How do the small mfgrs survive?

dukeblue219

dukeblue219

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So, the Diamond layoffs got me thinking about something that has always intrigued me about the economics of aircraft manufacturing. We've seen in the last years that the "big guys" are struggling with piston aircraft. Look at Mooney, Beech, Columbia, and even Cessna. But every time I open a magazine, there's a new LSA design out there, many with (seemingly) advanced composite airframes. So, the question is: What are these companies doing right?

Is it that LSA certification is so much easier? Even setting that aside, how do they stay in business selling what I'm guessing are dozens of planes a year at 130k a piece? I'm thinking about companies like Remos, Tecnam, Flight Design, Evektor, CZAW, Pipistrel etc. but there are others that are even smaller. I would have guessed there was a lot of design work involved in a new prototype airplane, and a fairly complex and expensive manufacturing process requiring a lot of employees to put together the airframe, but maybe I'm mistaken.

Anybody have a sense of what it takes to design a new LSA-sized airframe and then manufacture and assemble the components from scratch? I'm surprised it's profitable given the number of competitors in the market and very limited demand.
 
I toured the Cirrus plant a while back - probably 12-13 years ago - and now that I think about it, there were an amazingly few workers in the factory itself. Every production cell was filled with an assembly-in-progress, but there weren't a ton of people stirring around relative to what you would expect for their volume of production.

I would assume that composite manufacturing requires a higher level of skill in the labor force, but a lower volume of labor overall. The bad thing about big companies is that *sometimes* they are so big that they can't get out of their own way. With a new startup company, they don't have the overhead carrying over from years past.

Just thinking aloud...
 
I'd say a lot of the smaller companies survive because they don't have billions in debt servicing and their more agile. They also stick to their roots. Had Diamond stuck with private GA and built a purpose built LSA that maybe could have competed for some of those NASA dollars, they may very well be building aircraft today. Instead, they pretty much abandoned their roots and went for broke.. and they lost. I'm just speculating, but.. oh well.. The Katana and C1's would be strong contenders in this expensive operating cost per hour market.. and could have been fairly quickly adapted to LSA
 
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I look at Diamond and think what a waste! They make decent aircraft, but have overly squandered away a lot of $$$$. They spread themselves out to much! Da 40, DA 50, DA 42, DA 52, DJet, etc.... While people bash Cirrus, they have focused on only 3 aircraft and 2 of them are being produced and sold. I believe Diamond could have avoided this by focusing on bring 1 model to market at a time.

Just my opinion.
 
From what I can tell, it's hard work, dedication, and sacrifices... with a little crazy and dreamer thrown in. The LSA guys that are "making it" are lean and mean. Their staff's are minimal and they wear a lot of hats.
 
jmp470 said:
I look at Diamond and think what a waste! They make decent aircraft, but have overly squandered away a lot of $$$$. They spread themselves out to much! Da 40, DA 50, DA 42, DA 52, DJet, etc.... While people bash Cirrus, they have focused on only 3 aircraft and 2 of them are being produced and sold. I believe Diamond could have avoided this by focusing on bring 1 model to market at a time.

Just my opinion.
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What 50 & 52? Had they produced them they may have competed.
 
Basically aircraft are built one at a time. They are not really in the mass produced conveyor type system like a ford model T was. The closest I've seen to this is Piper would build a plane on a dolly and scoot it through the 100.000' factory to stations.

This is also part of the super high costs for the end product.

A small manufacturer can be two guys and a truck and they might be father son, brothers, best friends who forgo salaries for their dream to build a company. Now they need more help once certified and wanting to deliver more planes or kits. So it is a balancing act. Once you get to a size then you have salaried employees and then you have overhead which is hard to cut in a down turn. I don't think Diamond Aircraft made a lot of mistakes it is just this is a very non forgiving market.
 
I think a lot of the LSA's are made in Europe, and I have no clue whatsoever how things work there.
 
I gather that there is less equipment required to fabricate some of these components than I expected. Anybody got a good video on fabricating a composite (or aluminum I suppose) aircraft from plans? I don't have a good grasp of what it takes for a small company to go from designs on paper to actual prototype plane that's flyable, especially with the large composite components which I assumed required substantial work to fabricate.
 
dukeblue219 said:
So, the Diamond layoffs got me thinking about something that has always intrigued me about the economics of aircraft manufacturing. We've seen in the last years that the "big guys" are struggling with piston aircraft. Look at Mooney, Beech, Columbia, and even Cessna. But every time I open a magazine, there's a new LSA design out there, many with (seemingly) advanced composite airframes. So, the question is: What are these companies doing right?

Is it that LSA certification is so much easier? Even setting that aside, how do they stay in business selling what I'm guessing are dozens of planes a year at 130k a piece? I'm thinking about companies like Remos, Tecnam, Flight Design, Evektor, CZAW, Pipistrel etc. but there are others that are even smaller. I would have guessed there was a lot of design work involved in a new prototype airplane, and a fairly complex and expensive manufacturing process requiring a lot of employees to put together the airframe, but maybe I'm mistaken.

Anybody have a sense of what it takes to design a new LSA-sized airframe and then manufacture and assemble the components from scratch? I'm surprised it's profitable given the number of competitors in the market and very limited demand.
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Pretty much all the manufacturers you mentioned are European based and have been producing aircraft for years. The US is literally decades behind Europe in VLA/LSA design and production experience. The also sell world wide. The production numbers for some like Tecnam, Flight Design, and FK run into many dozens or more per year so economiesof scale can be applied. As somebody else mentioned, the staffs are generally leaner and more efficient than domestic counterparts.

LSA certification is generally less expensive and time consuming that Part 23 certification but is still very regulated. It does allow them to easier embrace newer technology and take advantage of the benefits. They aren't restricted by the legacy "Spam Can" production mentality.

A few years ago Jack Pelton and a bunch of executives sat across the table from my Dad and a few other LSA distributors and said they were thinking about building an LSA. They wanted to pick their brains about successful LSA design. The first thing Dad said was to fire all your current engineers and hire some guys from Europe that don'lt have any preconceived Part 23 notions on how to build a VLA/LSA. Otherwise, your product will be nothing more than a stripped down, expensive, and poor perfroming 152. Unfortunately, Cessna pretty much blew off the advice and the C 162 is the unfortunate result. Lucky for Cessna, they have deep pockets and can strong arm dealers and Cessna PilotTrainingcenters in to buying their aircraft.

The established VLA/LSA manufacturers will survive and thrive. The truly small and new guys will have a much harder time of it.
 
Henning said:
So what businesses in the US are not receiving govt subsidies?
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Almost every business bargins for some local tax breaks to open and/or expand anymore these days, so I would say none of them don't get something for free.
 
But every time I open a magazine, there's a new LSA design out there, many with (seemingly) advanced composite airframes. So, the question is: What are these companies doing right?
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I think your premise is flawed. Because of the nature of the beast, barriers to entry in the LSA market are not nearly as high as in the certificated airframe market. That's why there are all these entrants.

IMHO the LSA market was initially characterized by a mass delusion, the vision of thousands of new LSA pilots/year. This was supported by FAA projections. At one point, IIRC, there were over 50 LSA designs being advertised, offered, or announced. This number guarantees a shakeout even if the projected number of pilots materialized, which it didn't come close to doing. Wait five years; there will be fewer than 10 left standing, probably three or fewer.

So the plethora of LSAs is evidence of optimism, not that they are doing something right. Most of them, in fact, are probably following the traditional path to making a small fortune in aviation: Start with a big one.
 
airdale said:
IMHO the LSA market was initially characterized by a mass delusion, the vision of thousands of new LSA pilots/year. This was supported by FAA projections. At one point, IIRC, there were over 50 LSA designs being advertised, offered, or announced. This number guarantees a shakeout even if the projected number of pilots materialized, which it didn't come close to doing. Wait five years; there will be fewer than 10 left standing, probably three or fewer.

So the plethora of LSAs is evidence of optimism, not that they are doing something right. Most of them, in fact, are probably following the traditional path to making a small fortune in aviation: Start with a big one.
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Whoa, not so fast professor.The egg did in fact come before the chicken on this one. That supposed flawed premise was NOT predicated on 150K LSAs. The idea was always that LSAs would be 30K contraptions, new.

As such, 100K C-152s get you the morphed aberration that is today: A means to extract the same legacy bottomless money pit spam can parts, certification and inspection costs from the crowd that could no longer legally fly, and therefore spend on, the legacy spam cans. That was never the entry argument for how you were going to get masses of people to flood the recreational aviation market. 30K LSAs was it.

Now if you want to argue that $30K 120KTAS C-152 is a delusion, sure, but that makes you part of the problem then.
 
Henning said:
So what businesses in the US are not receiving govt subsidies?
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Good question.. I didn't know, with the exception of the auto, banking, and farming that we subsidize many business to keep their doors open and people employed... Are Cessna and Piper being subsidized?
 
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CT4ME said:
From what I can tell, it's hard work, dedication, and sacrifices... with a little crazy and dreamer thrown in. The LSA guys that are "making it" are lean and mean. Their staff's are minimal and they wear a lot of hats.
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This. Also, some manufacturers (the Legend Cub folks, for instance) purchase a lot of their parts from places like Wicks and Wag-Aero, so they are getting a discount on those (expensive) parts and do not have to invest in tooling to make the parts. In other words, their overhead is low.

Beyond that, the people who own those small companies generally love aviation and are willing to scrape by for a longer time than most investors in the hope that the tide will eventually turn.

Paul Bertorelli (sp?) of AvWeb has written about the huge number of LSA manufacturers who are operating right at the edge - not making any money, but not ready to give up quite yet. One day, that'll change. I figure the market can only support a couple of dozen LSA manufacturers over the long term, so that shake out will eventually happen, IMO.
 
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Whoa, not so fast professor.
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Oh, I don't think we disagree. Whatever the cause, the fact is that reality never came even close to the projections and it was the projections that motivated all these airframes being offered.

I think your argument is that $150K airplanes caused the projections to be wrong. Maybe. Certainly you're correct if you're saying that there would be more LSA pilots if the airplanes were $30K. But that's all water over the dam.

There will be a shakeout and the survivors will be survivors through a combination of luck and doing things right. The only exception will be Cessna. If they are a survivor it will be more due to their distribution network and legacy reputation than to luck.

My only point was that the fact that there are fifty or so wannabe LSA manufactures is not evidence that there are fifty companies doing things right.
 
airdale said:
Oh, I don't think we disagree. Whatever the cause, the fact is that reality never came even close to the projections and it was the projections that motivated all these airframes being offered.

I think your argument is that $150K airplanes caused the projections to be wrong. Maybe. Certainly you're correct if you're saying that there would be more LSA pilots if the airplanes were $30K. But that's all water over the dam.

There will be a shakeout and the survivors will be survivors through a combination of luck and doing things right. The only exception will be Cessna. If they are a survivor it will be more due to their distribution network and legacy reputation than to luck.

My only point was that the fact that there are fifty or so wannabe LSA manufactures is not evidence that there are fifty companies doing things right.
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There are 30K new LSAs, nobody wants them, what people mean when they say they want a 30K LSA is that they want a new Bonanza for 30K with the same operating expenses as a 30K LSA.
 
bartmc said:
There are 30K new LSAs, nobody wants them, what people mean when they say they want a 30K LSA is that they want a new Bonanza for 30K with the same operating expenses as a 30K LSA.
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That's funny.... The same operating costs, are you sure about that?
 
Diamond made the smart decision to introduce diesels to the market. I started flying in Europe, so I know that it's one of the reasons they became successful there. In the UK the fuel is $12/gal. You can't mess around when prices are like that, you have to innovate. That's why most LSA manufacturers come from Europe and why the future there will be diesel and hybrid etc. In the US there hasn't been any pressure to innovate - and it can be seen in the products. With exception of maybe a few like Cirrus etc, nothing much has happened with engines or airframes since the 60's. Want a new Skycatcher with carburettor - check. That's all they offer. I'm not talking 1970's here - in 2013!

Pipistrel Panthera will probably be a deadly seller, if it can deliver what it says it can deliver. They're one of the few who are innovating (hybrids and all electric offerings in the making):

the_pipisttrel_panthera_4_seater_aircraft_nfo4y.jpg
 
I think it's dumb that LSA's are limited to 120kt and whatever their MTOW is. There shouldn't be any limits on number of seats either.

Let the designers decide everything.
 
stratobee said:
Diamond made the smart decision to introduce diesels to the market. I started flying in Europe, so I know that it's one of the reasons they became successful there. In the UK the fuel is $12/gal. You can't mess around when prices are like that, you have to innovate. That's why most LSA manufacturers come from Europe and why the future there will be diesel and hybrid etc. In the US there hasn't been any pressure to innovate - and it can be seen in the products. With exception of maybe a few like Cirrus etc, nothing much has happened with engines or airframes since the 60's. Want a new Skycatcher with carburettor - check. That's all they offer. I'm not talking 1970's here - in 2013!

Pipistrel Panthera will probably be a deadly seller, if it can deliver what it says it can deliver. They're one of the few who are innovating (hybrids and all electric offerings in the making):

the_pipisttrel_panthera_4_seater_aircraft_nfo4y.jpg
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I agree 100% I also will buy that plane if it comes to market.... or the Cobalt 50 Both sexy planes
 
MSPAviator said:
I think it's dumb that LSA's are limited to 120kt and whatever their MTOW is. There shouldn't be any limits on number of seats either.

Let the designers decide everything.
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how would you suggest defining the class?
 
The big question is, because the continued airworthiness of these LSA aircraft is governed and controlled mainly by the manufacturer rather than the FAA, what happens to all of these machines when the manufacturer ceases to exist? Since there is no Type Certificate how do these aircraft remain in compliance? Do they automatically fall into the experimental category? :dunno:
 
... what happens to all of these machines when the manufacturer ceases to exist?
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Yes, that's the big dilemma for anyone considering buying an LSA. How to forecast the last man standing?

I think Cessna owns the silver lining in this cloud, since even if they drop the Skycatcher they will still be around and presumably will feel obligated to provide some level of support. I am not in the market but if I were I would be trying very hard to like the Cessna.
 
Ventucky Red said:
Good question.. I didn't know, with the exception of the auto, banking, and farming that we subsidize many business to keep their doors open and people employed... Are Cessna and Piper being subsidized?
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The AD process is a defacto subsidy, no other industry gets away creating a danger and then forcing the customer to pay for the repair or abandon the product. The PMA process is much the same. When TRW bought Hartzel, the first thing that happened was an expensive AD came out.

BTW, since banking is subsidized, how does that not reach everything?
 
MSPAviator said:
I think it's dumb that LSA's are limited to 120kt and whatever their MTOW is. There shouldn't be any limits on number of seats either.

Let the designers decide everything.
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Let's review the intent of SP & LSA. Back in the days prior to SP/LSA, we had a provision in Pt. 103 that allowed rides for training and demonstration for sale. This brought about the design and manufacture of 2 seat 'ultralights' which by definition is an oxymoron. This went on for quite some time, well over a decade, where there were untrained pilots flying around passengers on not quite legal flights. This continued and we started seeing more 2 person fatalities in these craft. There also came the effort to streamline our licensing procedures with those of JAA. In the midsts of all this was the JAA sport rules which the FAA adopted and IIRC they even added 140lbs to it. They have since removed the 2 person exception from Pt 103 IIRC and now you have to have a SP certificate or higher for giving rides and you need an instructor certificate to instruct in one. This was all about getting the rogue 103 pilots to quit killing as many people that they shouldn't have had with them to begin with.

If you want to leave it all to the designers, fine, go experimental, that is where the designers are left to design to their hearts content.
 
Ventucky Red said:
Good question.. I didn't know, with the exception of the auto, banking, and farming that we subsidize many business to keep their doors open and people employed... Are Cessna and Piper being subsidized?
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Apparently not enough to make a diff as both have closed most of their plants in Wichita the Air Capital.

Living in Wichita 50 years and watching the goings on of Cessna, BeechCraft, Lear Jet and Boeing, it appears that C, B and J were taken over by larger corporations that wanted or needed the experience engineering or perhaps they just needed Senator Bob Dole on their side to win government military contracts...all that profit went back to wall-street and none made its way back to C, B or J.

So rather than have slippy new improved GA we have mfgr in Mexico and China with the same old tired non improved air-frames, shut down twin production. Cessna took over the bones of bankrupt Columbia aircraft and renamed it Cessna 400. When a Corp 500 takes over something as delicate as general aviation company, corporate ethics dictate you leave it to die like a 2 bit whore.
 
Tony_Scarpelli said:
Apparently not enough to make a diff as both have closed most of their plants in Wichita the Air Capital.

Living in Wichita 50 years and watching the goings on of Cessna, BeechCraft, Lear Jet and Boeing, it appears that C, B and J were taken over by larger corporations that wanted or needed the experience engineering or perhaps they just needed Senator Bob Dole on their side to win government military contracts...all that profit went back to wall-street and none made its way back to C, B or J.

So rather than have slippy new improved GA we have mfgr in Mexico and China with the same old tired non improved air-frames, shut down twin production. Cessna took over the bones of bankrupt Columbia aircraft and renamed it Cessna 400. When a Corp 500 takes over something as delicate as general aviation company, corporate ethics dictate you leave it to die like a 2 bit whore.
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Piper is more or less owned by the Sultan of Brunei. They were somewhat subsidized by the local vero beach government via tax incentives, they failed to keep up their end of the bargain and now owe a million or so in taxes.
 
So, one kit two parachutes, or the M-squared for a bit more than $30k.

Guess you were right, I do want a Bonanza for $30k. Well, at least I want something closer to a Bonanza than this. The M-squared looks like a plane, and kind of flies like a plane, but 5GPH to go 45MPH with a TBO of 300 hours isn't what I was hoping for.

However, you are correct. The fact that they have two seats does qualify them as LSA.:yikes:
 
docmirror said:
So, one kit two parachutes, or the M-squared for a bit more than $30k.

Guess you were right, I do want a Bonanza for $30k. Well, at least I want something closer to a Bonanza than this. The M-squared looks like a plane, and kind of flies like a plane, but 5GPH to go 45MPH with a TBO of 300 hours isn't what I was hoping for.

However, you are correct. The fact that they have two seats does qualify them as LSA.:yikes:
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You can buy the quicksilver ( a popular one) fully assembled from a dealer for sub 30K, the GTE is fully assembled also and comes in at $30K for the base model. None are parachutes. There are a few more 35K LSA's most are hold overs from the "training ultralights". i.e. these are the planes that LSA was created because of.... it wasn't to create a market for $30K mini Bonanzas. :D
 
If you want a "less-expensive" LSA, look to the used market. Real airplanes with great avionics, 120kts, and XC capabilities. I've seen CTs with less than 500 hours go for $65K... Like new, with full glass and autopilot for $75K.
 
I'm no great shakes at math, I just teach physics and stats once in a while, but I'm gonna need help on how $65k is less expensive than $30k. If I was gonna invest $65k in anything it would be a newer Bonanza than the one I already have, which I spent less that $30k to start with.

Looks like I'll keep the 4 seat, 165kt, comfy, safe, mogas burning plane I have now. It goes lots faster, and has a fuel burn better than the M-squared, while keeping most of the bugs out of my teeth.
 
docmirror said:
I'm no great shakes at math, I just teach physics and stats once in a while, but I'm gonna need help on how $65k is less expensive than $30k. If I was gonna invest $65k in anything it would be a newer Bonanza than the one I already have, which I spent less that $30k to start with.

Looks like I'll keep the 4 seat, 165kt, comfy, safe, mogas burning plane I have now. It goes lots faster, and has a fuel burn better than the M-squared, while keeping most of the bugs out of my teeth.
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I think he just meant "less expensive" than the new plane list prices... the $125k price range. But anyway, may I ask what you currently fly that gets 165kt with 4 seats, comfort, and less than 5gph?
 
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