Ouch

[flyingcheesehead]

I decided, just for the heck of it, to see how much of an effect inflation has had on new airplane prices.

In 1958, a stock Piper Comanche 180 was $17,850 brand spankin' new. In 2007, adjusted only for inflation, that would amount to only $126,665.

Now, to be fair, they added a lot of things on later that you'd expect standard today - Electric flaps, better panels, etc. So, let's look at the Comanche 260. In 1965, it sold for $30,740. In 2007 dollars, that's $200,072. For reference, a new "bare-bones" Cirrus SR22 goes for $525,950.

At the top of the line, the Turbo Comanche 260TC in 1972 cost $51,720 which would have been $253,700 in 2007. The top of the line Turbo SR22 has a base price of $590,900. So, had things like product liability and FAA certification not changed between then and now, instead of buying a single Turbo SR22, you might instead be able to buy two SR22's (one of them Turbo'd), an SR20, and still have money left over to actually fly them. Or an SR22, a nice house on an airpark, and enough left over to fly a lot too.

Even a loaded Turbo TWIN Comanche in 1972 was $77,565; in 2007 that would be $380,477. That's a good $200K less than a Diamond TwinStar.

 

[sba55]

I'd guess that they were also selling those planes in much larger numbers back in the 70s. Economics of scale does wonders for the price....

 

[mikea]

I'd guess that they were also selling those planes in much larger numbers back in the 70s. Economics of scale does wonders for the price....

Forty years of lawsuits does "wonders" for the current costs that have to recovered.

 

[sba55]

Forty years of lawsuits does "wonders" for the current costs that have to recovered.

No question about it....

 

[KennyFlys]

No question about it....

Seconded...

 

[tonycondon]

not to mention a totally different level of equipment and radically different construction techniques.

 

[SCCutler]

Not defending the plaintiffs' bar, of which I am not a member, but I would be most interested in understanding when the gap really opened-up.

Aircraft production did not virtually stop because of litigation - it stopped because sales stopped. And I do not think sales stopped because the prices suddenly increased, I believe sales stopped because the economy, and the concomitant financial ability of the marketplace to buy the planes, went to hell.

It's always easy to prop-up litigation as "the" cause, but notwithstanding the common wisdom (which ain't always so common, or so wise), litigation is not so much greater now than it has always been.

In any event, the sales numbers at the "re-start" of production were and are but a mere fraction of what they once were and, indeed, the economies of scale just are not there.

 

[gprellwitz]

Not defending the plaintiffs' bar, of which I am not a member, but I would be most interested in understanding when the gap really opened-up.

Aircraft production did not virtually stop because of litigation - it stopped because sales stopped. And I do not think sales stopped because the prices suddenly increased, I believe sales stopped because the economy, and the concomitant financial ability of the marketplace to buy the planes, went to hell.

It's always easy to prop-up litigation as "the" cause, but notwithstanding the common wisdom (which ain't always so common, or so wise), litigation is not so much greater now than it has always been.

In any event, the sales numbers at the "re-start" of production were and are but a mere fraction of what they once were and, indeed, the economies of scale just are not there.

I don't think that it's litigation that's raised the price, but the potential judgements and the cost of litigation. Also, the rate of sales after they restarted was a fraction of the sales beforehand because the cost was a multiple of the cost beforehand. I'm not saying that this is the only cost; nor am I saying that there haven't been improvements in the technology. But certainly not enough to justify the increased prices.

 

[SCCutler]

I don't think that it's litigation that's raised the price, but the potential judgements and the cost of litigation.

Same thing. I am not claiming it is not the case, but I suspect that the linkage is not direct...

Also, the rate of sales after they restarted was a fraction of the sales beforehand because the cost was a multiple of the cost beforehand.

Chicken and egg, my friend...

I'm not saying that this is the only cost; nor am I saying that there haven't been improvements in the technology. But certainly not enough to justify the increased prices.

Agreed.

 

[gprellwitz]

Also, the rate of sales after they restarted was a fraction of the sales beforehand because the cost was a multiple of the cost beforehand.

Chicken and egg, my friend...

I disagree, because the price by the manufacturers on re-introduction was set beforepeople had a chance to purchase them. Now, the manufacturing and insurance costs could have been factored in, but I think that had they been offered at a price comparable to what they'd been at prior to the cessation of sales, there'd have been a much larger market.

 

[sba55]

I disagree, because the price by the manufacturers on re-introduction was set beforepeople had a chance to purchase them. Now, the manufacturing and insurance costs could have been factored in, but I think that had they been offered at a price comparable to what they'd been at prior to the cessation of sales, there'd have been a much larger market.

Can't agree there. As far as economic theory goes, companies are probably the most rational actors. There's an equilibrium price that will get them the highest profit and even though it might seem intuitive, their profits aren't necessarily higher when they increase prices.

I don't see a reason to suspect that there's a price floor of some kind for new airplanes. Barring that or some sort of monopoly situation that would prevent airplanes from being sold at equilibrium, the shift in prices is necessitated by demand and supply. For small plane GA, demand is highly elastic, which explains the significant drop in demand and in turn the significant rise in production cost. Besides that, the cost of production increased rather than decreased (as one would expect because of technology multipliers and efficiency gains in production). Liability insurance costs certainly had something to do with that. It's a vicious circle....

Overall, the GA market is rather competitive and not artificially constrained. What's the reason you're suspecting some sort of foul play?

-Felix

 

[gprellwitz]

Overall, the GA market is rather competitive and not artificially constrained. What's the reason you're suspecting some sort of foul play?

No foul play! My hypothesis is that costs went up significantly, they decided that their risks were lowered due to legislation, and they opted to re-enter the market. The higher costs led to a higher selling price, which led to a lower demand. Their profit had to be spread across fewer units, resulting in an even higher margin. Simple market economics. The question is what caused the price to increase so substantially. Overall manufacturing costs didn't rise that precipitously, or we'd have seen its effect in other durable goods like automobiles. Similarly, raw materials didn't skyrocket. So what forced them to raise the price? Please be aware that I know there are some much better economists here than I could ever dream of being! I'm putting this out there for discussion only!

 

[sba55]

No foul play! My hypothesis is that costs went up significantly, they decided that their risks were lowered due to legislation, and they opted to re-enter the market. The higher costs led to a higher selling price, which led to a lower demand. Their profit had to be spread across fewer units, resulting in an even higher margin. Simple market economics. The question is what caused the price to increase so substantially. Overall manufacturing costs didn't rise that precipitously, or we'd have seen its effect in other durable goods like automobiles. Similarly, raw materials didn't skyrocket. So what forced them to raise the price? Please be aware that I know there are some much better economists here than I could ever dream of being! I'm putting this out there for discussion only!

Oh I see. I was reading too much into your statement regarding the price having been set before people had a chance to buy the units. It made it sound as though the price was set artificially high, which it most likely wasn't given that we're not in a monopoly or price floor situation.

First, automobiles are a tricky benchmark. They're produced in such vast numbers that an increase in production or legal costs won't affect the cost per unit that much. On the other hand, that same change would probably have a very significant effect in aviation.

Next, it probably is the case that liability insurance and related cost did increase significantly. This is where price elasticity of demand comes into play. I would guess that cars are much more inelastic than planes, considering that most people _need_ a car, but they don't really _need_ a plane. That aside, this means that even a relatively minor change in the price of an airplane will have a significant impact on demand.

Lastly, there are probably also reasons not directly related to economics that explain why fewer piston airplanes are sold these days than in the decades immediately following WW2. Given current production numbers, I'm not surprised that the per unit production costs have increased significantly. Piper made something like 30 4-seaters last year (rough number, just guessing). That's not nearly enough to run an efficient production process.

As with everything else, I'd guess that it's a combination of many factors. Higher liability costs, socio-economic reasons that depress demand, and a lack of production efficiency gains (many manufacturers are still using 1960s production techniques).

-Felix

 

[gprellwitz]

As with everything else, I'd guess that it's a combination of many factors. Higher liability costs, socio-economic reasons that depress demand, and a lack of production efficiency gains (many manufacturers are still using 1960s production techniques).

Complex would be an understatement! And no, I wasn't suggesting anything underhanded or nefarious.

 

[Ken Ibold]

To add to the market dynamics is the fact that airplanes just last so darned long. Virtually any other piece of machinery has a much younger point at which replacement makes economic sense over repair. Again it's chicken and egg, because replacement is so expensive repair makes sense for longer periods.

In the 1980s, a Beech exec said about 25% of the cost of a new Bonanza was due to product liability insurance premiums. Don't know how that might shake out now. This was just post-GARA.

However, I submit that airworthiness certification requirements, annual inspections, and certified mechanics do a lot to keep airplanes in the air that otherwise would be boneyard material, and THAT is what is limiting the market for new airplanes. Certification makes substantial improvements more difficult and expensive, so is it any wonder why most buyers opt for a 20 year old airplane instead of a new one that has substantially the same performance? Glass panels are really the primary motivator of the new market these days.

Add to that the market is somewhat more finite than boats, cars, motorcycles or other such comparison goods. There are a LOT of people who have the resources to fly (can't blame everything on costs) but simply are not interested.

Face it, we are speciality enthusiasts, with all that implies, good and bad.

 

[steingar]

Doesn't help that aircraft are assembled almost completely by hand. Labor costs have been rising substantially in this country, the only ways around it are automation or offshore assembly.

 

[TangoWhiskey]

Besides that, the cost of production increased rather than decreased (as one would expect because of technology multipliers and efficiency gains in production).

Felix, how does that work (honest question)... would not efficiency gains in production reduce, rather than increase, costs of production? I'd have expected (as with Henry Ford) our ability to produce items cost effectively to have increased with experience and technology.

 

[mikea]

Not defending the plaintiffs' bar, of which I am not a member, but I would be most interested in understanding when the gap really opened-up.

Aircraft production did not virtually stop because of litigation - it stopped because sales stopped. And I do not think sales stopped because the prices suddenly increased, I believe sales stopped because the economy, and the concomitant financial ability of the marketplace to buy the planes, went to hell.

It's always easy to prop-up litigation as "the" cause, but notwithstanding the common wisdom (which ain't always so common, or so wise), litigation is not so much greater now than it has always been.

In any event, the sales numbers at the "re-start" of production were and are but a mere fraction of what they once were and, indeed, the economies of scale just are not there.

Ken Ibold can check me, but AFAIK, the production of singles came to dead stop due solely to the manufacturers not being able to price the plane high enough to cover the cost of litigation until the GA Revitization Act limited claims to the first 18 years after manufacture.

That gave the industry a way to guess where the lid on potential claims could be. I would guess they could assume that they'd get sued on x% of planes made for $nn,000,000 (you know, just enough to barely match what defending would cost.) They definitely knew how many planes they were making - or simpler - that gave a cost per unit for the lawsuit tax.

We can also guess that if the planes were priced in the same range adjusted for inflation as the 1960s and 1970s, the volume sold would be higher.

Consider that we had at least two huge boom times, 1980s dot com, and 2000s home money everywhere and there were no booms in sales of singles. Yeah. Jets started to sell.

So the plaintiffs did raise the price which lowered demand, which lowered the production which chased away economies of scale. Wash, rinse, and we could see that the day they stopped single production entirely can still come.

 

[Everskyward]

There are a LOT of people who have the resources to fly (can't blame everything on costs) but simply are not interested.

There are a lot of other recreational activities out there that do not demand the time or dedication as becoming a pilot. I have asked a fair amount of passengers who express interest in the airplane or have told me they have taken a few lessons in the past, why they don't learn to fly. Almost all of them cite the lack of time to dedicate to something that they know will take a lot of effort.

 

[sba55]

Felix, how does that work (honest question)... would not efficiency gains in production reduce, rather than increase, costs of production? I'd have expected (as with Henry Ford) our ability to produce items cost effectively to have increased with experience and technology.

Troy, that's what I was trying to say (although badly). Production costs increased as opposed to decreased. Like you said, one would expect to see a decrease given efficiency gains that should have happened. But from what I understand, today's production methods are basically the same as they were in the 1960s, and so new technology and production methods didn't play as big a role as they have in most other industries...

 

[CJones]

Felix, how does that work (honest question)... would not efficiency gains in production reduce, rather than increase, costs of production? I'd have expected (as with Henry Ford) our ability to produce items cost effectively to have increased with experience and technology.

Troy, that's what I was trying to say (although badly). Production costs increased as opposed to decreased. Like you said, one would expect to see a decrease given efficiency gains that should have happened. But from what I understand, today's production methods are basically the same as they were in the 1960s, and so new technology and production methods didn't play as big a role as they have in most other industries...

To take advantage of new production process technologies, it mostly requires mass production type systems. As already mentioned, GA production numbers are relatively low compared to other 'large machinery' type manufacturing (cars, ag equipment, etc.) in which lean manufacturing processes can be implemented. While most other manufacturing companies are using batch or even line process setups, I would imagine that GA assembly contains enough customization (do you want this radio or that radio, FIKI or nonFIKI,this interior or that interior) that it requires more of a Job or project based process layout which are very inefficient as far as mass-production goes.

It would be interesting to know what Piper or Cessna's manufacturing lead time, throughput time, and throughput rate are these days. I can only imagine what kind of nightmare their production scheduling would be.

 

[SCCutler]

Ken Ibold can check me, but AFAIK, the production of singles came to dead stop due solely to the manufacturers not being able to price the plane high enough to cover the cost of litigation until the GA Revitization Act limited claims to the first 18 years after manufacture.

Naah, don't buy it for a second. Increased liability exposure did not help things along at all, but production was stopped because sales slowed so precipitously (and can we recall the interest rates at the time...?).

Also, note well- the Tax Reform Act of 1986 (this would be the year Cessna essentially ceased SE production, right?) eliminated the Investment Tax Credit for aircraft, which was a very substantial business incentive for aircraft purchases, as well as having a disastrous effect on the economy, including its (the Act's) substantial role in precipitating the bank and S&L failures of the mid-eighties.

It is (of course) always better to blame lawyers and insurance costs- I still don't buy it.

 

[Anthony]

It is (of course) always better to blame lawyers and insurance costs- I still don't buy it.

Well, I'd blame the plaintiffs and not the lawyers, but that's just me. I agree that economics, fuel costs, recessions and product liability helped kill GA sales. Also, an impending and dominating mass belief that as humans we deserve a risk free environment. People are just not up for being responsible for themselves and taking calculated risks unless they are teenagers or twenty somethings. This is a media driven phenomenon. Crotch rockets are much more dangerous, but also less expensive and actually more "exciting" than GA flying.

 

[mikea]

Naah, don't buy it for a second. Increased liability exposure did not help things along at all, but production was stopped because sales slowed so precipitously (and can we recall the interest rates at the time...?).

Also, note well- the Tax Reform Act of 1986 (this would be the year Cessna essentially ceased SE production, right?) eliminated the Investment Tax Credit for aircraft, which was a very substantial business incentive for aircraft purchases, as well as having a disastrous effect on the economy, including its (the Act's) substantial role in precipitating the bank and S&L failures of the mid-eighties.

It is (of course) always better to blame lawyers and insurance costs- I still don't buy it.

There's still a tax credit for business. I recall seeing the signs at OSH, "Ask us how buying this plane can save you $250,000 in taxes" and that was for sure after 1986. It's same tax credit as applies to trucks over 3 tons that made Hummers the ride of choice?

 

[steingar]

Crotch rockets are much more dangerous, but also less expensive and actually more "exciting" than GA flying.

Sorry, but sportbike riders are not the rising fatality demographic. Motorcycle deaths have increased primarily for over 40 somethings riding liter cruisers. Riding sportbikes is quite a bit safer than flying. They are far more exciting, though, especially in the twisties

 

[Ken Ibold]

There's still a tax credit for business. I recall seeing the signs at OSH, "Ask us how buying this plane can save you $250,000 in taxes" and that was for sure after 1986. It's same tax credit as applies to trucks over 3 tons that made Hummers the ride of choice?

That's the accelerated depreciation rule that has been around, what, 5 years?

 

[Anthony]

Sorry, but sportbike riders are not the rising fatality demographic. Motorcycle deaths have increased primarily for over 40 somethings riding liter cruisers. Riding sportbikes is quite a bit safer than flying. They are far more exciting, though, especially in the twisties

No doubt, but check the insurance rates for teenage and 20's sportbike riders. Why is it so high? Huge claims. I'll agree with the older Harley riders. Never been on a bike? Geez, lets get a 1200 CC bike and ride with no instruction nor experience.

 

[Ken Ibold]

Riding sportbikes is quite a bit safer than flying.

I'd like to see a source for this statement.

 

[mikea]

I'd like to see a source for this statement.

John King says it's about the same, sickles vs. GA flying, with much the same types of guys doing both.

 

[Ken Ibold]

John King says it's about the same, sickles vs. GA flying, with much the same types of guys doing both.

Yeah, he got it from me. That's why I'm curious about the contrary statement above.

 

[Anthony]

I think the stats are huge for young sportbike riders and the insurance show it. As far as bikes in general I've heard the same statement about it being about equal to GA. I'll take my chances in the plane.

 

[SCCutler]

There's still a tax credit for business. I recall seeing the signs at OSH, "Ask us how buying this plane can save you $250,000 in taxes" and that was for sure after 1986. It's same tax credit as applies to trucks over 3 tons that made Hummers the ride of choice?

...see below...

That's the accelerated depreciation rule that has been around, what, 5 years?

...zackly! And ask yourself why, at every single sales seminar Cessna hosts at its C-Star dealers, there is always a presentation on tax planning, and consultants with whom you can, ummm, consult, on getting the most out of your accelerated depreciation.

 

[Jay Honeck]

Sorry, but sportbike riders are not the rising fatality demographic. Motorcycle deaths have increased primarily for over 40 somethings riding liter cruisers. Riding sportbikes is quite a bit safer than flying. They are far more exciting, though, especially in the twisties

Statistically, personal flying and motorcycling carry about the same risk of dying. These risks also respond proportionally to changes of habit, meaning that (for example) wearing a helmet, not drinking, etc., not running out of gas will lower your risk and enhance your chance of survival.

 

[jmaynard]

Statistically, personal flying and motorcycling carry about the same risk of dying. These risks also respond proportionally to changes of habit, meaning that (for example) wearing a helmet, not drinking, etc., not running out of gas will lower your risk and enhance your chance of survival.

I've been musing for a while now on the culture of safety in aviation: pilots hold their safety pretty much entirely in their own hands, and we, by and large, incorporate that in our thinking at the most fundamental level. (You can tell when two pilots are parting because they'll tell each other "fly safe!".) Do motorcyclists?

 

[jesse]

Yeah, he got it from me. That's why I'm curious about the contrary statement above.

I've ran the numbers before and determined they're about the same. That said, I'm fairly likely to be killed on my motorcycle by another driver I couldn't control.

Aviation is a little different in the sense that a fatal accident would almost always be my fault..for whatever that is worth.

 

[mikea]

I've ran the numbers before and determined they're about the same. That said, I'm fairly likely to be killed on my motorcycle by another driver I couldn't control.

Aviation is a little different in the sense that a fatal accident would almost always be my fault..for whatever that is worth.

Well, it may be the fault of the other pilot, but what we have going for us is the trust that the other guy couldn't qualify to be a pilot as easily as he could just take the keys and aim up to 5 tons at you on the ground.

 

[Ken Ibold]

Aviation is a little different in the sense that a fatal accident would almost always be my fault..for whatever that is worth.

Let's explore that, shall we?

I think the position that removing "other drivers" from the equation means a GA pilot is more self-determining than a motorcycle driver is incongruous. Blame another driver for lane changing into the bike if you want, but you must also blame the biker for being there. About the only motorcycle accident I can think of in which the biker does not share part of the blame are those cases where a driver looks past the biker and turns into their path unexpectedly. Been victimized by that myself and have the scars to prove it. But every other time I've spilled a bike I hold most if not all of the blame. I submit that a fatal accident on your motorcycle would almost always be your fault, just as in an airplane.

The other thing people like to throw out is that safety statistics are skewed when assessing personal risk because higher personal minimums WRT fuel, weather, runway length etc make the odds not apply to them. Well duh, one should never expect statistical data to apply to a single case, but still it shows where the risks lie.

So really, how different is riding a motorcycle than flying an airplane from a risk standpoint? I submit they are not so different at all, because both immerse you in a relatively hostile environment. Both are unforgiving of inattention. Both require somewhat more steady concentration for the duration. Both penalize carelessness harshly. In fact, whether I'm choosing to ride without a helmet, pop wheelies on a quiet street, do acro without a parachute, or fly IMC over the mountains at night, I'm willfully and consciously accepting more risk. Frankly, I don't see a lot of difference there other than how far you fall before you hit something hard.