Thielert: How To Kill A Company (Maybe Two)

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Owners of more than 800 diesel-powered Diamond aircraft are collectively holding their breath to find out how-or even if-their expensive engines will be supported following the disastrous financial meltdown and bankruptcy of Thielert last month. One question gnawing at these owners and owners of Cessnas and Pipers converted to Thielert diesels is whether the engine is technically and financially viable.That answer came swiftly and certainly this week from the legal firm overseeing the Thielert insolvency: The engine doesn’t have a prayer of surviving in the market and is effectively flat lined. Kuebler-the bankruptcy company-didn’t say this in plain language, of course, but following a surprisingly quick audit of the company, it published a list of parts and replacement prices that are so absurdly high as to make the engine unsustainable. Given Kuebler’s proposed economics, it would almost be cheaper to operate a Lycoming by having the avgas shipped in via FedEx to those parts of the world where only Jet A is available.To appreciate Kuebler’s off-the-mark grasp of the potential market, you need to understand Thielert’s original business model, which is itself still unproven but appeared to be at least affordable. Approaching diesel technology cautiously, Thielert’s cost structure was based on a 1000-hour TBR or time between replacement. But the engine and parts prices were-somewhat confusingly to everyone involved-pro-rated on a 2400-hour model. During the 1000-hour run, several key and expensive components had to be inspected and/or replaced at intervals, including the gear reduction box, the clutch, high pressure feed pump and the alternator. The gear box, for instance, was a 300-hour inspect/replace item, but the cost of doing this maintenance was built into the warranty structure. That means that when a Diamond DA42 owner came up on the 300-hour requirement, it was already built into the purchase price. The owner suffered downtime, but the majority of the costs were theoretically covered.Now comes Kuebler to revise the rules in such a way as to leave owners not just in the cold, but with virtually no financial support of any kind. We’re told that as of mid-May, a Thielert 2.0 diesel still costs about 33,000 Euros or just over $52,000. That sounds like a huge sum and it is– twice the cost of a Lycoming overhaul for equivalent horsepower. But the diesel’s fuel specifics are favorable enough to offset the higher cost over an avgas engine on a lifecycle basis. Or at least they used to be.Now, Thielert no longer warrants the engines or parts. When you come up on the 300-hour gearbox requirement, they’ll sell you a new one at $16,000 or an inspected one for $7800-if you wire the money to Germany upfront and arrange for your own shipping. On your Maalox-powered run to the 1000-hour TBR, you get to do that three times, plus the cost of the pumps, alternator, shipping and who knows what else. If you go to 2400 hours on the new 2.0 engine, do it seven times. The gearboxes alone have the potential of more than doubling the cost of the engine to nearly $100 an hour-and that’s before you buy fuel. What this means, in my view, is that Thielert’s management needed help in killing the company for good, Kuebler seems to be providing it. The part about no warranty support for anything is especially galling to owners.”Does this mean that if I buy a $16,000 gearbox that’s no good, my only recourse is to buy another one?” one angry owner asked me this week. It evidently means exactly that, which is why Diamond, in a bulletin to owners, accused the bankruptcy firm of being more interested in short term cash flow than long term survival of Thielert and making its customers reasonably whole.The economic impact of this, if it continues, will be widespread, stunning and terminal, in my view. First, the basic numbers are simply untenable. Thielert’s Centurion 1.7 engine is maintenance hungry when everything is going right. With Thielert’s bankruptcy, the pro-ration dissolved so now owners are on their own for support.The bankruptcy overseer may assume the high prices will fly because a captive market means no one else can provide the parts and engines. Thielert, unfortunately, retains an iron-grip on the type certificates and there is thus far no aftermarket parts manufacturing authority, as there is with Lycoming and Continental. Kuebler seems to assume that this means owners will pay anything to keep their airplanes flying. In this, the bankruptcy administrator may be proven disastrously wrong. Owners probably won’t pay these prices because they are profoundly uneconomic.”I’m not paying another dollar,” says Stan Fetter, who operates a pair of Thielert-converted Cessna 172s in Maryland. He’s coming up on a timed out engine on one of the Skyhawks and a gearbox replacement on another. Like other owners, Fetter says the bankruptcy administrator is mistaken if it assumes owners will wire money to Germany to pay for parts upfront that are then not warranted. Some owners might, out of desperation, but probably not enough to turn Thielert around.What they will do-and one told us he intends to do just this-is seek legal remedies. Since Thielert is insolvent, the most likely target will be Diamond Aircraft and its distributors, which sold the diesel-equipped airplanes in the first place. But this promises to be a blind alley with a high price tag, since aircraft sales contracts specifically assign warranty support for engines and avionics to the manufacturers. Yes, we all know it doesn’t work that way with cars, but airplane sales exist in their own little cu de sac in the village of the damned and in the euphoria of buying a new airplane, owners often overlook this.What’s puzzling is why Kuebler is pursuing a strategy which is almost certain to quench the very sales they need to bring the company back from the dead. Presumably, Kuebler profits if the company recovers or if new investment Euros are found. Or does Kuebler think liquidation is the best strategy? If so, they seem to be on the fast track to get there. (And by the way, I asked-e-mails and phone calls to Kuebler weren’t answered.)And captive market or not, Kuebler doesn’t have forever to sort this out. Driving up aggressively from the rear is Diamond principal Christian Dries and the Austro engine project, which is now in full swing. Austro plans to offer certified engines based on technology related to the same Mercedes-Benz engines Thielert used. Approval in the European market is planned for this summer. Austro now has new urgency to move this project forward at the fastest possible pace.The longer Thielert/Kuebler dither around with this absurd price structure, the more erosion it will suffer on its installed base, if the base even represents a large enough market to be worth resurrecting given Austro overhanging the largest share-the 800-plus Diamond airframes already out there. Cessna represents an unknown here, but I don’t think it can be counted on to represent long-term steady sales for Thielert, at least at Kuebler’s fantasy prices. Who wants to own a 172 with no engine warranty and the requirement for a $100-an-hour engine reserve? (For an equivalent Lycoming, $12 is generous.)Besides, if the Austro engines are more powerful, have better fuel specifics and affordable prices, as Diamond thinks they might, the Thielert engines will look like also rans. In some ways, Cessna dodged the bullet here. Its diesel project was immature enough to represent little exposure, so it’s throttled back and announced no deliveries this year. (Not that it had a choice, in my opinion.)What should owners do? Realistically, all they can do is sit tight and see what develops. Legal action against Diamond is an option, but it will be slow going, expensive and won’t get engines and parts flowing any faster. Diamond has already been rebuffed by Kuebler after it offered to buy a large stock of engines and parts upfront to support owners-just what the struggling Thielert really needs to get back to solvency, you’d think.”This is just the first inning of a very long ballgame,” Fred Ahles, owner of Premier Aircraft, told me earlier this week. Ahles is a Diamond dealer, but with years in the industry, he has been through Piper’s bankruptcy, Cessna’s retraction and the Lycoming crankshaft fiasco. He believes the Thielert diesel crisis will also be sorted out, but not quickly. With so many high-priced airframes out there, there’s too much value to simply walk away from.And although owners might wish to do exactly that, the best strategy is to simply wait it out. We expect more developments next week at the Berlin Airshow.