial engine question, via the Austro engine project. They grew slowly, and built a very solid base. Just compare how many ADs there are for Diamond and how many for other aircraft... The DA50 is definitely going to kill whatever is left of the Cirri..... Except if the Chinese succeed to sell a Cirrus for some 150,000$, which would be the correct pricing for such an aircraft. Bob

Posted by: ROBERT ZIEGLER | March 3, 2011 8:31 PM    Report this comment

Paul Bertorelli, I used your name because I was NOT directing my comment to the author (but showing that I was replying only to your post).

I was answering your "no whining" quip. This is a huge deal after Piper recently dropped the Piper Sport. This is a big deal that no U.S. Capital was available to Cirrus. That is an indicator of the long term GA health in the USA and it's NOT pretty.

I'd not call it "whining" because it's a reality. No one in the USA is dropping coin on primary airplane production. That's scary.

Posted by: Mark Fraser | March 3, 2011 8:54 PM    Report this comment

Except if the Chinese succeed to sell a Cirrus for some 150,000$, which would be the correct pricing for such an aircraft<<

Sigh.

So let me get this straight, your understanding of aircraft manufacturing leads you to believe that a $600,000 airplane should really sell for 25 percent of that price. Following that logic, a new Cessna 172 should sell for $75,000.

The Chinese will not do this. No one will do this because the volumes are not there, the manufacturing technology is not there and if buyers think that it is, they are not educated enough to understand the realities of how airplanes are and can be made.

They need to have that knowledge and to understand that profitable companies are in everyone's interest. My sometimes futile job is to try to provide that information.

Posted by: Paul Bertorelli | March 4, 2011 3:43 AM    Report this comment

used your name because I was NOT directing my comment to the author (but showing that I was replying only to your post). <<

Roger that.

Not sure that the Piper dropping the Sport is a big deal. It's hardly a ripple. The reason is that the LSA market is intensely over saturated and for all we know, we are looking at a failed market; an idea that won't sustain. No company should be in a business line that doesn't deliver at least reasonably return and my guess is the Sport didn't pencil out very well.

As for investment in airplane manufacture in the U.S., the initial investors in many of these companies are homegrown. Cirrus was. The challenge is to get volumes, costs, overhead all in alignment and then to constantly increase efficiency in the manufacture of a thing that defies efficient manufacture.

People who think this is easy don't have a clear--or any--understanding of how this might work. I am constantly visiting airplane factories--at Cessna on Tuesday--and I'm sometimes amazed that it works at all.

Posted by: Paul Bertorelli | March 4, 2011 3:51 AM    Report this comment

"and I'm sometimes amazed that it works at all."

Paul, I agree completely (and kudos to Cessna). Like Russ said, Cirrus was brilliant and that's why it's hard (for me) to see them unable to find funding in the entire Western hemisphere.

Posted by: Mark Fraser | March 4, 2011 9:06 AM    Report this comment

"So let me get this straight, your understanding of aircraft manufacturing leads you to believe that a $600,000 airplane should really sell for 25 percent of that price. Following that logic, a new Cessna 172 should sell for $75,000." Well, a Cessna 172 that will last as long as one of those new plastic birds can be purchased for 75k, with nice avionics. Honestly, with the current market level for used aircraft, I do not think that any of the present new aircraft manufacturers can make a living with their present low volume high cost business model, except if they offer an absolute niche product. And a parachute does not make that niche. And if the history of aviation manufacturing in the US is a reference, with the right volume, a Cirrus-like aircraft can be built for 150k of today's money. Naturally, for this certification requirements have to become sensible again too. In China, this just could happen.

Posted by: ROBERT ZIEGLER | March 4, 2011 9:40 AM    Report this comment

Robert Ziegler I agree with you 100 percent that a Cirrus should sell for $150,000. Yep about a quarter of what they charge for it now.

And yes, a 172 should sell for about $75,000. That is what it cost in todays dollars about 30 or 40 years ago. So why not now?

Paul Mulwitz, the most reckless borrowers are the US government and the BANKS and other financiers, who play casino gambling with derivatives and are leveraged over 40 to 1.

People see this and they say, well to heck with it, if they can do this why can't I? You want education? Reign in the finance sector with proper regulation and people will get the message that you can't do whatever you please.

The bottom line is that finance is like a parasite that sucks the blood of the host. You simply cannot have a 35 percent overhead on the entire GDP and expect that it will continue. Finance has become the monster that is eating the economy.

As for government? Well the deregulation of the financial sector started a long time ago, and both parties are wholly bought and paid for by Wall Street, so there is zero say in the matter for the voters.

Posted by: Gordon Arnaut | March 4, 2011 12:20 PM    Report this comment

I don't think there is a master plan, but the Chinese probably see potential for light aviation in their country which does not exist today. Picking up these companies is a good way to enter the business.

Can they lower the cost of manufacturing these airplanes? Maybe a little, but in order to really bring down cost you need new designs that are integrated with low-cost manufacturing techniques right from the start.

Paul, I don't agree that manufacturing technology is not there. Do you know how much the total aluminum cost is for that 172? It is a a couple of thousand dollars.

Now how is it that Alcoa or Thyssen-Krupp and others can stamp out quality aerospace grade metal for peanuts?

The problem is that the Cessna airplane is a design that is 60 or 70 years old and is not designed to take advantage of today's manufacturing technology and ready-made pieces.

The fiberglass airplanes are even worse, they are made almost entirely by hand.

Back when Cessna designed the 172 there was no need to try to build an airplane in 20 man hours. They could put in 1000 man hours and still build an affordable airplane. Today, with the huge financial overhead and the low volume, the result is a $300,000 airplane.

What you need today is an airplane design that can be built with ready made components from the likes of Alcoa and Thyssen, with minimal value-add on the assembly line.

Is this possible? Well I think some people are going to try so we will just have to wait and see...

Posted by: Gordon Arnaut | March 4, 2011 12:55 PM    Report this comment

>>Now how is it that Alcoa or Thyssen-Krupp and others can stamp out quality aerospace grade metal for peanuts? The problem is that the Cessna airplane is a design that is 60 or 70 years old and is not designed to take advantage of today's manufacturing technology and ready-made pieces<<

That's what outsiders looking in always say. And I discussed with the lead at Cessna Independence on Tuesday. The comparison to Thysen-Krupp is not valid because these companies are dealing in much larger volume--I'm not talking unit volume, I'm talking capital volume. In other words, these projects can justify the automation because of their cost and investment.

Van's, for example, is using match-hole drilling to make parts and Cessna is aware of this. They are constantly trying to lean the process and make efficiency gains. And they are. But these are incremental, not high order.

Interestingly, they are doing both composite (Corvalis) and metal in the same plant, so they have a a strong basis of comparing metal to the efficiencies glass was supposed to bring. It did not.

Posted by: Paul Bertorelli | March 4, 2011 1:31 PM    Report this comment

I wouldn't say it can't be done. But if it fails--highly likely that it will--I think I know why: The volume won't support the investment in automated design and tooling. In other words, if you can bring the price of the 172 down to...$100,000, the inherent volume and margin won't make you any money against the investment of redesign/automation/plant. (I'm using 172 as a placeholder; it's understood the "new" airplane would be designed for automated manufacture.)

This more than anything explains why we're still building airplanes relatively the same way. Hate to be a naysayer on this, but after watching Eclipse, I have reason to be.

Posted by: Paul Bertorelli | March 4, 2011 1:36 PM    Report this comment

Regarding the $150,000 Cirrus and $75,000 Cessna 172 I too believe this should be possible. Upwards of 25% of the price of a new airplane is liability insurance. So in addition to the financial industry sucking the life out of the economy, the legal system is too. If these two factors were more realistic, then airplanes would be much more affordable.

The comment about the low volume/high cost business model is accurate. Henry Ford knew if he was to succeed as an auto manufacture his workers, the middle class, had to be able to afford a car. He paid his workers a living wage and priced his car so they could afford it and he still made a profit. How many aircraft workers can afford to buy an airplane?

The Japanese auto industry came from obscurity to the dominance it enjoys today by studying every aspect of the car's design and manufacture and continuously improving it. Traditional aircraft design and manufacturing methods in any material have not improved in decades.

Same with avionics. You can get an extremely capable personal computer for $2K, yet it costs $8K for a Garmin 430W.

So if the financial overhead, product liability, high touch labour content and low volumes were addressed, airplanes could be sold at a profit for $75-$150K which is what they were selling for 40 years ago on an inflation adjusted basis.

Posted by: T S EDWARDS | March 4, 2011 1:47 PM    Report this comment

Paul,

I agree with you completely. We have a chicken and egg problem between sales volume and price. We also have a population losing interest in aviation. Even if we could sell a nice 2 seat plane for $30K there wouldn't be enough people who want to buy one to justify the huge tooling cost to manufacture at this price.

I will be completely delighted if the Chinese or anyone else can reduce the cost of new aircraft. Alas, I won't hold my breath.

Posted by: PAUL MULWITZ | March 4, 2011 1:56 PM    Report this comment

Good points Terry. I think a Henry Ford approach could work for light airplanes too. A light plane is actually simpler mechanically than a car.

My point in mentioning Alcoa and Thyssen is that the new affordable airplane design will use the manufacturing capability already existing with these giants.

Pieces stamped out by these huge manufacturers, at very low cost, would be designed to go into the airplane with minimal assembly or fabrication.

The hardest part to produce economically is the wing, especially a wet wing. If you can figure out how to assemble a wing in 10 or 20 man hours, the actual material cost is quite low.

Posted by: Gordon Arnaut | March 4, 2011 2:22 PM    Report this comment

Gordon makes a good point. I'm building an aluminum kit airplane and there are lots and lots of parts in the wing. High touch labour indeed! But why stop at 10-20 man hours per wing. Why can't it be done in minutes? Why couldn't the wing be designed to be extruded in one piece (ailerons and flaps are extra) and cut to length? I think a composite or aluminum wing could be designed as an economical extrusion provided one accepted a constant chord as a design constraint. There are lots of constant chord airplanes flying with good handling qualities.

Posted by: T S EDWARDS | March 4, 2011 3:22 PM    Report this comment

Terry, some of the bigger boat and watercraft manufacturers turn out fiberglass hulls quite efficiently and cheaply. This could be done for the fuselage of an airplane just as easily.

The wings are a bit more tricky. From a structural point of view they must be strong enough to carry pretty impressive loads, but they are also a fairly thin beam. An integral fuel tank adds more complexity as does linkage for control surfaces.

What is certain is that huge gains can be made because light plane manufacturing has been frozen in time since the 1930's and '40s.

continued...

Posted by: Gordon Arnaut | March 4, 2011 3:53 PM    Report this comment

Now I know a lot of people will say it can't be done, and point to Eclipse, which brought some modern approaches to building the airframe, such as replacing lots of rivets with automated welding.

Not having toured the Eclipse facility myself, but with a background in transport category engineering, I saw some good ideas there.

Problem is that when you are talking about a 400 mph, 40,000 ft airplane, it is a whole different ballgame in terms of complexity. The result is that the airframe itself represents just a small part of the total cost so even a big increase in productivity means you are not that much farther ahead.

A simple piston plane needs none of the complex and expensive systems. So if you can build the airframe efficiently and source a low-cost engine(outboard engines come to mind) then you have a real shot.

Posted by: Gordon Arnaut | March 4, 2011 4:06 PM    Report this comment

I think the market will price an airplane based on unitary elasticity. That is they will charge the optimum price for for maximum profit. In a vacuum this might be one airplane for a billion dollars, or millions of airplanes for a thousand dollars each. With the data we have a logical supposition given that every four place high performance airplane (even cirrus)cost about half a million dollars is that the best price is just that and demand is in the very low thousands each year.

Posted by: Brad Vaught | March 4, 2011 5:25 PM    Report this comment

Well Brad, you are exactly right. The market for half million dollar airplanes is a few dozen individuals a year.

But go back 30 years when a new four-seat airplane cost less than $100,000 in today's dollars and you had ten thousand buyers a year.

It's a good thing too because those thousands of airplanes that were produced in those decades are now the only way in for 99 percent of us.

Posted by: Gordon Arnaut | March 4, 2011 6:19 PM    Report this comment

Unfortunately no Americans are willing to pay US$210 million for Cirrus (what AVIC paid)! Lets hope for the best. Based on US innovation in GA, next "Cirrus" maybe around the corner somewhere.

As for AVIC/Chinese, they do have a plan, and a major goal to "dominate" GA. They may have $/¥, but we all know that is not the only factor.

Posted by: jane zhang | March 4, 2011 9:09 PM    Report this comment

Perhaps the reason no American company wants Cirrus is oil. If America's economy has been built on debt, China's has been built on cheap oil and cheap labor - neither of which will last forever. Remember all the talk about bringing manufacturing back to the US when oil was 150/bbl - when it happens again not only will the price of Chinese goods increase, but I would be very uneasy trying to sell a personal aircraft that consumes 20 gph of boutique fuel.

Posted by: Josh Johnson | March 5, 2011 7:13 AM    Report this comment

What is happening economically between China and the US happened in the '80s between the US and Japan. If you remember, Japan was eating our manufacturing lunch. In fact, I wrote a book about the phenomenon. I looked at the GDP of the US and Japan. The lines where mirror opposites . With a 1% world GDP growth, the GDP of the US was declining at the same rate Japan's was increasing. Business men and people from Japan were buying everything they could find in the US, property, companies, etc. What happened? We got scared. With decent political leadership, lower taxes and business friendly government we got our collective act together and became an economic power again. We don't talk much about Japan taking over the world anymore. Now it's China. We need to get scared again and our collective act together. Hopefully we can.

Posted by: DANA NICKERSON | March 5, 2011 11:46 AM    Report this comment

Dana, I'm absolutely with you on your reasoning. However, at risk of sounding trite, America still "believed" in itself in the 80s. I'm not sure that's true today; in fact I'd bet against it.

Posted by: Rob Finfrock | March 5, 2011 12:03 PM    Report this comment

Japan is still eating our manufacturing lunch. It takes half as many man hours to build a Toyota as a Chevy. They generally make a better product too. As a result the Japanese manufacturers are still gaining market share and are in fact the leading brands stateside.

Now what happened to Japan is that they have had an economic slide for about 15 years, thanks to the kind of financialization of the economy that has been going on here too. Real estate bubbles, speculation and casino derivatives, etc...This all adds up to a financial overhead that costs us real money every time we buy anything.

An economy where the financial overhead eats up more than one third of real output is unsustainable. That is the problem.

A business friendly-government? You can't get any more business friendly than the last few administrations, where Wall Street honchos are installed in key positions in Treasury, The Fed and elsewhere.

Posted by: Gordon Arnaut | March 5, 2011 12:33 PM    Report this comment

How much does it cost to bring a plane like Cirrus from a piece of paper to a reality, I'm guessing a lot more than what the Chinese just bought it for.

Who's going to buy these planes anyway. No jobs equates to no money. And American's are broke. Right now America is having a going out of business sale and the Chinese are buying up America company by company at wholesale prices....

Try and go buy a company in Japan or China, you can't their goverments won't let them be sold. Unlike the idiots in Washington who will let any country buy any industry they want.

Unfortunately America has lost it's edge and until we get back to manufacturing and producing something in America we don't have a chance.

Our great leaders in Washington got us into WTO (World Trade Organization) and NAFTA (North American Free Trade Association) and we can no longer compete with these shackles on us.

It's been happening in most industries and now it's really starting in the Aviation industry with the purchase of these GA companies. America is for sale and running the biggest going out of business sale we've ever seen.

jeff

Posted by: jeff block | March 7, 2011 7:00 AM    Report this comment

Cirrus sold out. We will NEVER buy a cirrus. Rather buy and old Grumman or Bonanza!

Posted by: RUTH PRESTON | March 7, 2011 8:01 AM    Report this comment

Jeff, it's part of the "New World Order": open borders, free exchange of American ideas.. Only it results in loss to American citizens. We might as well get real political here because there are those who want this country to slowly spiral down to meet the third world at some point. Nobody has ideas better than us, and we have been giving them away since transistor radios.

Posted by: Rick Ferguson | March 7, 2011 10:04 AM    Report this comment

Why donít Americans invest in jobs? As a CEO of a publicly traded company in the late eighties, I soon realized that most investors didnít care about our company at all. The money was to be made on greed and fear, the life blood of the stock exchanges, and not on the potential of earning dividends from the companyís profits. I was disgusted with the lies perpetrated by the so call ďreputableĒ investment companies about our company, so I quit. Could that be the answer to the Cirrus acquisition by business savvy Chinese?

Posted by: Edward Dolejsi | March 7, 2011 10:24 AM    Report this comment

Rick & Ed, if you get a chance my uncle has been very bullish on America and what's happening to the country. He has a very informative website www.economyincrisis.com that he started out of his concern for the country. He has no skin in the game other than to make people aware of what is going on and how the USA is headed for very tough times. If you go under the home key and read the concerns and mission statement they address much of what I was saying in my earlier post. With our economy in such bad shape I think finally people are waking up to some of the underlying problems. I was very surprised to read Paul's comment above: We need to start adapting more and whining less.<<

I'll drink to that. It's absolutely on point.

For Paul to think the problem is less whining and more adapting is ridiculous. What are we supposed to adapt to? A global economy? We can't compete period! I for one was sickened when I saw Cirrus sold out to the Chinese. It's just another good solid built american company wholesaled to the Chinese. And the sad part is they bough the company with our dollars. we have such a balance of trade deficit with them they could buy Cirrus with the interest we pay them for the money they lend us.....If your reading this Paul I'd like to hear your point of view on why america is whining.. jeff

Posted by: jeff block | March 7, 2011 10:46 AM    Report this comment

I'm waiting for the day when the Chinese surprise us with their exact copy of a stretched Boeing 747 that sells for half the Boeing price. Don't say that it couldn't happen. t

Posted by: Douglas Rodrigues | March 7, 2011 11:18 AM    Report this comment

Lets face it folks, as previously mentioned. The Chinese bought TCM a year ago. The Chinese "consortium" will buy more and more if our countries wealthy and business savvy folks remain ignorant / naive. No different than the Japanese many years ago taking the American ideas and capitalizing on. Mostly US born ideas but given up on or not improved effectively. I hate to say it but the US is spoiled on the business side (and others)..."if it isn't easy, forget it and sell it" seems to be the thought process for many big business, not all, but many. Other countries capitalize on what US business gave up on, they figure out more efficient ways to manufacture the same thing, improve it and generally, embarrassing to admit, make a better final product. To say "I won't ever buy a Cirrus now" is somewhat a "knee-jerk" reaction.. but you have every right to state that. But do you own electronics, appliances, furniture, a car that was ACTUALLY made in the USA(careful how you answer that one)? Want to scare yourself? Go through your entire household and see what is actually "Made in USA", the results will be astounding. If America won't invest in America, others will. I own a Cirrus and wasn't thrilled to see the news but it is what it is. I have to admit, I applaud the Chinese for "diving in" to GA... it is far past time for them to do this. Cirrus is a great product and for US Business to NOT want to invest in them... well, what does that tell you of our US Business Strategies?

Posted by: Dane Knowlton | March 7, 2011 2:15 PM    Report this comment

This from today's "Autoline Detroit"

"BRILLIANCE RIPS-OFF BMW Thereís been a real problem with companies in China ripping off designs and stealing intellectual property. The latest example comes from a company called Brilliance, which has a joint venture with BMW. Brilliance is coming out with a new sedan called the A4 that is a blatant rip-off of the BMW 5 Series. China Auto Web reports that Brilliance is even bragging that its sedan benefits from a ďBMVVĒ quality control process. Get it? When you spell out BMVV, it almost looks like BMW. Iíd love to hear what the execs at BMW have to say about their Chinese ďpartner.Ē

BRILLIANCE COPIES NISSAN But wait, it gets worse. Brilliance isnít done yet. Itís also coming out with a van, called the Jinbei that is a blatant rip-off of the Nissan NV 200. The good news in all this? Itís the Chinese media thatís outing these rip-offs. Theyíve got to know this is not good for the countryís image."

The Chinese will build a "Cirrus clone" and certify it for use within China plus allies. Nobody else will certify it, but they don't care- they got what they came to the party for- an acquisition for less than the R&D cost. Once the Chinese are done with it, who knows whether it will continue as a going entity or be thrown on the trash bin of history- depends on the profitability I suppose.

The Chinese are having increasing issues with ground transportation so GA is the next step to relieve that.

Posted by: JIM MCCREERY AVIATION | March 7, 2011 2:41 PM    Report this comment

Paul has it right. We've become a country of whining wimps. Without workable ways to wrest our way back to competitive fortitude.

Sure, many can think back longingly on the 50's and 60's as our norm. While a soothing bromide, it won't insulate us from the BRIC onsilade.

Competition is a wonderful thing. Brings out the best, brightest, and most clever of us all.

I applaud the Chinese for their aggressive pursuit of aviation assets. The folks in Duluth and Witchita should take careful notice.

The U.S. should adopt full free trade agreements with all our global partners. Only then will be be able to sort the wheat from the chaff. If the Chinese deliver more value in GA aviation aircraft than we can, as I suspect, we'll lose another craft to the competitors (e.g. Nike footware, DRAM, etc.).

The good news is that very few Americans can afford a new Cirrus regardless of who owns the company. I'm thinking many increasingly affluent Chinese will enjoy the benefits of the aquisition.

The U.S. no longer has the economic advantages we leveraged fifty years ago. The U.S. must realize what few disticnt economic advantages we have left.

Charlie Sheehan?

Posted by: Charles Clark | March 7, 2011 3:05 PM    Report this comment

I wonder who the widow will sue when her weekend pilot runs out of gas in the middle of a thunderstorm flying a China jobbie.

Posted by: Rick Ferguson | March 7, 2011 3:43 PM    Report this comment

Charles, you obviously don't get have a grasp on what's happening. it's not whining it's called a level playing field. Until the field is level we're never ever going to be able to compete. we need to protect America just like Japan and China protect their countries. I'm curious what are your "workable ways" you suggest we wrest our way back to competitive fortitude. I can't wait for your explanation! jeff

Posted by: jeff block | March 7, 2011 6:31 PM    Report this comment

We are just living in a dream, that will end rather quickly if no radical change (reduction of financial & regulatory overhead) takes place. We still pretend that a normal person can fly a private airplane, but this pretention is built upon used aircraft that fly already a lot longer than their original designers intended them to. While this fact is proof of ingenuity and adaptability, it is ending. Look at the age distribution of aircraft owners, and it becomes clear. Robert Go to http://www.mygovcost.org/ to see how much spending money you could have.... without the overhead.

Posted by: ROBERT ZIEGLER | March 7, 2011 9:44 PM    Report this comment

jeff: Level playing fields are usually surveyed by those with vested interests. You and various protective unions may find BRIC's attactiveness as a source of sufficiently skilled and motivated labor to be the result of unlevel playing fields. My experience is that employees, at all levels from the entry level worker to the top department managers in BRIC nations are far more motivated to contribute to their enterprise than are those in the U.S.

O.K. This is not level. Obviously those in BRIC nations will work hard for a fraction of what their counterparts in the U.S. demand in salary, benefits, work rules, etc.

I assume your solution is isolationism. Get ready to pay triple for your Nikes and iPads.

Posted by: Charles Clark | March 8, 2011 2:15 PM    Report this comment

Level playing field? Let's look at the other side of the coin.

GE has 14,000 employees in China and that figure is sure to skyrocket. They no longer make light bulbs in the US because they built a 2 billion dollar plant in China for that.

Now that's great for GE, but not so much for American workers and towns who relied on that factory for their bread and butter. Do you think Jeffrey Immelt cares?

And do you know how much tax GE pays? Between 2000 and 2007, it amounted to a whole 3 percent of revenue. How much tax do you pay?

Cirrus has just over 1,000 employees. Don't you think the Chinese would like to be able to come in here and do what GE does in China?

Posted by: Gordon Arnaut | March 8, 2011 7:54 PM    Report this comment

Why doesn't GE make light bulbs in this country anymore? Because of the obvious, labor. Granted we all want to buy things cheaper and when GE makes their bulbs in China so does their competitors. Why does Ford have their biggest factory in Mexico. So with all these jobs going out of the country just how are we paying to buy these goods. Debt..... Americans are in hawk up to their eyeballs. Look at the balance of trade deficit we run against the Chinese. Their governments subsidize these companies to lower the cost and we're never going to be able to compete unless we put tariffs on these goods that are being dumped in america. Sure we all want to buy something cheap, i get that but how are we earning $$ to pay for these things. Credit cards and debt. We purchase with debt and they turn around and take our dollars and buy the best industries in America. Don't you think we should be able to go over and buy their companies? Well we can't. Out idiots in Washington have put up a for sale sign in the USA. and most of these foreign companies hire all of the retired politicians to use their connections to lobby the US government in their interests. I know it sounds like I'm being a protectionist but the reality is unless we can compete we've got no shot. Just watch what happens over the next few years.

Posted by: jeff block | March 8, 2011 8:09 PM    Report this comment

To me, exporting jobs and American expertise overseas is shoving the "new world order" down our throats. It is an attempt to destroy American sovereignty and force us to become "world drones". When we stop making toilet paper in this country and the Chinese get mad at us...... You guys seem to forget the Chinese will get mad at us some day. They will be nice and wait until we are militarily gutted first.

Posted by: Rick Ferguson | March 8, 2011 8:11 PM    Report this comment

Paul, Jeff, Dane, Gordon and others; you have shared some important ingredients as to what is happening in the aircraft and U.S. industries here in America. Lots of knowledge here and this reader appreciates how thoughtfully you all share your insights. Not being an economist but an observer of what our nation seems to be doing, some of this can be reviewed in an old book called "The Creature from Jeckyl Island"... worth a look. As a pilot with one of those '77 models (grumman) and who is installing some of the new electronics (aspen, garmin 430+ 327...) and who knows how expensive they are, compared to equipment in other hobbies (ham radio), I would concur the costs appear pretty tall for comparative equipment. Thanks to TSO and FAA requirements....I have found that just getting techs trained and paid a reasonable salary today is tough for some of our avionics shops. A couple of them have closed up here in Washington state due to lack of good techs...(read liability) and that with 75.00 per hour for service... wonder how much liability insurance costs these shops.

Posted by: roger bailey | March 9, 2011 11:43 AM    Report this comment

The US government seems to pushing jobs away with high taxes and over regulation. The Chinese government seems to be attracting jobs. An insight as to why might be found in this exchange between President Bush and Chinese President Hu Jintao. Mr. Bush told the Chinese leader that the thing he worried most about and that kept him up at night was another attack on the United States. Mr. Bush said he then asked Hu, "What keeps you up at night?" Hu responded, "25 million new jobs a year."

Posted by: DANA NICKERSON | March 12, 2011 9:25 PM    Report this comment

Add your comments

Log In

You must be logged in to comment

Forgot password?

Register

Enter your information below to begin your FREE registration

« Back to Full Story