The Tyranny of Low Volume

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In casual conversation, some people tell me that they think the best part of an aviation journalist’s job is getting to fly lots of different kinds of airplanes. Maybe. On the other hand, it should be no surprise that most new airplanes these days fly about the same, given that most were certified years ago or at least certified to standards that have been around that long.

So I tend to view airplane reviews not so much as discussions about how an airplane flies or what gadgets it has, but as economic stories that explain what the thing costs to buy, own and operate and how the company thinks it will stay in business selling in what has become the new tyranny—low volume. Although many of us in aviation have a notion of the difficulty manufacturers face in building airplanes in an environment of higher costs and low volume, some would-be buyers have unrealistic expectations about the relationship of volume and cost.

I thought about this two weeks ago when I was being shown around Continental’s diesel engine factory in St. Egidien, Germany, the former Thielert works. The plant is currently building 1.5 to two engines a day, plus spares, but it has the capacity—and the overhead costs—to build as many as 2000 engines a year in a single shift. How can they possibly make this work? The plant is clearly efficient, with state-of-the-art digital machine tooling and an impressive assembly line based on the same kind of technology Mercedes Benz uses in its AMG plant. Specifically, it’s a sophisticated computerized oversight system that keeps track of everything from parts inventories to fastener torques and is designed to yield high quality in low volumes. Those engines are probably built to the highest quality standard acheivable in aviation, something that's very difficult to reverse engineer into traditional aircraft engines. 

But high quality in low volume doesn’t solve the relentless difficulty of profitability in low or declining volume. Ken Suda, who oversees the plant, told me that they buy a lot of their inventory on the automotive market, where prices can be attractive at certain high volumes. “In order to be visible to automotive suppliers as a potential customer, you need to order a certain volume. Once you can order that volume, you can make use of the benefits and that means you can have a very high-quality product at a relatively low price,” he said. The problem? Ordering parts that you don’t need for many months runs counter to the just-in-time inventory practices that most manufacturers follow today. Stored parts are stored money with no accumulating interest. So Continental has to strike a balance between volume buys and a  just-in-time supply chain. I think it’s a difficult one.

In talking to Continental CEO Rhett Ross, I get the feeling that the company is sober about potential market growth and making all that factory floorspace pay for itself. “We are facing a reality, which is we have more engine capacity than the entire current and projected global market could ever command,” Ross said. “So we have to actively modify our business model from being active manufactures of piston aviation engines to manufacturers of piston aviation engines and other common products.”

That means the St. Egidien plant will take on other work not specifically related to general aviation aircraft or engines and perhaps not aviation related at all. It has already been doing that, building crankshafts and machined parts for the automotive racing industry. I won’t be surprised to see much more this, meaning Continental is aggressively building a hybrid business in which expensive, low-volume aviation products are sustained by higher volume products of some kind. I’m sure we would all wish this not to be necessary and that Continental could focus just on aviation. Those days may be gone forever and the hybrid approach may be the new normal.

Even so, Continental doesn’t appear shy about investing more money in new diesel projects, despite the anemic market. We reported last week on a new 300-hp diesel in the works and I’m sure other projects are on the table. If this sounds like an enormous risk, it is. Future uptake of diesel engines is a huge unknown. About 80 percent of Diamond's sales are diesel, but that's only about 100 airplanes. Cessna seems in no hurry to market its JT-A 182. Piper's out with the Archer DX, but at $400,000, how much volume is likely?

On the other hand, if the market does turn lively again—or even shows a strong pulse—Continental will be well positioned to serve it and with a business model designed to sustain on low volumes, but one which can ramp up rapidly, if necessary.

Buyers say they want new technology, not the same old stuff from traditional engine manufacturers. If nothing else, Continental is responding to that voice. But if buyers continue to complain about high prices—and, understandably, they will—they should at least understand that stuff made in onesies and twosies is never going to be as cheap as they might wish. Regulatory reform is not going to substantially change that, either. 

Sometimes I’m a little baffled that companies are able to develop business cases for major new products at all. We can at least be glad that some companies still are.

 

 

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Comments (40)

""We are facing a reality, which is we have more engine capacity than the entire current and projected global market could ever command," Ross said.""

Opposite to AVIC's Continental, Rotax is ahead in this as their viable market supports their non viable market product, at least for a while. Rotax's recreational products include snowmobiles and motorcycles - here is where I would invest.

Posted by: Rafael Sierra | June 27, 2014 8:08 AM    Report this comment

Low volume = higher prices. Higher prices = even lower volume. Unless the price of new aircraft, engines, and technology can come down, I'm not sure how the vicious cycle can end. That said, I'm glad to see that Continental has figured out a way to use its existing tooling and workforce to do other things. Makes me wonder if it's feasible for aircraft manufacturers to do the same.

Posted by: Jonathan Cullifer | June 27, 2014 10:08 AM    Report this comment

Any time that a modern manufacturer can diversify its production output, it's a good thing. The truth is, most aircraft manufacturers would be more profitable if they subcontracted 100% of their manufacturing work to a qualified contract-manufacturing company. What stands in their way? Ego and the FAA. But even Boeing farms out much of its work. And Vans is taking a similar approach with its "factory-built" RV-10s.

Cessna still is drilling and riveting 172s together, by hand. Absolutely nuts. They'll tell you that the Skyhawk's low sales volumes can't justify modern sophisticated manufacturing processes. Paul understands that; I certainly do; most readers in this space probably do. But if Cessna sub-let their manufacturing to a firm that already had modern in-house manufacturing capacity - because it builds millions of items for hundreds of companies - they not only could take advantage of the reduced piece costs; they also could avail themselves of sophisticated methodologies whose use they never could justify by nothing more than low-volume airplane production.

The GA industry already is served by 100 times as many manufacturers as it needs. Each is fighting for a share of crumbs from an already-too-small pie, and the sales prices of modern aircraft reflect that. Owing largely to ego, that seems unlikely to end. Contract manufacturing could act like a "mega-merger" on the manufacturing side, while preserving the "benefits" of way-too-many independent companies offering way-too-many models into a way-too-small marketplace.

The FAA would have to get realistic about PMA (Parts Manufacturing Authority) regulation. But general-purpose mega-manufacturers would have little difficulty complying with even the most rigorous quality-control requirements - they already do it, every day.

Paul's visit to Continental was revealing; his visit to Rotax was perhaps even more so. A visit to a large, modern contract-manufacturing operation might be the most-revealing of all...

Posted by: Thomas Yarsley | June 27, 2014 10:17 AM    Report this comment

"The GA industry already is served by 100 times as many manufacturers as it needs."

I'm not sure if I agree with that. In the LSA segment, probably, but for GA as a whole, I don't think so. Consolidating would probably mean the lower-end training/personal use aircraft models get dropped anyway, which wouldn't do much for the industry as a whole.

While my need to carry 2-3 passengers in addition to myself has waned somewhat for the time being, I still generally prioritize payload (particularly full to nearly-full fuel payload) over speed and range. But others tend to prioritize single-pilot and bags (with the occasional single passenger) range and speed over payload.

Piper at least got this concept in the past, with the PA-28 series encompassing everything from the trainer (Warrior) up through the speed/payload (Arrow/Dakota) and even multi-engine (Seminole) range, all with the same basic airframe, modified suitably for the need. So it's not so much too many models, but too many distinctly-different models that each require all different tooling.

Posted by: Gary Baluha | June 27, 2014 10:55 AM    Report this comment

Attempt at diversified manufacturing is not a new thing. Anybody remember Boeing furniture or Grumman canoes and truck bodies? It turns out that it's challenging to build airplanes and furniture in the same plant. Rotax seems to have accomplished the diverse manufacturing scheme better than past attempts. I think soft, programmable tooling and inventory control, makes this possible where it was not so easy with hard tooling and paper trails in the past.

In any case, if anybody thinks this airplane business is easy money, they should try it. Plenty of "investment opportunities" out here.

Posted by: Stephen Phoenix | June 27, 2014 11:42 AM    Report this comment

In today's climate of 2-3% per year cost of capital, being being controlled by just-in-time parts acquisition doesn't seem to make a great deal of sense. If Continental can drive material savings from large purchases (say 50%), then they should be doing it despite needing years to consume the inventory. Even 10 year supply at a constant use rate only gives back about 1/3 of the cost savings even at 3%/yr. cost of capital.

This argument is, I think, a red herring. It is like the argument about regulatory costs being onerous for new designs. But when LSA regulations cut regulatory costs for planes meetings its specifications, prices were still way higher than envisioned....and suddenly the reduction of regulatory costs were not so important (at least as far as the manufactures justification of their high prices).

Posted by: Barry Speronello | June 27, 2014 1:01 PM    Report this comment

Come on Paul, GA is drowning, and you're describing the water.

More volume? The only way to achieve that now, is to drop prices. Trouble is, you're going to have to find a manufacturer to take that risk. Other posters have provided excellent examples to help in doing this.

"Sometimes I'm a little baffled that companies are able to develop business cases for major new products at all. We can at least be glad that some companies still are."

Paul, please forgive us for not being a little excited over another four-hundred-thousand-dollar airplane on the market.

Try this test, drastic as it may seem; convince a LSA manufacture (RV-12 equivalent, decent payload, range) to offer a steam gauge LSA (buyer brings his own portable GPS) at Oshkosh in the sub "SUV" price point. I guarantee that the line at the tent will be hours long to sign up. There's your volume. And you'll have orders for years to come.

Offer the same LSA but fully loaded at current LSA price points, and I'll bet that you'll see the same anemic volume.

Until GA can find another Piper Cub to challenge the current price point, the Millennials, with low/under employment and crushing student debt, are not going to be pull GA out of this mire by purchasing $400k airplanes.

Posted by: Robert Ore | June 27, 2014 6:24 PM    Report this comment

Robert, if I've heard this argument one time, I've heard it a thousand.

It's quite easy to dismiss. Have you ever heard of the X-Air LS? It's a sub $60,000 LSA. Least expensive one on the market. The AeroTrek comes close, at $70,000. They aren't selling large volumes for the simple reason that this isn't just about price. There are other factors.

Lower the price more and you're describing the most common business scenario for aviation startups: bankruptcy.

Refer to Eclipse if you'd like another example.

Posted by: Paul Bertorelli | June 27, 2014 7:33 PM    Report this comment

Frankly, many here are "missing the boat"! EVERYONE can harp technology all day log. That said, however, GA, and the recreational segment in particular, has had a demand problem for decades; hence LOW volume - as Paul eluded to - and HE even said; " this ISN'T about price! . I suggest those who "failed" Micro and Macro, dust off the old text and read up on WHAT creates demand. IF the demand were INCEASED by even 400% for GA - the result would now be about 1 in every 350 folks would have an interest (potential consumers?) in GA - not exactly good odds.

BOTTOM LINE: It starts with INTEREST - NOT price!

WANT to "save" GA? - find the aviation consumer who has a NEED and appreciates the VAL:UE in the purchase; be it flight training or an aircraft purchase!

Posted by: Rod Beck | June 27, 2014 7:54 PM    Report this comment

Robert Ore is correct.

Posted by: Rafael Sierra | June 28, 2014 12:55 AM    Report this comment

Engine development, especially in the piston powerplant for aviation, is what is the key to re-building the industry. For too long, we have engines that require too much maintenance to make TBO, are inefficient, with a price that leaves one scratching their head. I understand the economy of scale model, but what I don't understand is advancement in powerplant technology for general aviation.

Recently I was on my friends boat, it had a 300 horsepower Mecury Marine engine. It was a V-6 powerplant with a supercharger. It came with a three year warranty, was quiet, small in size, with a complete package price (lower drive unit) of $27,000. This friend of mine isn't easy on engines, he typically is running 75% or full throttle for shorter periods of time, but the engine has been bulletproof. So I see an industry providing a product that is generating a lot of sales, even at a high cost.

The problem with general aviation and piston development, is the outside of the box thinking, and some serious study of market demand. I think if someone that has a manufacturing background, and experience in powerplant technology, would realize a replacement engine for general aviation would have a good market and profitability. Rotax is continuing to develop a product line that is an improvement, but it has been a difficult and challenging road to attain.

The key will be mass production that eliminates a lot of the hand built portions, something that can be assembled via assembly line procedures that are highly automated. The closer you can make the tolerances consistently, the higher reliability and less cost to maintain, the better the market is going to accept those engines.

As a marketing and sales guy, I can't figure out why Rotax hasn't developed an STC for the Cessna 150/152 line for a conversion "kit" that was turn-key for this airframe. There are a lot of these airplanes still being used on the market, and as a cost effective alternative to the old technology Continental 0-200 and Lycoming 0-235. A much more fuel efficient, quiet, smooth, and reliable engine would probably have quite a few takers, and would provide for more manufacturing.

More manufacturing - higher volume - lower cost?

Posted by: Michael Dempsey | June 28, 2014 8:44 AM    Report this comment

"As a marketing and sales guy, I can't figure out why Rotax hasn't developed an STC for the Cessna 150/152 line for a conversion "kit" that was turn-key for this airframe."

I have a theory... When the owner/operator of a C-200 / L-235 engine faces run-out, s/he rarely purchases a factory-new replacement engine. It's less-costly to obtain an overhauled one. A "trade-up" to a completely different engine thus requires additional motivation.

One such scenario would be the motivation provided by the discontinuance of the fuel required by the original/overhauled engine. If unladed avgas disappears, kerosene-burning (diesel) powerplants will become an overnight sensation.

Another scenario would manifest if the all-new engine had such compelling operating-cost numbers, that it became a no-brainer - AND the owner/operator somehow could come up with the capital cost TODAY, to take advantage of the reduced costs tomorrow.

New-technology automobile-gasoline-powered engines might do the trick - provided that there was some assurance that such engines would be able to run on whatever witches-brew-formula the EPA might come up with for the next, say, 50 years. Example: Detroit already has faced the scenario of E-10-compatible engines that choke on E-15 or E-85. Fortunately for the automakers, few motorists expect or demand that their automobile engines will have a service lifetime of 50 years or so.

Faced with a $16k overhaul OR a $24k new engine (plus the cost of the STC kit, which, at a minimum, would include a new motor mount) - even one with compelling ops numbers - most non-commercial operators (the vast bulk of the GA fleet) would eschew the gee-whiz STC'd bolt-on replacement engine. The small number of commercial operators comprise a marketplace that's too small to justify the investment in the STC.

Now, outlawing leaded avgas would change that dynamic completely. The choice for ALL operators would be simple - install the new engine or park the aircraft. The closer to TBO that an operator is, the less-onerous the new-engine requirement would seem. Those of us with relatively low-time avgas-burning engines would have a different view of the new economic reality; many would park their planes and take up bowling or knitting. This would have the effect of flooding the market with cheap, engineless airframes. Purchasing one, and equipping it with a new kerosene-burning engine hardly would be cheap. But it would be a small fraction of the cost of a $400k diesel "Archer" (really a Warrior).

The increasing likelihood that this scenario will occur concurrently with the 2020 deadline for ADS-B equipage (and probably for 406 MHz ELTs, too) is giving pause to many aircraft owner/operators whom I know.

Posted by: Thomas Yarsley | June 28, 2014 10:05 AM    Report this comment

Before Paul becomes exothermic, I am not praising for pay. As per Thomas Yardley's fine narrative, Rotax engines STCs would alleviate the consistently declining GA market by providing a more efficient and lower cost power plant alternative.

Posted by: Rafael Sierra | June 28, 2014 7:19 PM    Report this comment

"more efficient and lower cost power plant alternative."

It is more efficient, but it's not lower cost to buy or overhaul the engine. The typical base for a 912 iS is around $25,000. I imagine an STC conversion would cost at least an additional $10,000, but could be more.

You can overhaul O-200s for $16,000, O-235s for $21,000. The iS would save 30 percent in fuel to TBO which is about $17,000 savings with avgas, $12,000 with mogas. The economics are similar to diesel conversions; you have to be willing to invest quite a bit to realize the savings.

There's a business case there, I imagine, but it's not a real strong one in the U.S. The numbers look much better in Europe, but there aren't many O-200/O-235s operating there. More A100 Katana's, which already have the Rotax.

By the way, U.S. operators strongly preferred the O-240 powered Katana and most of the Rotax ones were shipped back to Europe, where they are more popular.

I'm not sure leaded avgas has a role in this market because all of these engines can be readily flown on mogas. It unleaded avgas hits $7 or $8, operators of these aircraft will wake up to that fact.

Posted by: Paul Bertorelli | June 29, 2014 7:43 AM    Report this comment

I feel compelled to reiterate that quite a few engines can be flown on TODAY's mogas. But if the EPA decrees some deviant blend, then - as shown by Detroit's experience with E-15 - those engines could die of thirst, too.

At this point, I simply don't trust our government sufficiently to make any long-term investment in an aircraft engine that can't burn kerosene. Call me paranoid....... But I'm STILL pissed off that this administration shut down our very reliable and very economical Loran-C transmitter network. Cost-cutting? My ass. It will cost more to maintain the Agency's "minimum viable network" of legacy VORs - by nearly two orders of magnitude. Classic case of letting "the perfect" become the enemy of the good.

Think you've got a problem when an airliner disappears? Imagine a world in which good old RELIABLE radar is abandoned, in favor of a system that VOLUNTEERS position information to ATC. You may have heard about it - it's called ADS-B. "Well, we'll keep a few legacy radar systems working, to serve as a backup..." Deja vu, anyone?

End-of-rant.

Posted by: Thomas Yarsley | June 29, 2014 9:22 AM    Report this comment

' It will cost more to maintain the Agency's "minimum viable network" of legacy VORs - by nearly two orders of magnitude.'

When GPS was being sold to congress the package of "savings" to help amortize the cost of the GPS technology included decommissioning of the VOR system and the Loran-C. That was before the present administration. The weakest point of resistance was Loran-C but not the VOR network as it would be detrimental and costly to all of us still flying a combination of navigational systems. Radar and ADS-B is going the same way as the VORs, meaning that I predict ground radar detection to stay as is for a long time, say the turn of the next century..

Posted by: Rafael Sierra | June 29, 2014 12:12 PM    Report this comment

Let's see now ... in the heyday of GA production in the last half of the 70's, a C172 could be had for between $20 to $25K and almost 20,000 GA airplanes were sold annually. Now, a C172 costs $400K and less than a thousand GA airplanes are sold annually. We're building ~ 1/20th of the number of airplanes for almost 20 times as much for the entry level plain jane machine. The pilot population is aging and insufficient new blood is coming in to replace it. Now toss in a lousy economy and dismal future prospects for improvement, high costs for everything else and an adversarial FAA and ... THERE's your "tyranny."

There have been some fine analyses in this blog and some equally good ideas. I like Robert Ore's idea best. Find a way to offer a popular LSA at Cadillac Escalade price and they WILL come. Sorry, Paul ... an X-Air ain't gonna do it ... at least not for me. In 2007, when Cessna brought the SkyCatcher to OSH, the lines WERE there for a BRAND name machine at $109.5K. Cessna MUST have thought they could pull it off ... it wasn't a ruse ... initially. The buyers also thought it was a good idea at a "right" price and lots of them signed up ... I did ! Then came the China 'bombshell.'

The RV-12 S-LSA comes closest to offering a decent machine for SkyCatcher equivalent price but it's still slightly high for most people to afford in one lump. Since the E-LSA rules don't require 51% builder participation, I'd bet that if a manufacturer like Van's were willing to sell a substantially assembled kit without engine or avionics or paint or interior but essentially done otherwise, they could sell it at a price that'd interest quite a few folks. The buyers could then spread the purchase of the remaining materials over a few years ... paying cash in the process. To satiate Van's "conforming" requirement for the E-LSA, I think a number of "inspectors" representing Van's could assure that it meets the requirement and issue the certificate at a later date for a reasonable price.

There are ideas, there is interest, there is some modicum of discretionary income available ... it's just that no one has married it all and found the way. One of these days -- hopefully -- someone will. If not, then the party is over and we're all blowing a lot of hot air heating up the planet while we wait for the fat lady to sing. Will the last silver haired geriatric pilot left remember to call the FAA and let them know that they've achieved 100% GA safety. Thanks.

Posted by: Larry Stencel | June 29, 2014 9:22 PM    Report this comment

Gents (and ladies!) 1. FIRST you need a potential aviation customer/consumer who has an INTEREST in the product 2. SECOND - It needs the cost/benefit of other ALTERNATIVES with regard to the "recreational " segment of GA.

Ignore or continue to psych (convince) each other up all day long with the blame game on the FED. (regulations), design flaws, etc when competent market research BEFORE production might solve the issues - witness the Icon-5 folks "selling" some very stupid or naive investors into an ADDITIONAL round of $60M! I wonder how many birds (not deposits) will they need to SELL just to break-even at $189K+ per unit?

All the technology in "da vorld" ALONE isn't the answer - but you can keep on working on Rubic's Curb if you like!

Posted by: Rod Beck | June 29, 2014 10:00 PM    Report this comment

Cessna MUST have thought they could pull it off ... it wasn't a ruse ... initially. The buyers also thought it was a good idea at a "right" price and lots of them signed up ... I did ! Then came the China 'bombshell.'

So why didn't they? And what does the China "bombshell" have to do with it? Or do you think people don't want to buy an affordable airplane if it's made in China?

Posted by: Paul Bertorelli | June 30, 2014 8:36 AM    Report this comment

"What does the China "bombshell" have to do with it? Or do you think people don't want to buy an affordable airplane if it's made in China?"

I think that a lot of people have an aversion to buying any airplane that's been manufactured in China - "affordable" or not. And a not-completely-overlapping group of people have an aversion to buying an airplane from a company that has Chinese ownership - even if that company is located in the United States. I'm sure that some of it is simple Xenophobia. But some of it is not-entirely-irrational concerns regarding quality. Sources who are connected with the Comac 919 program tell horror stories without attribution. Other strategic partnerships have been forged, but fallen victim to disillusion-driven dissolution. In the engineering world, standards are influenced by cultures. Deming is not revered in Chinas as he is in Japan.

I'm old enough to remember the attitudes that prevailed regarding Japanese (and German) manufactured goods, in the period immediately after the end of WW2. Time cures most ills; quality goods at affordable prices seem to have the effect of speeding up time. And then there's the discomfort that some people have with accepting that the GA universe doesn't begin and end in Wichita any more.

Posted by: Thomas Yarsley | June 30, 2014 1:52 PM    Report this comment

Thomas. You parroted my response to Paul which I had written but did not appear before you commented. I, too, remember the six-transistor Japanese made radio finally beginning to dispel the quality issues of earlier -- and poorly made -- Japanese products. And, how the Honda 600 car became a real quality machine when the Honda Civic CVCC popped out just a few years later. Maybe in days hence, Chinese made products will be of a quality worthy of consideration but ... until then ... NO THANKS !!!

Posted by: Larry Stencel | June 30, 2014 2:03 PM    Report this comment

"They aren't selling large volumes for the simple reason that this isn't just about price. There are other factors.....Lower the price more and you're describing the most common business scenario for aviation startups: bankruptcy"

Yes, Paul. I see $60k and $70k cars at my local Target store all the time. They are a dime a dozen and it's hard to find a parking spot with these luxury cars filling up the parking lot.

The most common business scenario for aviation startups: Is treating it just like the last aviation startup. Keep doing the same things over and over again expecting different results.

Posted by: Robert Ore | June 30, 2014 6:49 PM    Report this comment

I'm failing to see your point, Robert. There are LSAs in the market across a range of prices, from as low as $50,000 to more than $200,000. The highest sellers aren't the lowest priced ones, but the mid to high-priced models, with CubCrafters being the best example. Vans is doing well with the RV-12 at about $120,000 typical price.

So far, all you've done is complain about the status quo and how dumb the manufacturers are. But you haven't offered any solution beyond this, nor explained how a company might lower its prices dramatically and avoid losing on each sale but making it up in volume.

What would the different plan be? The discussion is about increasing volume to drive prices down. Doubling or tripling it won't do that. Ten fold might.

Posted by: Paul Bertorelli | June 30, 2014 7:08 PM    Report this comment

Larry Stencel- "Since the E-LSA rules don't require 51% builder participation, I'd bet that if a manufacturer like Van's were willing to sell a substantially assembled kit without engine or avionics or paint or interior but essentially done otherwise, they could sell it at a price that'd interest quite a few folks.."

My thoughts are along the same lines. Could Vans's get a production line going to build an RV-12 to 90% completion?

Basically a finished fuselage, wings and tail feathers; then the customer puts the wing on, tail feathers, paint, interior, and hangs the engine? Standard instruments with a standard wire harness for plug and play accoutrements?

That would cost more than a standard kit, but less than a factory build. Now, here's where the risk comes in. Lean Six Sigma the hell out of that 90% production line. Buy the engines and piece parts in bulk and drop that price as low as possible. Get the volume going as quickly as possible.

Posted by: Robert Ore | June 30, 2014 7:09 PM    Report this comment

Yes, I know Paul. We've had this discussion before.

"The highest sellers aren't the lowest price ones"

Of course. If I can afford a base model at over a hundred-thousand-dollars, screw it, for a few percentage points more, I'll get the fully loaded one.

Further, are these "highest sellers" selling en masse, at a volume that puts a significate dent in the market? Must not, or we would not be having this conversation.

"from as low as $50,000 to more than $200,000"

$50k. I paid less than $30k for a FADEC, power everything, anti-lock brakes, air-bags-everywhere, 4x4, diff lock, cruise control, mid-size pick-up truck. It even has A/C. How was I able to do that? Volume. Price that same truck at $50K? Fewer buyers. Less volume. Are there $50K trucks on the road right now? Sure. But I see a lot more Tacomas/F-150s/Frontiers on my way to work than I do Escalades and Ferraris.

"So far, all you've done is complain about the status quo and how dumb the manufacturers are...."

Fair enough. I concede that point. But Paul, if you're describing the water, I'm venting.

I actually commented that a few other posters had some good starting points, but it boils down to this.....PRICE. Every. Single. Time.

At some price point, be it automobiles, cell phones, flat screen TVs, toothpaste or aircraft, and item will sell in enough volume, to buy in bulk, to sell in volume, to buy more in bulk, to sell more volume.

Posted by: Robert Ore | June 30, 2014 7:54 PM    Report this comment

1. Automate

2. Subcontracting

3. Lean Six Sigma

4. Implement Standardization between models

5. Implement parts from your competitors (Can you use a 172 rocker switch? Can you buy a non- TSO version off the same assembly line?)= more parts availability once sold...

6. Enter Into Cooperative Purchase Agreements with other businesses (not necessarily aviation)

7. Reduce the number of vendors

8. Offer a 90% kit

9. More pilots-more sales, offer a PPL at a significate savings using company demo A/C and factory/production facility servicing.

10. Move to a Tax friendly/Manufacture Friendly State

11. Have an Employee Stock Option Plan

Posted by: Robert Ore | June 30, 2014 8:28 PM    Report this comment

Mr. Ore; Yes and No on the "price" issue": I have "ZIP" interest in boating or golf at ANY price - is there ANYONE here who understands FIRST you have to have an INTEREST? Oh, I'm sure if an LSA or private license were "priced" at say $500 and $1,000 respectfully, you'd have more takers than at $5 or $10K - but than what fool noble business person would subscribe to that notion?

And "volume"- YES, but not in GA - hasn't happened in 65+ years - doubt it will anytime soon!

Posted by: Rod Beck | June 30, 2014 9:03 PM    Report this comment

"is there ANYONE here who understands FIRST you have to have an INTEREST?"

I'll meet you half way; At the current price point, there is very little interest. At a certain price point, there would be more interest.. What price point would generate enough interest, thence enough volume, to sustain a healthy GA environment. Clearly, the current price point is not creating that environment.

I work in a non-flying side aviation field. My co-workers were excited when I went for my PPL. They read the books with me. We quizzed each other. We live on a peninsula and when they realized that a 4.5-5 hour drive was at most a 45 min. flight, they were hooked. Nearly all wanted to get their PPL. When I told them about LSA, even more joined in on the excitement.

When finally, the topic of cost came around (and this was before the housing meltdown) Nada. No takers. I have one co-worker who maybe might get his PPL when the kids leave the house. So, in a span of a few short months, the office went from near 100% interest, to near zero. The deciding factor? Price.

"Oh, I'm sure if an LSA or private license were "priced" at say $500 and $1,000 respectfully, you'd have more takers than at $5 or $10K - but than what fool noble business person would subscribe to that notion?"

And you have grasped the concept somewhat. At $500, you'd certainly create some interest. But a businessman who could offer that price point would not be a fool. Hardly. He or she would be a genius. A Henry Ford, Bill Gates, a Steve Jobs.

I too have somewhat the notion as yours when it comes to boating. However I know, that at SOME price point I would have SOME interest in boating. Whether my interest would be a boon to boat manufactures is as yet to be known.

"And "volume"- YES, but not in GA - hasn't happened in 65+ years - doubt it will anytime soon!"

And if the same business model of the last 65 years is used, then yes. I agree with you 100%.

Posted by: Robert Ore | June 30, 2014 11:24 PM    Report this comment

Robert, if you knew the history of what Thielert tried to do, you'd realize that this company attempted most of your 11 points. And it had one other potentially huge advantage: automotive volume in the supply chain. They were originally obtaining engines directly from Mercedes, which was making the OM648 in the hundreds of thousands for A-series sedans.

Peak production was around 600 engines a year, compared to more than twice that many *a day* for Mercedes. Obviously different scales entirely and different economies. The plant was also heavily automated and fairly low mix compared to Lycoming or Continental.

Why didn't it succeed? Many reasons, but a big driver was the investment in all that automation and physical plant was so huge it required a volume return that could never have been met, even in 2006. The engines still cost more than twice as much as conventional gasoline engines; they still do. Let's suppose Diamond had automated and had been able to produce the DA42 for half what it eventually sold for. In the world of industrial economics, that's a tall goal, but just for a thought experiment, say it could have done. So it would have sold in 2005 for $225,000 instead of $450,000.

Would that have doubled sales volume? Tripled it? Even at that, it would only improve the engine manufacturing economics marginally. I think Diamond would have found, as we are finding now, there are only so many buyers regardless of price.

Posted by: Paul Bertorelli | July 1, 2014 5:57 AM    Report this comment

Robert; NO argument on "price point" - question is, however; would it then be PROFITABLE? And to equate Henry Ford (cars) Bill Gates, Steve Jobs, and high volume product demand to GA aircraft; I suggest a little stronger cup of coffee this morning

Posted by: Rod Beck | July 1, 2014 6:53 AM    Report this comment

"Let's suppose Diamond had automated and had been able to produce the DA42 for half what it eventually sold for."

OK. Sure. Throw the engine in for free. Mount it in yet another $250k airplane, and you'll still be wondering why the aircraft won't sell at volume. At best, your target audience is 1% of the American public. Out of those 1%, how many can afford a $250k aircraft? Even if you disregard the housing collapse and the foreclosures, wages have remained stagnate for decades. And we are to believe that it's not the price that's keeping people away?

"I think Diamond would have found, as we are finding now, there are only so many buyers regardless of price."

We have found? How did we find this? Who offers a comparable aircraft to say, a 172 or RV-12, at a price point that the public, flying and non-flying, can afford just as easily as another car in the drive? A boat?

Hummmm. Let's see. This $250k airplane is not selling. Let's build another $250k airplane and see if we can get it to sell at volume. Tell you what, since it's not the price driving people away, and it won't sell at $250k, if we raised to a cool $400k, these things would fly off the shelves. Please.

Posted by: Robert Ore | July 1, 2014 9:28 PM    Report this comment

"And to equate Henry Ford (cars) Bill Gates, Steve Jobs, and high volume product demand to GA aircraft; I suggest a little stronger cup of coffee this morning"

I dunno...I drove to work today, and Mr. Ford had some part in that. Come to think of it, I saw a few folks driving in to work today. As I type this, I'm using some function of Mr. Gates Software, and as far as I know, in sheer VOLUME, Microsoft is still a market leader.

And Mr. Jobs? Yep. I have one of his phones. And for some reason strangely enough, it didn't cost me two-grand, just how did he do that? Just how did we go from a $2k cell phone in the early 90's, to a price point where just about everyone you see has one? If the cell phone manufactures stopped at a $2k cell phone, do you think just as many people would have a cell phone these days?

Posted by: Robert Ore | July 1, 2014 9:41 PM    Report this comment

If I want to listen to a Rotax engine I'll buy a snowmobile.

Posted by: Jerry Fraser | July 2, 2014 10:09 AM    Report this comment

Robert; and tomorrow morning - try 4-5 cups of java - BLACK! Have you ever heard of "need vs want"? Your demand for GA is generous at 1% - more like 1/10 of 1%. Now; what percentage of the general population has a need for: 1. Autos 2. Cell phones 3. Computers. BIG difference between consumer goods (need) and GA airplanes (want) at ANY price!

Posted by: Rod Beck | July 2, 2014 6:15 PM    Report this comment

All the bloggers on this subject have good valid -- albeit somewhat different -- takes on the problem. INTEREST. VOLUME. PRICE. The problem is that pilots are barely two tenths of one percent of the population in toto; less if you could really define those who are true and active GA pilots. The number of pilots is dropping by about 10,000 per year ... for lots of reasons. To call ourselves a niche market is an understatement. We're not even enticing enough new pilots to keep our numbers steady much less grow and become vibrant again. We'd still be a niche market.

Further defining those interested in legacy GA airplanes vs light sport is another issue. LAMA brags about how there are more than 100 LSA designs floating around ... well, how the heck can a startup LSA company hope to prosper in THAT sort of market? There are about five designs that dominate this segment and all of them are priced above what an LSA was supposed to cost (when it came online 10 years ago) and above where most folks can comfortably justify...still.

New C172's -- the workhorse design of GA designs -- are priced beyond where mere mortals can afford or justify a purchase. I would not be surprised if Cessna discontinued it at some point.

Now toss in what I call the "BS" factor. An intransigent FAA trying to micromanage every subtle nuance of aviation and unwilling to understand that IT is a major part of the problem. Their preoccupation with "safety" will ultimately result in 100% safety when the last pilot gives it up. This pilot will take this issue further ... I believe that the FAA's intentions are malevolent with respect to GA. Inaction on so many fronts speaks volumes for that independent regulatory Agency! Having Senators and Representatives writing legislation FORCING them to act reasonably also says much.

So ... what I think is that we're all rearranging the deck chairs on the Titanic ... failing to recognize that the party is over and we're just waiting for the bow to sink below the waves after the fat lady sings. As Paul said with respect to the engine segment ... he wondered why they "do it" at all. It's getting tougher and tougher to remain upbeat and positive with respect to my chosen avocation with all of the rocks being thrown in my path. And, I'm fortunate. I have an older C172 and PA28 and a nice private hangar; even I am beginning to question if what I get for what it costs me is worth it anymore. MY fun meter is pegged out. Fifty thousand will buy me a brand new C7 Corvette but would buy much less than half of a LSA. There's the problem.

Is it any wonder, then, why there is insufficient INTEREST to bring PRICES down by increasing production VOLUME of an item in an extremely small niche market whose population isn't growing and is aging? I don't.

I think I need to invent an iPhone App ... virtual flying ... because that's where all of this is headed. Unless, of course, the FAA gets off of their heinie and writes some reasonable UAV rules so I can buy a PARROTT and fly it over my neighbors back yard with a GoPro mounted on it.

Posted by: Larry Stencel | July 3, 2014 6:34 AM    Report this comment

Mr. Stencel; AND thank you! Logic, rational deductive reasoning and un-bias REALITY prevails!

Posted by: Rod Beck | July 3, 2014 11:24 AM    Report this comment

"1. Autos 2. Cell phones 3. Computers. BIG difference between consumer goods (need) and GA airplanes (want) at ANY price!"

Items 1, 2, and 3,....are also wants. (The "needs" haven't changed for thousands of years)

The 2 thousand dollar cell phone, or a PC in which the operator can only run spreadsheets just didn't quite catch on. Now, lower the price point for those items and/or add more functionality for the price point and suddenly, well in a few decades anyway, there's volume..

Posted by: Robert Ore | July 6, 2014 12:21 AM    Report this comment

"So ... what I think is that we're all rearranging the deck chairs on the Titanic "

I agree, and it's probably more than I want to get in to under the current topic.

But in a nutshell, between UAVs and the FAA, GA is on its last run..

As far as rearranging these deck chairs, the only hope I see is to get more people involved in GA. You're simply not going to get more people involved when the price points are equivalent to a new home.

Posted by: Robert Ore | July 6, 2014 12:30 AM    Report this comment

"demand for GA is generous at 1% - more like 1/10 of 1%. "

I agree, 1% may be generous but as of just a year or two ago, that's the number that was freely advertised.

And I'm sure, given the cost of entry, purchase, and owning, those numbers are lower..

Posted by: Robert Ore | July 6, 2014 12:35 AM    Report this comment

Mr. Robert Ore; Just caught this (late). Perhaps a basic need in Mazlow's day? That said, however, try telling that to Joe, Jane ,Timmy (son) and Jennifer (daughter) Consumer that a car, PC and cell phone aren't a "NEED" today! Simply, the "wants" have turned into a need - at least in my world.

ONE last thing - of course we can get MORE people in GA - Sport License for $1 and Private for $2 - (price point?) but WHO is willing and foolish to do that - AviaCare coming soon?

Posted by: Rod Beck | July 11, 2014 9:34 PM    Report this comment

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