Do Refurbished Airplanes Hurt the OEMs?

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When I was researching last week’s story on aircraft refurb business, I heard all kinds of comments, but everyone—well, almost everyone—agreed that new aircraft prices have made flying unreachable for all but the very wealthy. When someone of the stature of Jack Pelton flatout calls airplane prices exorbitant, you have a five-alarm fire.

And by the way, no one I talked to last week thought that the manufacturers can do much in the short term about escalating prices if they hope to remain solvent. If you believe that cutting prices would expand the market, they would have to discount so much that no manufacturer could survive long enough to enjoy the higher volume.

So we have this groundswell of refurb activity and it looks like it definitely has legs. There’s an ocean of low-cost, high-value airframes out there that basically perform as well as modern aircraft do. They go as fast, carry as much—and sometimes carry more given how portly modern airplanes have become—and burn the same amount of fuel. The only exceptions are the diesel conversions and that’s where Redbird is going with its Redhawk project. That’s still a tiny market.

So since these older airframes can be readily upgraded to nearly state-of-the-art status and perform for half the price of new, that’s a good thing, right? Evidently, the market thinks so, because refurb is hot. But is there a downside? Does an expanding refurb market potentially damage the development of new GA aircraft? John Armstrong, who’s had success putting together shared arrangements for access to new Diamond aircraft, thinks so. He told me the longer older airframes remain in the fleet—fixed up or not—the longer it will take to replace them with safer, newer aircraft that he likes to call “magic carpets.”

Basically, the DiamondShare program is a multiple access arrangement that has, at its core, a buyer who takes delivery on a new DA40XLS. DiamondShare  then does the legwork to recruit “members” who, for a fixed payment, share access to the aircraft at a price typically around $1000 a month. DiamondShare offers tax and insurance support, training and other services. It’s not a partnership, nor is it a club. Armstrong describes the program as leveraging the aircraft’s excess capacity—basically potential hours of availability the owner isn’t using—to offset costs the owner would otherwise bear entirely on his own. “Would you pay $1000 a month to have access to this magic carpet?” comes the sales pitch from Armstrong. (You pay for your own gas.)

The answer for me might very well be yes, if I had compelling need for a DA42 with a glass panel. But since I can’t justify that kind of money for just boring holes in the sky and it’s not practical for regular business travel, I have a position in CubShare instead. But when I used one of several Mooneys for regular business travel, the grand a month was about the cost, on an annualized basis. But that included the gas. Nonetheless, the value was there, in my view, and it would be for the Diamond, too.

But I’m skeptical that any amount of refurb activity would impact the likelihood of buyers opting for new instead. Buyers of new airplanes have to suppress the gag reflex when they see a $400,000 sticker and/or be creative enough to instantly realize how they can leverage that number to make it affordable while calculating how much depreciation they’re willing to eat. I think buyers of new piston airplanes—and there aren’t but about 500 of them a year in the U.S.—look at this from the top down while those of us seeing the value in used airplanes look from the bottom up. How high are we willing to go to hit the magic price/value point? I suspect it’s in the $70,000 to $100,000 range, which is where a lot of used aircraft transactions settle. And that’s why nicely executed refurbs up to, say, $150,000, are likely to be increasingly attractive.

Do buyers care that the airframe may in fact be 30 years old? Some do, says Premier Aircraft’s Jeff Owen. But for many, not enough to spend five or six times as much for an airplane that has only marginal additional capability and maybe not even that if the refurb has a nice Aspen glass panel. Yes, the OEMs may lose a few sales to spruced up recent models, more so in the TAA-type aircraft than a tarted up mid-1980s Saratoga. But they’ll live and die not selling against refurbs, but finding those lucky 500 who can write a check for a half mil.

Join the conversation.  Read others' comments and add your own.

Comments (23)

The Aircraft renovating "new trend" is not really new and should not be a threat to OEMs. The new aircraft market is hindered more by its ridiculously unaffordable pricing and hull insurance costs than by the refurbished aircraft market threat. Refurbishing aircraft makes sense as it makes flying, rentals and flight instruction reasonable.

Posted by: Rafael Sierra | September 26, 2013 5:08 AM    Report this comment

Relatively "fixed" volume of after market aircraft all depreciated out. Falling pilot population.

Reality - till those airframes cannot be repaired or DO rot away unloved in the tie downs- used aircraft will be cheap. No incentive to buy new. The glut will pass - but not for some time.

Posted by: Graeme Smith | September 26, 2013 6:51 AM    Report this comment

I'd rather fly a well refurbished high quality aircraft than a DA42. You won't know that you're sitting in a 35+ year old aircraft with thousands of hours on the frame if its refurbished well and tastefully. You will know when you're sitting in a plastic toy.

Posted by: Jason Baker | September 26, 2013 7:59 AM    Report this comment

In the past I had trouble insuring an aircraft made before 1960 so I went without it. This could be a problem for high-dollar refurbs. Today, I'm not sure if 1980 is the new 1960. Even for ground-up restorations, some insurance companies just don't get it.

Posted by: A Richie | September 26, 2013 8:50 AM    Report this comment

You will know when you're sitting in a plastic toy.

I think I'll gently correct this. Diamond aircraft are anything but plastic toys. They are fully certified under FAR Part 23, to the latest appendices, and have demonstrated safety records better than any other models in the industry. We should recognize this.

Posted by: Paul Bertorelli | September 26, 2013 9:15 AM    Report this comment

A good benchmark for price sweet spot on refurbs would seem to be the cost of a mid-price RV (the vehicles, not the homebuilts). This tracks well with Paul's estimate.

There are certainly a lot of low-to-mid $100,000 range RVs on the road, so obviously that sort of investment is within the means of a motivated upper middle class buyer.

On the other hand, when the ongoing cost & effort of keeping an operating airplane vs. an RV sinks in the deal may not seem so comparable. That's where motivation has to carry the ball.

Posted by: John Wilson | September 26, 2013 9:43 AM    Report this comment

If the refurb industry is truly a threat to the manufacturers then they need to take a hard look at the value-for-money of their product.

Personally, I could never afford a new plane, on the other hand why would I want a DA40XLS when for a lot less money I could fly a Howard DGA? Even if I won the lottery why buy a new Barron when I could have an old Beech 18?

Posted by: Richard Montague | September 26, 2013 10:03 AM    Report this comment

A true refurb will cost a lot of money also. Many consider a refurb to be an engine overhaul, a paint job, upholstery and a few new gizmos thrown on the panel. If they would look behind the panel though and see that rat's nest of wiring they would blanche at the thought of flying in the clouds with it. There are many, many other little details like that which separate a refurb from a new airplane. That's why the folks with discriminating taste and the ability to buy new, even at the high prices, do so.

Posted by: Stephen Phoenix | September 26, 2013 10:13 AM    Report this comment

"[Refurbs] go as fast, carry as much--and sometimes carry more given how portly modern airplanes have become--and burn the same amount of fuel."

And there's a big reason, in my opinion, why new aircraft aren't selling as well as the refurbs. My 1979 Piper Archer II carries nearly 1000 pounds of payload, and even with topped off fuel tanks, it still has almost 700 pounds of people and stuff I can stick in it. Compare that to Piper's latest Archer LX and my plane has almost 200 pounds more payload. It also has better takeoff performance than my flying club's 2000 Archer III. But the best part is, with it's new interior and exterior, I get questions from people on the ramp asking me if it's a new plane. There simply isn't a compelling reason to purchase a new plane, unless you're going for a modern composite aircraft (and only then because the used market doesn't go back as far).

Posted by: Gary Baluha | September 26, 2013 10:20 AM    Report this comment

I don't think the refurb industry is hurting OEM sales. OEMs are hurting OEM sales. There is no way I will ever be able to afford half a million dollars or more for a 4 seat piston airplane (neither can the great majority of the America public). Even if I could afford it, I wouldn't spend it all on one small piston powered airplane. Refurbed, or more likely, experimental kit plane will, be/is the route for me to achieve my goal of aircraft ownership. Total budget, less than 70k. And no, 'fractional ownership' clubs will not work for me, my wife and I plan on retiring in small town USA, so if I want to fly, I'm going to have to own the aircraft myself.

Posted by: John Rollf | September 26, 2013 10:29 AM    Report this comment

The used market is the place to get a great aircraft at a reasonable price. Our 1967 Mooney is a wonderful plane and you can pick up a nice one for around $65K. Why would you want to spend half a million on a new single engine piston aircraft? It's just not feasible unless you have money to burn.

Posted by: Ric Lee | September 26, 2013 10:33 AM    Report this comment

Paul, I am not necessarily saying that Diamond aircraft are plastic toys, even though I felt claustrophobic in the DA42 and the thing was a rattle box. There is no way to justify the price of acquisition in today's business world + a refurbished twin or single will still insure better than any of the newer aircraft. I'll be out 150K- 200K to get a older 206 looking like new, sitting on amphibs with a top notch panel. Compare that with a 600K+ new airframe. No thanks. They fly just the same. Not that I am in the market, but who cares if refurbishing will hurt a manufacturer? Produce a better product at a competitive price, without going to China to get it done, and the refurbishing market will collapse overnight. ;o)

Posted by: Jason Baker | September 26, 2013 12:05 PM    Report this comment

The only thing new planes have over 30 year old planes is glass panels and the new plane smell.

Even doing a refurb to factory new standards, the 30 year old plane still costs less than a new one.

The useful loads on new planes are downright pathetic. There is a 2007 tricked out Mooney at the club that can't even handle two pilots and full fuel. Some of the new clean sheet designs are somewhat better, but still could use more useful load.

Posted by: John Clear | September 26, 2013 12:14 PM    Report this comment

"If they would look behind the panel though and see that rat's nest of wiring they would blanche at the thought of flying in the clouds with it. There are many, many other little details like that which separate a refurb from a new airplane."

I've only seen a few refurbed planes but those all had all the wire clutter and debris cleaned out with fewer bucktails and manufacturing debris than most factory new planes. The attention to detail is as good and often better than factory jobs

Posted by: Richard Montague | September 26, 2013 1:01 PM    Report this comment

The market for piston refurbs has as much crossover with the market for new piston birds, as it does with the market for new bizjets - none. The new market and the refurb market co-exist so peacefully exactly because of that. They are no factor for each other at all. And the biggest market of all is that for as-is used aircraft. Inflation-adjusted prices in that market are at or near all-time lows because of good old supply and demand. Lots of old aircraft chasing fewer and fewer buyers.

I'm considering selling my plane. But I know that I can get only about 1/3 of what I could have gotten five years ago. I'm keeping it because for the moment, that's slightly less expensive than giving it away.

Posted by: Thomas Yarsley | September 26, 2013 1:22 PM    Report this comment

There is bound to be some cross over and hence loss of OEM sales. Those circles would have to intersect. Not massively I wouldn't think, but some. There will be some people umming and ahhing over new prices who, if they become aware of how good a refurb can be, will jump into one gratefully. I think the overall effect will actually be positive, in terms of the total amount spent on aircraft per annum.

Diamonds are fantastic - they're like a sleek, modernized yet restrained take on the Archer/172. The forward hinged canopy is my only gripe

Posted by: john hogan | September 26, 2013 4:15 PM    Report this comment

One thing missing in this conversation is the availability of aircraft that have performance at a price point that is truly un-available.

I operate a nicely re-furbed (RAM new engines, new props, and new avionics 2005-2006) Cessna 340A. Performance that cannot be bought anywhere on the new market. At a purchase price considerably less than a new top-of-the-line Cirrus/Columbia/whatever. Turbocharged and pressurized, she carries me and my passengers in comfort in smooth air in the high teens and low 20s.

Does it cost more to operate and maintain? Of course! But when you start with a price advantage of 50% of the cost of the new single high-performance singles with nose-bleed cannulas, the purchase price advantage goes a long way.

Posted by: Edd Weninger | September 26, 2013 4:46 PM    Report this comment

I would back up the comments on the Diamond. In the late 90's the local FBO bought two of their original two seat Katanas, and I rented them all the time. I loved that plane, especially the liquid cooled Rotax that was smooth as silk and make conventional engines look (and sound) like something from a lawn tractor.

Posted by: Eric Gudorf | September 26, 2013 5:17 PM    Report this comment

Although fun to fly the DA20 is not IFR certified therefore I will not buy it for instruction. The flight instruction market is 40% PPL, 40% Instrument rating training, 20% everything else. The refurbished C150 and/or the C172 cover the other 40% of the instructional market and at reasonable prices. The DA20 for this reason is out of the game.

Posted by: Rafael Sierra | September 27, 2013 8:34 AM    Report this comment

Comparing a nicely-equipped Diamond DA40 XLS to a 40+ year-old refurb is like comparing apples and oranges. My pilot wife and I owned a DA40 XLS for the last 4 years and loved its combination of fun-to-fly docile flight characteristics, efficiency, visibility, and safety unmatched by older designs.

So when we decided to upgrade, we became one of Paul's lucky 500 and bought a new DA42-VI which I flew across the Atlantic from the Diamond factory in Austria. We could have bought a less expensive refurb DA42 from Premier with new Thielert engines, but by buying new we got "bulletproof" Austro/Mercedes diesels, at least 30 knots faster cruise, factory air conditioning, and the Garmin GFC700 autopilot that spoiled us in our DA40. It's one heck of a JetA-burning "plastic toy."

Posted by: Dave Passmore | September 27, 2013 10:36 AM    Report this comment

Rafel Sierra, I did all of my instrument training in a Diamond DA20 equipped with a Garmin 530. I guess no one told my instructor or my FAA examiner when I took my checkride that it was unsuitable.

Posted by: Ric Lee | September 27, 2013 11:59 AM    Report this comment

@Ric Lee; I understand, however, I prefer to use a legal certified IFR aircraft as I include IMC flight in the training. It does not cost more than operating a DA20 and there are no limitations. The DA20 is not IFR certified to lower certification and manufacturing costs, but flying, even in good VFR near TS activity presents a problem as the DA20's electrical system, the occupants, and aircraft may fry.

Now, read the following excerpt just following "...to provide an airworthy, ..." Out of the Instrument PTS, Interpret and then take it along with your pilots certificate to two or more FSDOs in your region, make some phone calls, inquire and find out where you stand. Ask, does this mean that I had to provide an IFR certificated aircraft for MY check ride? Let me know what you find out. You may find a diversity of opinion coming from the FSDOs, as I have. ------

Instrument Rating Practical Test Standard 2010 FAA-S-8081-4E w/ changes 1, 2, 3, & 4

Go to page 7;

Aircraft and Equipment Required for the Practical Test The instrument rating applicant is required by 14 CFR part 61 to provide an airworthy, certificated aircraft for use during the practical test. Its operating limitations must not prohibit the TASKS required on the practical test. Flight instruments are those required for controlling the aircraft without outside references. ------ Note (just in case): It is not legal to fly IMC in a non IFR certified aircraft. Having the 91.205(d)-required instruments and equipment is not sufficient for legal flight in IMC if the aircraft is not certified for IFR. Some Examiners will go into IMC or at least have the option to stay legal during the check ride, so why restrict the practical test with a non IFR certificated aircraft.

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Posted by: Annass sdfsf | October 24, 2013 3:59 AM    Report this comment

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