New Planes from old companies

"Dude" wrote in message
...

Exactly my point. Did the rates for Mooney's become lower to affect the
claims differences or not?

Who the hell knows. Unlike cars, just about everyone gets a completely
unique insurance quote. Perhaps somebody ought to start a database where
pilots can put in what kind of coverage they have and what they're paying
for it to help everybody shop around.

Again, a good point. What a want to know is how many years?

I'd guess ten as a minimum. Just my WAG. Of course a blip of bad
accidents
in six months would be all it takes to send things through the roof.


If you need ten years data, then no one will innovate. The market will
not
bear it.

Bullfeathers. It didn't stop Cirrus or Lancair, and it hasn't stopped
homebuilding, where the picture is often (for good reason) far worse than
anything certified.

Also, my ten-year estimate is to see the effects of something subtle like
airbags. Nobody buys airbags because it cuts their insurance premium. I got
ABS and LoJack on my car because I wanted to avoid accidents and get it back
in case the dirtballs stole it. The fact that these cut my insurance by
about $200/year was icing on the cake.

If the insurance companies actually came out and said that its a trade
secret, then we would all say they don't care about safety. Bad PR. It
would seem that one could stay in business more efficiently without
spending
too much to figure out the differences. Just treat all the retracts the
same except for the worse offenders. Its easy and its cheap.

The problem is that there aren't enough underwriters to foster real
competition in the market. Avemco (for example) looks at the situation and
says, "wow, if we covered retracts for 20% less than everyone else, we'd
corner the market." But then they think, "well, if we did that, everyone
else would just match our prices, and all it would mean is less money for
us." Market theory teaches that when it comes to the number of companies in
a market, "four are few, and six are many." IIRC there are three or four
major GA underwriters.

Not just the Cirrus, even Diamond. I say "even Diamond" because if you
look
at the numbers it is an over the top revolution in safety. They will show
you lots of little things they did to make their planes safer, and it
appears to work. However, lots of people from the other camps are saying
they are just lucky. At some point, it doesn't ring true to keep saying
that. Also, Lancair seems to have taken the note of Diamond's changes and
incorporated many of them, including full crash cage testing on the 400.

Again, protection-of-life features do not necessarily translate into lower
costs for insurers unless they reduce hull losses too. Perhaps these new
glass panels will make IFR easier and thus reduce the number of accidents
due to disorientation. Or maybe they'll just lure more VFR pilots into IMC
with predictable results. Time will tell. Either way, rates will not come
down without a pretty substantial reduction in accident rates and no one is
predicting that for anybody.

I
don't blame the insurers on the Cirrus at all. Its not the parachute, its
the claims. The darn things were all crashing into little bits until they
got the training regimen in place, and fixed the chutes. Now they seem to
be doing much better, and for me, another year of Cessna level accident
records will convince me.

All of which appears to justify the "new equals bad" approach of the
insurers to modern aircraft. Had insurers treated the early Cirri like
Cherokee Sixes (both have 300HP, CS prop, fixed gear, right?) they would
have taken one hell of a bath, and they likely did anyway.

Too few get totaled to justify the difference.

Hmm... how can you be so sure?

Best,
-cwk.

I suspect that Cessna has run the numbers and realizes that the cost of
a
"clean sheet" light airplane would simply never be recovered in today's
market.

Agreed, but Diamond nonetheless managed to come up with 4 "clean sheet"
designs in less than 10 years - including a light jet. Why can't Cessna
and
Piper do it? Is the FAA THAT much worse than the JAA (or whatever the
european equivalent is)? You also have to wonder how much longer Cessna
and
Piper can afford to NOT bring out a new design.

Yes, the FAA is that much worse. Look at the trouble Diamond is having
getting the DA-42 certified in the US.

A lot of Cessna dealers are wondering when Cessna will do a new design.
There are rumors, but the fact is Cessna does not really seem to be all that
enthusiastic about manufacturing the airplanes it has.

C J Campbell wrote:



Yes, the FAA is that much worse. Look at the trouble Diamond is having
getting the DA-42 certified in the US.

Can't be that bad, Cessna brings out new jets like their going out of style.

Who the hell knows. Unlike cars, just about everyone gets a completely
unique insurance quote. Perhaps somebody ought to start a database where
pilots can put in what kind of coverage they have and what they're paying
for it to help everybody shop around.

A good idea, but as an individual, you can compare by asking for quotes on
several planes at a time. If you are buying new, you can get the info from
many of the companies without a tail number.


Again, a good point. What a want to know is how many years?

I'd guess ten as a minimum. Just my WAG. Of course a blip of bad
accidents
in six months would be all it takes to send things through the roof.


If you need ten years data, then no one will innovate. The market will
not
bear it.

Bullfeathers. It didn't stop Cirrus or Lancair, and it hasn't stopped
homebuilding, where the picture is often (for good reason) far worse than
anything certified.


Bullfeathers to you Sir! (I like that expression, its kinda polite)

Their owners got insurance without 10 years data. So your point that it
didn't stop anyone was sort of missing the mark.


Also, my ten-year estimate is to see the effects of something subtle like
airbags.

Ahhh, now you tell me

Nobody buys airbags because it cuts their insurance premium. I got
ABS and LoJack on my car because I wanted to avoid accidents and get it
back
in case the dirtballs stole it. The fact that these cut my insurance by
about $200/year was icing on the cake.

Ahhh again, what if it tripled your rates to buy the only car on the market
with the new technology (even if the car were at a similar or better cost,
ala Cirrus vs. Mooney)


If the insurance companies actually came out and said that its a trade
secret, then we would all say they don't care about safety. Bad PR. It
would seem that one could stay in business more efficiently without
spending
too much to figure out the differences. Just treat all the retracts the
same except for the worse offenders. Its easy and its cheap.

The problem is that there aren't enough underwriters to foster real
competition in the market. Avemco (for example) looks at the situation and
says, "wow, if we covered retracts for 20% less than everyone else, we'd
corner the market." But then they think, "well, if we did that, everyone
else would just match our prices, and all it would mean is less money for
us." Market theory teaches that when it comes to the number of companies
in
a market, "four are few, and six are many." IIRC there are three or four
major GA underwriters.

Okay, I hear you. But what if Avemco only discounted the Mooneys, and
charged the same or more for the others (based on Richard Collins data being
proved out in claims)? Would they not then be more profitable than the
competition by attracting more than their fair share of the better retract
business?

Also, what you say brings up an idea. Perhaps one year is not enough data
for claims because each insurer does not have a wide enough pool. Perhaps
they all need to provide their claims data to a third party, and then buy
back the overall fleet results in order to change rates to reflect the total
fleet results.


Not just the Cirrus, even Diamond. I say "even Diamond" because if you
look
at the numbers it is an over the top revolution in safety. They will
show
you lots of little things they did to make their planes safer, and it
appears to work. However, lots of people from the other camps are saying
they are just lucky. At some point, it doesn't ring true to keep saying
that. Also, Lancair seems to have taken the note of Diamond's changes
and
incorporated many of them, including full crash cage testing on the 400.

Again, protection-of-life features do not necessarily translate into lower
costs for insurers unless they reduce hull losses too. Perhaps these new
glass panels will make IFR easier and thus reduce the number of accidents
due to disorientation. Or maybe they'll just lure more VFR pilots into IMC
with predictable results. Time will tell. Either way, rates will not come
down without a pretty substantial reduction in accident rates and no one
is
predicting that for anybody.

Hasn't Diamond had a reduced incident as well as fatality rate?


I
don't blame the insurers on the Cirrus at all. Its not the parachute,
its
the claims. The darn things were all crashing into little bits until
they
got the training regimen in place, and fixed the chutes. Now they seem
to
be doing much better, and for me, another year of Cessna level accident
records will convince me.

All of which appears to justify the "new equals bad" approach of the
insurers to modern aircraft. Had insurers treated the early Cirri like
Cherokee Sixes (both have 300HP, CS prop, fixed gear, right?) they would
have taken one hell of a bath, and they likely did anyway.


Ahhh, but they did treat Diamonds like Cessna's and appear to be making out
like fatcats. Besides, if they really do take that approach, isn't it just
proving my point that they reduce innovation, and are therefore reducing
safety?


Too few get totaled to justify the difference.

Hmm... how can you be so sure?

Well, you got me, I guess I am not that sure after all. I think I was
basing this on fatality rates, but a plane can get totaled without a
fatality. I reall do not know, so I have to admit, its a guess. Another
reason for publishing claims info.

PS I really appreciate your perspective on this, you are helping me reshape
my opinions and sharpen some of my arguments.

Brian Sponcil wrote:

"Matt Whiting" wrote in message
...

I don't think Cirrus has come even close to making money yet, on a total
investment basis. I haven't keep track of the total amount of venture
capital they've secured, but I think it was north of $200MM. That will
take a long time to recoup. They may well be profitable at the operations
level, but that isn't the same thing as "making money" overall.


I'm sure you're right but a quick look at the numbers makes me wonder how
they AREN'T going to recoup that $$. Cirrus is selling something like 50
planes a month. You'd think their profit margin on a 300k airplane would be
at least 20k. If so, that's roughly 10Mil in profit every year and a 20
year break even on the initial 200Mil investment.

Well, most new airplanes have a large initial sales rate and then it
tapers off. I'd be VERY surprised if Cirrus can maintain this rate for
20 years. That would be 12,000 airplanes of one basic model and that is
very rare in the GA world. Add in the need to invest in new designs
over the years, and it can be very hard to make money in GA.


Diamond's numbers are roughly the same. Supposedly the Austrian factory
pumps out 400 planes/year and another 100 come out of Ontario. Unless these
guys are operating on Dell like profit margins it's hard to see how they
won't make their investments back.

They may well make them back, I just don't know. Obviously, they think
they will or they wouldn't be building airplanes! :-)


I suspect that Cessna has run the numbers and realizes that the cost of a
"clean sheet" light airplane would simply never be recovered in today's
market.


Agreed, but Diamond nonetheless managed to come up with 4 "clean sheet"
designs in less than 10 years - including a light jet. Why can't Cessna and
Piper do it? Is the FAA THAT much worse than the JAA (or whatever the
european equivalent is)? You also have to wonder how much longer Cessna and
Piper can afford to NOT bring out a new design.

Are all of these designs currently certificated? Cessna brings out new
designs all of the time, it is just that they are all bizjets as that is
where the real money in GA lies currently.


Matt

"Dude" wrote in message
news
Who the hell knows. Unlike cars, just about everyone gets a completely
unique insurance quote. Perhaps somebody ought to start a database where
pilots can put in what kind of coverage they have and what they're
paying
for it to help everybody shop around.

A good idea, but as an individual, you can compare by asking for quotes on
several planes at a time. If you are buying new, you can get the info
from
many of the companies without a tail number.


The power of the database is its depth. Assuming you could get 10% of pilots
or so to use it, it would give us a lot more insight into this market.
Assuming that insurers are indeed milking us, or certain segments of the
market, this would also provide a data set that would help convince a new
company to enter the market.


Nobody buys airbags because it cuts their insurance premium. I got
ABS and LoJack on my car because I wanted to avoid accidents and get it
back
in case the dirtballs stole it. The fact that these cut my insurance by
about $200/year was icing on the cake.

Ahhh again, what if it tripled your rates to buy the only car on the
market
with the new technology (even if the car were at a similar or better cost,
ala Cirrus vs. Mooney)


I doubt it has that much effect. We're talking about toys that cost anywhere
from a quarter to half million dollars, and it is a pretty rarefied group of
people that can afford that. Yes, there are probably a few marginal
customers who just can't justify another $500 per month to own an SR-22
versus a new 182, but I doubt it's significant.

A much more interesting insurance question right now is the Sport Pilot/LSA
segment of the market. This is going to be much more price-sensitive and
potentially a lot larger. It will be interesting to see how this evolves.

Okay, I hear you. But what if Avemco only discounted the Mooneys, and
charged the same or more for the others (based on Richard Collins data
being
proved out in claims)? Would they not then be more profitable than the
competition by attracting more than their fair share of the better retract
business?

Well, I suspect this *is* going on, particularly with light twins. If you
read insurance threads here you'll often see cases where one insurer offers
a significantly (15%) lower rate than the others. The issue is that
information moves much more slowly. Airlines, for instance, change fares
constantly, but they are all published onto the SABRE network in near-real
time so competitors see very quickly what's going on and can respond in kind
if desired. Insurers probably need a minimum of a few months to see these
sorts of trends. Again, this is a case where a master database could help
accelerate things.

However, it does have a possible downside in that it diminishes the value of
price-cutting. If an insurer starts offering significantly-reduced rates on,
say, Mooneys, it will take some time before the other insurers notice. In
this time they will scoop up a lot of customers. Then the others will cut
their rates too, at which point the advantage will disappear. So the more
time it takes for your competitors to realize you cut your prices, the
higher the ROI on your price cutting. Now, you also need to consider that
cutting prices will initially cost you money since you're also going to be
offering lower rates to customers you already have. So the key is to catch
enough new customers to make up for lost revenue from existing ones. If your
competitors can respond to price cuts more or less instantly, then it
eliminates the incentive to do so. This, coincidentally, explains why the
"we will not be undersold" guarantees you see in ads are actually ways of
discouraging price competition.

So in the end the key is to have a lot of companies in the market. This way
you always have someone upsetting the cozy equilibrium that favors the
insurers and forcing everyone else to come along. The
four-is-few-six-is-many rule is derived by observation, and there remains a
Nobel to be won by the economist who gives a good crisp mathematical
justification for it.

Also, what you say brings up an idea. Perhaps one year is not enough data
for claims because each insurer does not have a wide enough pool. Perhaps
they all need to provide their claims data to a third party, and then buy
back the overall fleet results in order to change rates to reflect the
total
fleet results.

I don't see how this would benefit the insurers. Assuming they are
overcharging, they have no reason to want to stop.

with predictable results. Time will tell. Either way, rates will not
come
down without a pretty substantial reduction in accident rates and no one
is
predicting that for anybody.

Hasn't Diamond had a reduced incident as well as fatality rate?

Perhaps, I don't know. Again, the key is to figure out why. Perhaps the
reputation of the Diamond as a "safe" airplane attracts safety-oriented
pilots who are going to be safer no matter what airplane they fly. I am very
open to believing that a plane can be made more crash-worthy, and the
Diamond clearly is. I am less persuaded that there is that much more to be
done to make planes safer to fly in day VFR conditions. Is there that much
that can be done to improve stall-spin characteristics? Can we make planes
that much easier to land in crosswinds? Of course, there is always
something, but most accidents begin with bad judgment.


Ahhh, but they did treat Diamonds like Cessna's and appear to be making
out
like fatcats. Besides, if they really do take that approach, isn't it
just
proving my point that they reduce innovation, and are therefore reducing
safety?


Well, this is the way of all flesh. Prices tend to go up quickly, and come
down slowly. Yes, no question insurers do occasionally milk certain market
segments.


PS I really appreciate your perspective on this, you are helping me
reshape
my opinions and sharpen some of my arguments.


IMHO the real problem is not insurers, it's the FAA certification process.
To answer one of my own questions, it would seem that the data stream
available in the G1000 ought to be sufficient to construct a warning device
that could predict many of the potential stall-spin scenarios. For instance,
if you're buzzing around pattern altitude near a field and have the traffic
frequency tuned, you're probably flying the pattern. Now, let's watch the
airspeed trend, and sound an alarm if it starts slowing down rapidly on the
base-final turn. "Speed up, speed up!" would probably prevent a non-trivial
number of such accidents, though surely not all. You could construct similar
routines for plenty of other scenarios. However, getting this approaved by
the FAA and your company's legal department would be a nightmare. Neither of
these have *anything* to do with the insurance companies.

-cwk.

"Brian Sponcil" wrote in message
...
"Matt Whiting" wrote in message
...
I don't think Cirrus has come even close to making money yet, on a total
investment basis. I haven't keep track of the total amount of venture
capital they've secured, but I think it was north of $200MM. That will
take a long time to recoup. They may well be profitable at the
operations level, but that isn't the same thing as "making money"
overall.

I'm sure you're right but a quick look at the numbers makes me wonder how
they AREN'T going to recoup that $$. Cirrus is selling something like 50
planes a month. You'd think their profit margin on a 300k airplane would
be at least 20k. If so, that's roughly 10Mil in profit every year and a
20 year break even on the initial 200Mil investment.

The gross margin on aircraft is much higher than 6.7%, it is more like
35-40%. Of course they have SG&A and R&D to cover but they are making an
incremental $100K+ on every plane.


Diamond's numbers are roughly the same. Supposedly the Austrian factory
pumps out 400 planes/year and another 100 come out of Ontario. Unless
these guys are operating on Dell like profit margins it's hard to see how
they won't make their investments back.

Dell's gross profit margins are much smaller than any aircraft maker

I suspect that Cessna has run the numbers and realizes that the cost of a
"clean sheet" light airplane would simply never be recovered in today's
market.

Agreed, but Diamond nonetheless managed to come up with 4 "clean sheet"
designs in less than 10 years - including a light jet. Why can't Cessna
and Piper do it? Is the FAA THAT much worse than the JAA (or whatever the
european equivalent is)? You also have to wonder how much longer Cessna
and Piper can afford to NOT bring out a new design.

Cessna and Piper are tooled up to produce metal airplanes while most
successful new designs are composite. Cessna, Piper and Mooney have the
wrong tooling and their workforce has the wrong skills to produce "modern"
light aircraft.

Mike
MU-2


-Brian
Iowa City, IA

"Newps" wrote in message
...


C J Campbell wrote:



Yes, the FAA is that much worse. Look at the trouble Diamond is having
getting the DA-42 certified in the US.

Can't be that bad, Cessna brings out new jets like their going out of
style.

But they are just mixing and matching different wings, engines and fusilages
with various cabin plugs and wing extensions. Not much new to get
certified.

Mike
MU-2

Mike Rapoport wrote:

"Brian Sponcil" wrote in message
...

"Matt Whiting" wrote in message
...

I don't think Cirrus has come even close to making money yet, on a total
investment basis. I haven't keep track of the total amount of venture
capital they've secured, but I think it was north of $200MM. That will
take a long time to recoup. They may well be profitable at the
operations level, but that isn't the same thing as "making money"
overall.

I'm sure you're right but a quick look at the numbers makes me wonder how
they AREN'T going to recoup that $$. Cirrus is selling something like 50
planes a month. You'd think their profit margin on a 300k airplane would
be at least 20k. If so, that's roughly 10Mil in profit every year and a
20 year break even on the initial 200Mil investment.


The gross margin on aircraft is much higher than 6.7%, it is more like
35-40%. Of course they have SG&A and R&D to cover but they are making an
incremental $100K+ on every plane.

Where did you find Cirrus' financial statements? Last I knew they were
privately held and I've been unable to find any financial statements,
audited or otherwise.


Matt

"Matt Whiting" wrote in message
...
Mike Rapoport wrote:

"Brian Sponcil" wrote in message
...

"Matt Whiting" wrote in message
...

I don't think Cirrus has come even close to making money yet, on a total
investment basis. I haven't keep track of the total amount of venture
capital they've secured, but I think it was north of $200MM. That will
take a long time to recoup. They may well be profitable at the
operations level, but that isn't the same thing as "making money"
overall.

I'm sure you're right but a quick look at the numbers makes me wonder how
they AREN'T going to recoup that $$. Cirrus is selling something like 50
planes a month. You'd think their profit margin on a 300k airplane would
be at least 20k. If so, that's roughly 10Mil in profit every year and a
20 year break even on the initial 200Mil investment.


The gross margin on aircraft is much higher than 6.7%, it is more like
35-40%. Of course they have SG&A and R&D to cover but they are making an
incremental $100K+ on every plane.

Where did you find Cirrus' financial statements? Last I knew they were
privately held and I've been unable to find any financial statements,
audited or otherwise.


Matt


Acutally I got it from a different, publicly traded company but you can
probably approximate it from Textron's 10K if you spend long enough at it.
Looking at it another way, I get at least one invitation a month from jet
manufactures to fly their products. I have never taken them up on it but
this portion of their selling cost would eat up the entire gross margin if
that gross margin was 7%. High gross margins are required to recover high
development and certification costs on small volume of airplanes.

I heard a story (from the president of the bank that eventually financed the
airplane) of a prospective buyer being given a two week trip to Europe from
the US by the manufacturer of the airplane and then he bought it for over
15% off the official price. This was in 2001 when the bottom fell out of
the turbine airplane market. Planes have high gross margins. Keep in mind
that the cost of developement is not in the COGS.

Mike
MU-2

Mike
MU-2