Thielert's Flawed Economics (And Why the Company Knows It)

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The war of words between Diamond Aircraft and Thielert Aircraft Engines continued this week, reaching a low arc at the Berlin Air Show. Bruno Kubler, who heads the firm overseeing Thielert's insolvency, used the forum to blast Diamond for what Kubler claimed was a disinformation campaign aimed at making Diamond customers "massively insecure." Why Diamond would want to do this is baffling, since it has on its hands some 800 distressed owners of airplanes equipped with Thielert diesel engines.

Diamond is engaging in a degree of brinksmanship, but given what appears to be Thielert's disastrous economics, who can blame them? The usual strategy in situations like this is for the companies involved to play footsy behind the scenes to work out a deal acceptable to all of the distressed parties. Unfortunately, Kubler's numbers appear to be so far off the mark that I don't see how this is possible.

This week, I took some time to put a sharp pencil on how Kubler's prices will reshape the economics of the Thielert Centurion line. I developed this data on my own from the Kubler-derived prices and my totals don't precisely agree with Diamond's, which it released in Wednesday. But my research does confirm that Kubler's prices raise the engine operating cost about six fold.

Further, the new prices raise the direct costs of operating the diesels to four or five times that of a gasoline engine. In fact, minus the fuel, Thielert diesel costs outstrip those of operating a turbine engine, such as Pratt & Whitney's PT6 or even a small jet engine. Why? Thielert still requires 300-hour removal and inspection of gearboxes, plus numerous other expensive parts. Furthermore, all these components have to be shipped back and forth to Germany for service and inspection. Shipping alone comes about $600 per inspection event.

This onerous maintenance load was one complaint owners had about the Thielert 1.7 Centurion. Thielert responded to this with the new-and-improved Centurion 2.0, which would double the gearbox inspection interval to 600 hours and increase the engine's time between replacement (TBR) to 2400 hours. But Diamond and owners complain that the documentation doesn't support this and they're still required to do the 300-hour gearbox removals. This is roughly the equivalent of yanking the transmission out of your car every 3000 miles and sending it back to the factory. Moreover, if the 2.0 really is a 2400-hour engine—and no one seems to know if it is or it isn't—the entire thing has to be shipped back to the factory for inspection at 1200 hours, costing $4000 in shipping alone. One flight school with three Twin Stars told me that it's probably more sensible to just replace the engine at 1200 hours rather than shipping it back to Germany.

As the late Everitt Dirksen famously said, you're talking about real money here. When you add everything up, Kubler's numbers just don't make sense. The rational way to examine this—if there's anything rational about any of this—is to compare the lifecycle costs of a Thielert 2.0 against a Lycoming at time of replacement. The numbers follow here. One point: On many Thielert parts, owners have the choice of new or inspected, which is basically a used component within service limits. The parts listed below aren't elective replacement—you have to replace them to keep the engine serviceable.

Cost of replacement engine: $51,150 Inspected gearboxes (3): $23,500 ($47,118 new) Shipping: $1800 High pressure pump: $1412 ($5550 new) Rail valve: $651 Feed pumps (3) $1255 Clutch (3) $1443 Clutch shaft (3) $1200 Alternator: $1426 ($2985 new) Scheduled labor $1800 Unscheduled labor $5000 Total: $90,637 Hourly engine (1200 basis): $75.53 Total hourly with fuel: $101.03

For unscheduled labor, I used 10 percent of the cost of the engine, based on owner surveys we've conducted. These numbers, by the way, represent the absolute best case and assume that no additional parts other than those scheduled will be required. Further, owners complain that the labor for gearbox changes is higher than Thielert said it would be, but I've used the lower number anyway to give Thielert the benefit of the doubt. But these numbers are almost certainly too low.

If new parts rather than inspected parts are used, the total comes to $119,952 or $99.96 for the hourly engine reserve or, when you add in fuel, $125.46. Oh, and double that for a DA42 Twin Star. This total may be sustainable in Europe and the U.K.—although I doubt it—but it's a non-starter in the U.S. But remember, the Centurion diesel is a world engine, not a U.S. engine.

Here's how a Lycoming IO-360 compares. It's apples to apples, because this is the engine Diamond uses in its DA40 Star, which also has a diesel option.

Lycoming IO-360 REM

Cost of replacement engine: $25,160 Top overhaul at mid-time: $8000 Unscheduled maintenance: $5000 Total: $38,160 Hourly engine (2000 hours basis) $19.08 Total hourly with fuel: $59.58

For the Lycoming comparison, I added a top overhaul that this engine is unlikely to need and I used unscheduled maintenance of 20 percent of engine cost, twice what I used for Thielert. Even with this lopsided comparison in favor of the Thielert, the Lycoming's costs are a little more than half of the Thielert's. They begin to break even at an avgas cost of around $9 a gallon. But, of course, if avgas costs that much, so does Jet A, so they never break even.

In some ways, the better comparison is between the Thielert Centurion and the Pratt & Whitney PT6, say the dash 114A used in the Caravan. It's a 675-HP free turbine engine with a 3500-hour TBO and overhaul costs in the $85,000 to $130,000 range. The Aircraft Bluebook Digest recommends a $37.14 per hour set aside for the PT6, or half what it takes to the fund the Thielert Centurion and without the onerous 300-hour inspections.

How could the industry have missed such breathtakingly screwed up economics? The companies involved missed it—Diamond and lately Cessna—missed it and we in the press (including me) absolutely glossed it over. In 2005, I visited Thielert's factory in Lichtenstein, in the former East Germany, and we went over the economics of this engine. I never got a clear explanation of how the power-per-hour pro-ration based on a 2400-hour engine was going to work. It seemed too expensive. How was Thielert going to make a go of it long term with all those built-in service costs? Persistent dumb ass questions led me to understand that the initial engine was a loss leader funded by investors who thought the model would turn the corner with sufficient volume and, once the engine had proved itself, the inspections would go away and TBO would increase.

They haven't. And that's what's killing this engine, more than anything else. Shipping perfectly good gearboxes back and forth to Germany is lunacy, as is removing them from the engines every 300 hours. Owners I've interviewed have told me there are problems with clutches, but the gearboxes themselves have proved durable. There's good evidence that this is true, because Thielert offers an "inspected" gearbox for half the price of a new one. But half price is still $7800, plus shipping, and you need to do that three times to get to the Centurion's tender 1200-hour TBO. Seventy-eight hundred bucks to inspect a gearbox? It's an aluminum case, some bearings and a couple of gears. How can that require $7800?

In my view, the inspections were probably built into the model not just as a prudent and admirable step toward proving durability, but also as a profit center to fund the rest of this engine's expensive recurrent maintenance needs. Logically, there's nothing wrong with that concept, as long as going forward, the customer benefits from the proven reliability and cost decrease.

Oddly, both Thielert and Kubler seem to be aware of this, but maintain that Germany's bankruptcy laws force them to run the company on a basis that shows no loss. This morning, Thielert spokesperson Christoph Moller e-mailed me this note:

"At the moment, due to German insolvency law, Mr. Kubler cannot produce any losses and must ask Thielert's clients for prices which meet the company's current expenses. We know, of course, that the new prices for replacement and inspection of parts are a burden for many of our and Diamond's clients. As you know, Mr. Kubler's aim is to find a long-term investor who will provide significant investments in order to push forward the Thielert engine technology which in fact is the future of the aircraft engine industry. To ensure long-lasting relations to his clients this investor will presumably establish a sustainable warranty and guarantee scheme which will improve the current situation significantly. There is a great possibility that this will include considerable efforts to advance Thielert engines especially in terms of prolonging the engines lifetime which in fact is not where it should be at the moment. This will reduce the inspection times and, by this, the costs for owners considerably then."

I take Moller's point, but it's difficult to see how this will make the business viable. In essence, the message to customers is this: pay us five to seven times what you expected to pay and, if we show no losses, we can turn this thing around and you'll maybe pay less later...if you don't mind buying expensive engines without warranties. To me, this looks like a negative feedback loop. The more you input rising prices, the less revenue you generate and the more you have to raise prices until a single customer pays $4 million for a gearbox and clutch. (Warranty extra.)

And if Thielert hopes to find investors to fund a business running on these rules, they'll need nerves of steel and be willing to pour in a pile of money for several years just to gain of glimpse whether it can be profitable. It seems unlikely that customers will stand by and fund what I view as a fiasco, nor should they be expected to. Thielert and Kubler can blame German bankruptcy laws if they wish, but the current strategy seems to serve no one—not creditors, not customers and not the industry.

On the other hand, maybe those of us who think that a Twin Star owner will balk at paying $180,000 to take a pair of diesel engines to 1200 hours are the delusional ones. Kubler tells us owners are "relieved" to know that parts are once again flowing. For some twisted reason, this reminds me of the old Woody Allen joke about the brother thinking he's a chicken. "Why don't you call him on that?" asks the shrink. "I would," says the straight man, "but I need the eggs."

Maybe those 1200 or so Centurion owners need the eggs, too.

Comments (27)

In my opinion, Thielert and Diamond, like many companies, expected its customers to do the flight and reliability testing they should have done before selling the product. Moral: "Do not buy a product, be it a computer operating system or a new aircraft engine, until the first users thouorghly test it."

Posted by: Davis Newman | June 2, 2008 2:22 AM    Report this comment

Agree Davis.
The old adage used to be: 'don't fly the "A" model of anything', but it should be: 'don't buy the "A" model of anything'!

Posted by: Darren Edwards | June 2, 2008 4:48 AM    Report this comment

I can't seem to find anything about how all this affects Superior. Along with more cylinder recalls, it makes me hesitate about ordering a new experimental engine for my RV-7.

Posted by: Don Brown | June 2, 2008 6:03 AM    Report this comment

Well, my take will be unpopular for sure, but anyone stupid enuff to pay those prices and meet those conditions for a relitivly unproven engine deserves to suffer.

Posted by: Charles Heathco | June 2, 2008 6:44 AM    Report this comment

I think you hit the nail on the head, Paul. The bankruptcy administrator is relying on a captive market to take whatever engines and components he has in stock (i.e. Diamond owners), and the company will manufacture - if it continues to manufacture - based on the demand of those captive customers. At the current prices.

Your analysis of the running costs does leave me wondering how/why people ended up buying this engine. Were the costs of ownership presented by Thielert and/or Diamond misleading? Did people buy based on a headline $ cost per hour, rather than looking at the real running costs? Maybe some Diamond owners could reply...

Posted by: Ceri Reid | June 2, 2008 7:13 AM    Report this comment

It is unfortunate, The Theilart had significant potential, still does. Theilert aside, Diamond need to take care of its own. Contract with Lycoming or Continental and get deal worked out to replace them with a 200hp turbo engine.

Posted by: Jason Gedert | June 2, 2008 7:26 AM    Report this comment

How about developing an estimate of the cost to convert these aircraft to Lycoming power. To continue with an engine "developed" by people with more hope than sense and which is now under the control of people with at best a tenuous grip on reality is a really bad plan!

Posted by: PHIL DERUITER | June 2, 2008 8:10 AM    Report this comment

With regard to what Diamond knew and what Thielert knew about costs when the DA42 was introduced, only they know for sure. Whe I questioned Thielert about the numbers on the engine, they more or less conceded that it would lose money until the TBO was extended and the inspections relaxed. Without knowing their internal costs, that's hard to confirm, but it made sense at the time. The Lycoming conversion is doable, but might not make sense with Austro in the wings.

Posted by: Paul Bertorelli | June 2, 2008 8:35 AM    Report this comment

Both Lycoming and Continental received NASA grants to develope a GA diesal engine. THIS WAS ABOUT 10 YEARS AGO where are thay? This was tax payer money.

Posted by: Arthur Hunsucker | June 2, 2008 9:19 AM    Report this comment

When is the oft-rumored Honda diesel coming? Honda knows how to build an engine better then anyone on the planet.

Posted by: Don Mei | June 2, 2008 12:25 PM    Report this comment

Paul - nice job running through the numbers. As a DA42 owner, I can assert that the level of frustration with Diamond and Thielert are at all time highs - and that's saying something. It's clear to us that both enterprises have struggled since the 1st delivery of the DA42 in terms of overall customer support. It was survivable in the early days, but as aircraft deliveries ramped - it stressed both partners in my opinion. Am sure there are several AP's and flight center operators who have their perspectives as well. Unfortunately, when the engines are purring, and sipping fuel, they are sweet! If Thielert gets through restructuring, they need to deliver improved service levels in order to restore faith and thus the business. Diamond is in the same boat even if they switch powerplants. From an owner's perspective - it is critical that Diamond - if pursuing Austro is the solution - take large measures to handle all the existing customers and the AOG. This is likely to be the best "brand recovery strategy" for the dollar. Until then - I'm going to church twice weekly and praying for a speedy resolution :)

Posted by: Jeff McElfresh | June 4, 2008 12:26 AM    Report this comment

Is the Austro Engine going to have the same problems with TBO and gearbox inspection?. Once bad publicity about running costs of diesels is out it could put the cause of a necessary new technology back a few years. The SMA seems a much more suitably engineered product, doing without a gearbox and more designed ground up as an aircraft engine.

Posted by: Dave A | June 4, 2008 2:18 AM    Report this comment

I can not understand how an operator who paid for a 2400 hours part,pays again the price for its replacement, according to the manufacturer's request,after 300 hours in the LTEP pro-rata warranty.
I request this policy should change soon,as this is unfair and payment duplication and triplication which is not accepted.

Posted by: ABDELATI KABEEL | June 4, 2008 2:39 AM    Report this comment

@Dave A,

the Austro Engine AE300 gearbox is a different design from a different company than Thielert (i.e. it uses a torsion damper instead of a clutch) and is specified with a 1800h TBO.

Posted by: Guenter Mannsberger | June 4, 2008 3:32 AM    Report this comment

Thielert will be succeeded by Austro, a company which is "related" to Diamond Aircraft. They use the same Daimler engine to convert into an aircraft engine, except, they do the engine mounting cast iron, instead of aluminum — means 18 kg more weight, yet many advantages, especially in regards of reliability. They apparently learned a lot from the partnership with Thielert, e. g. they put the turbocharger on top of the engine, instead of underneath. This way they do not need an extra pump, to suck oil from the turbocharger, the new gearbox, mentioned in other comments, now will have a TBO of 2500 hours, etc., etc.

Posted by: Jan Boie | June 4, 2008 3:47 AM    Report this comment

It's not as if the aviation community needed this. How the faulty logic in the business model could have been hidden for so long by so few is just astonishing.

Posted by: Nico van Niekerk | June 4, 2008 7:39 AM    Report this comment

What the piston engine industry needs is the same as the turbine power industry has had for years: No, not reliability (well, OK, that, too), but a flat-rate power-by-the-hour warranty figure that includes all parts, labor, inspeection and overhaul costs. We need predictability, even if it costs more. This is especially true for commercial operators. Sadly, by the time we get this, the lightplane GA industry will be pretty much dead.

How did Cessna miss these economics when it announced the 172TD? I bet Cirrus is feeling pretty good about not adopting the Centurion 4.0 into the SR22.

Posted by: Marc Coan | June 4, 2008 8:02 AM    Report this comment

Has anyone explored a class action suit against Diamond as well as the individual Dealership that sold this aircraft with a junk engine? I asked to cancel my Demo purchase in writing before taking delivery documenting the Thielert Engine Flaws, but this request was ignored and am now AOG with a blown enigne with less than 450 hours. Does anyone know a tenacious aviation liability attorney?

Posted by: DAVID AKEL | June 4, 2008 8:42 AM    Report this comment

What about the SMA Diesel in the C-182 operating costs?

Are they as much as the Thielert?

Posted by: Patrick Puckett | June 13, 2008 4:28 PM    Report this comment

David Akel,

Try Mark Fava at Nelson-Mullins: 843.534.4256

Posted by: Todd House | June 13, 2008 4:42 PM    Report this comment

Iam trying the web site of TODD House Founder to go to the owners group with no success.what is the correct way?

Posted by: ABDELATI KABEEL | June 14, 2008 3:00 AM    Report this comment

THANK YOU MARC,it was .org

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