During one of our three visits to Lycoming, we spent a couple of hours with Phil Boob, the company's chief executive. We found him disarmingly frank in discussing a variety of issues from competition to Cessna's chances. Boob has been at Lycoming since 1985, having spent 17 years in sales at Piper Aircraft before that. He worked in sales and marketing before being appointed CEO in 1986.
November 9, 1995
comments are in red.
Why would a sane and profitable multi-national conglomerate
like Textron want to mess around with engines for little airplanes?
Because as long as we return to the shareholder the profits they
expect, we'll be in the engine business. And we have been able
to do that. If it gets to the point that an investor could say
"Textron, the reason I don't own your stock is that you've
got too many of these divisions that aren't returning a profit,"
Textron would look at it differently.
That's different than saying if they didn't own it already would
they go out and invest in it. In that case, you might look at
the shrinking market and the liability costs and say, gee, I don't
know if I could get into this or not.
Even so, our engine business is good. We're measured by Textron
as a stand-alone business. And I can tell you that as a stand-alone
business, there's no problem with this division.
Still, it's obvious from our tour that the factory is a shadow
of its former self. Do you see any way to eke some growth out
of a market that's declining at a percent or more a year?
Our business is not declining. Our business in total and our dollars
in total have been stable and in fact, slightly better this year
than last, even not counting our windfall from Chevron. Our real
growth opportunity is in the aftermarket business, in parts and
in overall engines. We did $20 million in that segment last year
and we only have about a third of the market.
That includes overhaul, parts and entire engines?
Yes. We're 30 percent of the overhaul market now and obviously
100 percent of the new engines for replacement, because you can't
get them anywhere else.: In parts, we've got the competition from
the PMA guys. But the real growth opportunity is in the overhaul
business and if you get that, you automatically get the spares,
too. More parts go into overhauls than into repairs.
That was our whole thrust on the cylinder-kit program. We finally
recognized that for years, we were trying to sell a cylinder,
what we call a stud assembly, which was just the cylinder. We
wouldn't sell the rest of the stuff to go along with it. Then
we had the PMA guys; coming in with their valves and rings and
pistons and so forth. We realized they were just going to keep
picking away at our business.
So we just said, what would the price to the consumer be if he
bought a cylinder from us and went to Superior and bought all
the valves and rings and so on? What would it cost? We got that
number and decided we had to sell our cylinder kit at X dollars.
We had been selling about a thousand stud assemblies a year. We
put this program into place and we haven't sold less than a thousand
a month since we started.
You haven't mentioned Continental as a competitor. Do you consider
No. You have to remember that 75 percent of our business is aftermarket
and the parts aren't interchangeable with Continental engines.
When I look at the OEMs (original equipment manufacturer) we have
a list of 40 customers all over the world. None of them are big,
so we'll sell 50 engines here and 50 engines there.
I give my predecessors the credit for this. Back in the 1970s,
when Continental didn't want you as a customer unless you'd buy
thousands of engines, Lycoming took a different approach, particularly
in the international market. I think we're benefiting from that
Other than new OEM, it's difficult to make financial sense out
of changing from one manufacturer's engine to another, unless
you're having significant product problems or customer acceptance
problems. Say you want to put a Continental engine in a Saratoga.
You're looking at in excess of a million-and-a-half dollars to
do that. Why would you do it? How much better do these things
have to be before the consumer is willing to pay the additional
Are Cessna's plans to make 2000 airplanes a year by 1997 or
No, I don't see it as sustainable. At the outside, probably half
of the two thousand.
Can they be profitable at that volume?
Cessna has run the economics on this thing. Somebody had to make
a decision to go back into business. So I can only assume that
either they believe they know how to make the 2000 work and the
economics are driven on that, or, they've got to factor down to
some level and still have it make sense.
You're not a proponent of the pent-up demand theory, then?
Well, one of the reasons I flinch so much on that is because it's
not Like you can't today go buy a new airplane comparable to the
new 172 for a comparable amount of money. Now if you said they
figured out some magic way to come to the market with a $70,000
Cessna 172, I'd change my answer real quick. They haven't done
I think some people are saying that i n the entire world today,
it's impossible that you couldn't sell an additional 2000 airplanes.
I remember sitting with Tom Gillespie at Piper towards the final
days of the Cheyenne program when he challenged the whole sales
force sitting around the table and said, " Are you guys telling
me, that in the whole damn world we couldn't sell one Cheyenne
in the last three months?" And the answer was "you bet."
When I sit back and look at the fact that you can go buy new airplanes
today and I consider that the prices aren't going to be that much
different and I look at the lack of student starts, I get a knot
in my stomach.
But I hope Cessna is right. I hope I'm so wrong that they rub
my nose in it forever. Put money in the bank and they can rub
my nose in anything they want to.
You mentioned student starts and the lack of new pilots. What
do you think of the AOPA Mentor Program and EAA's Young Eagles.
Don't these generate interest and demand among young people?
Certainly those are excellent programs. But I don't know how to
measure their success and I don't think anybody else knows what
the impact of programs like these could be. But it's the right
kind of thing to do. If they don't work, then I don't know. I
don't care if you're selling automobiles, furniture, houses, airplanes
or cars, if you can't get the younger people interested, you don't
have an industry.
Do you think the lack of interest in flying or ownership is
cost driven or is it some other factor?
It's maybe not so much cost as much as the hassle with the activity.
Meaning that if you wake up tomorrow morning and look out the
bedroom window and it's a foggy day, before you can back your
car out to go to work, you gotta get on the phone, check the weather,
file a flight plans get a clearance, go whatever direction or
whatever route somebody tells you to as opposed to the route that
you'd really like to go.
When you start thinking about cost you gotta say, look, how many
Lexus's were sold last year, how many Cadillacs, how many yachts,
how many skiing packages? People are spending money.
Use the yacht and the airplane as a comparison. I don't need to
know a damn thing about a yacht to impress you with it. All I
need to do is buy it, tie it up to the dock, take you down and
throw my cocktail party on Saturday night and I've impressed all
my friends. Now, it's not very impressive to buy an airplane and
go down and sit in it Friday night and have drinks. Somebody has
to know how to use that airplane-I didn't say how to fly it, I
said how to use it-because it's not very impressive sitting on
I'm inclined to believe that what's missing is disposable time
as opposed to disposable income.
At Oshkosh this year, there seemed to be a general euphoric
feeling that the industry is on the comeback. Some people argue
that the statute of repose is responsible for this. What's Lycoming's
I think that's an exaggeration. I think it's just a piece of the
solution that may eventually revitalize the industry.
Then it really won't make the difference some people think
No, it'll make a difference. And it will be a financial benefit,
but it'll be several years before that manifests itself . We basically
didn't see any change in our costs in 1995 as a result of that.
But the engine manufacturers and the component manufacturers are
going to be the ones to see the direct benefit last.
The airframe manufacturers should see it earlier. On the engine
side of it, there's constant replacement going on. How many engines
are 18 years old that don't have some parts replaced? And a good
trial lawyer is just going to zero right in on those replaced
We've already had it happen to us. You may win the suit, but you
spend about the same amount for defense costs to win as to lose.
Our average defense cost, by the way, is $300,000 per suit, win
or lose. At any given time we've got about 175 suits working.
Given what appears to be fierce competition from engine shops,
your avowed promise to improve efficiency and perhaps with a declining
cost for product liability, is it realistic to expect engine prices
to actually decrease?
I can say almost with certainty what we're doing here will cause
the price to not increase at the rate that it has over the last
And probably it's going to allow us to make increases below the
inflation rate. For the last 10 years or so, it's been just the
opposite. Now, if somebody says when you're done with this, you're
gonna take that $16,000 engine and be able to sell it for $14,000,
I don't know yet.
But if I can do that and at the same time increase the overall
business and make a profit that makes sense, I will.