MARKET & LIABILITY ANALYSIS
The Current Market
There is universal agreement among the participants in the aviation industry that there is a pent-up demand for quality, well-performing single-engine aircraft at a reasonable price. Current factory produced aircraft are expensive, and sales hit an all-time low in 1994. The sales of kit aircraft have reached an all-time high. Nevertheless, we believe that few of the potential customers with $295,000 to spend have the time or inclination to consume four to seven thousand hours building a kit plane. The general consensus in the industry is that two factors have caused this sales decline and pent-up demand for good certified aircraft: FAA over-regulation and Product Liability issues.
The FAA has added layer upon layer to the certification requirements contained in FAR Part 23. This was done because of the increase in complexity and performance through the years brought about by turbine powered aircraft. Unfortunately, these same regulations also apply to both entry level and high performance piston aircraft such as the Meyers 200D. In recent years the FAA has relaxed some of the certification criteria for very basic, entry level training aircraft. These relaxed rules do not apply to an aircraft in the Meyers 200Ds category. Due to these complex requirements, there has not been a new type certification in the U.S. of a practical, high performance, retractable gear, piston aircraft in many years. It is estimated that to certify a high performance light aircraft (similar to the Meyers 200D) and get it into production would cost over twenty million dollars. (For a detailed cost analysis utilizing the DAPCA IV model, Click Here.) To amortize this initial certification expense and provide a reasonable return on investment, the retail price would be far too high for the marketplace. Over-regulation has basically stifled aircraft development by making it impossible to get a reasonable return on investment.
The Liability Situation
It is often said that the product liability situation has caused the large aircraft companies to minimize the production of piston aircraft. Cessna quit building single-engine aircraft ten years ago. They are now building a few models again due to a highly publicized promise made by Russ Meyer (Cessna CEO) to Senator Kassenbaum who pushed through the liability Statute of Repose legislation. Interestingly, Cessnas prices are not lower in spite of this statute as originally expected. Years ago, Piper was forced into bankruptcy by litigation and has only recently recovered, building a few select models which are exorbitantly priced. Raytheon (Beechcraft) is self-insured but it has raised prices for piston aircraft to the point of absurdity. It is clear that the large players in the industry simply cannot afford the exposure on single-engine aircraft and have chosen to concentrate on building the multi-million dollar jets and turboprops. These aircraft cost enough to dwarf the charges for product liability insurance and can be sold at prices high enough to cover the costs and overhead of these very large companies.
While product liability is a concern and there have been some large awards, Management feels strongly that the decision to stop single engine production was a marketing decision, not solely a liability decision as reported in the Press. The product liability exposure of the large manufacturers really remains the same regardless of the size of the aircraft. Product liability insurance is sold based on a percentage of gross sales, not a fixed price per unit. If the premium is 3% for instance, it is 3% of a Citation X and 3% of a 172. What really is the difference? Cessna still has 100,000 aircraft currently in use, thus additional aircraft do not add significantly to the overall exposure. In fact, new aircraft create a lower exposure when compared to the older ones which have gone through many annual inspections and which have been modified many times. Piper probably declared bankruptcy because it did not have a strong selling turboprop and no jets to sell. It was not selling the Cherokee in volume because of its slow speed. The Malibu was selling well for a time because of its prestige and performance, but when the FAA decided to ground the entire fleet after several structural failures, sales plummeted.
Overhead Out of Control
Management believes that the real reason for cessation of production is that the large companies have let their overhead structures get out of control. They are not physically capable of producing aircraft in the smaller quantities dictated by today's market conditions. These giants must produce aircraft in such large volumes to keep their per unit overhead and other fixed costs down that they can not remain profitable with production of only a few aircraft. Thus, they have concentrated their production on the larger, more expensive aircraft, where the initial price of the product is not such an issue.
In our opinion, if Cessna does not appreciably increase its liability exposure with a brand new design, light aircraft, and it could produce them at a profit, it would be doing so. Cessna publicly stated that they would restart single engine production if a liability statute of repose legislation was passed by Congress. Cessna has kept their word, and they are delivering "new" light single-engine aircraft. (There are already ADs issued against this "new" 172). The 172's, 182's and 206's which they plan to produce are still dated designs. The real question is whether the market will pay over $150,000 for an equipped "new" 172 which is almost exactly like a 172 produced 10 years ago and in what quantity. The real issue is price versus performance.
Piper is building a limited number of aircraft after emerging from bankruptcy. Here, too, the problem is that the Cherokee line is too expensive compared to its performance. Piper is trying to address this problem and has recently "souped up" a Saratoga. However, as stated below, this is a minor change to an existing design which is still very slow. The new Saratoga with standard equipment is priced at $400,000 (compared to a Meyers 200D at $295,000). The Saratoga has a useful load of 1239 pounds compared to the Meyers 200D's 1212 pounds after the gross weight increase. The Meyers 200D has four seats whereas the Saratoga has six but the Saratoga burns more fuel and when the six seats are occupied, the Saratoga has a very limited range. The Meyers 200D cruises at 200 knots and the Saratoga at only 162 knots. And the Meyers 200D has air conditioning as standard equipment. Therefore, the Saratoga is just too expensive for its performance as can be easily seen from these comparisons.
They Cannot Afford New Designs
In reality, Cessna, Raytheon (Beechcraft) and Piper face the same situation in the single engine piston plane market as the other would be manufacturers. These are:
A. The present market will not pay high dollars for slow, mediocre performing aircraft in any great quantity. NASA knows this and it is the primary reason for their AGATE program.
B. They are stuck with making only minor modifications to their existing designs because of the above-mentioned increased FAA regulations
C. With present market conditions they cannot afford to sink tens of million of dollars into a new design because it would require a new TC.
Purchasers have stayed in the used market or they have turned to the kit-built alternative (which is not affected by the high cost of certification or product liability). The only way to entice purchasers to buy new certified aircraft is to give them additional value for their dollars over and above what they can get in used aircraft or kit-built aircraft. Management feels the Meyers 200D does just that.
Return to History - DAPCA IV
Paul M. Whetstone, President
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