13 February 2008

Falling Like Flies?

What is happening to aircraft manufacturers? We seem to be losing them at a rapid rate these days, especially start-up manufacturers of light aircraft.

Let's look at the recent score sheet:

Symphony Aircraft of Trois-Rivières, Quebec. Manufactured the Symphony SA-160, completing about 18 aircraft. Started production in May 2005, bankrupt in January 2007.

Tiger Aircraft of Martinsburg, West Virginia. Manufactured the AG-5B Tiger, produced 51 aircraft. Started production in 2002, bankrupt in January 2007.

Adam Aircraft of Centennial, Colorado. Manufactured the A500 twin, produced seven of them. They were also flying the single prototype of the A700 twin-jet. Started up A-500 production in 2005, bankrupt in February 2008.

Let's consider the details:

Symphony Aircraft

I actually visited Symphony Aircraft on 10 August 2005 to interview their CEO, Paul Costanzo. You can read my review of the aircraft on the COPA website.

At that point production had just begun and he was very confident that they had sufficient capital to see them through the start-up phase. His priorities at that time, with customer deliveries of the certified SA-160 already under way, were certifying the BRS parachute installation and the Avidyne glass cockpit installation. Customers wanted both those items and work was progressing on them. He had orders and he had skilled workers building planes.

Costanzo was very upbeat about the company at that point. He was convinced that many new aircraft manufacturers fail because they don't have sufficient capitalization to get through the certification and start-up of production to the point where they can create cash-flow by getting customer's aircraft out the door. He was confident that his company was more than adequately capitalized.

I think he was right about the first point, but he was obviously wrong about Symphony being adequately capitalized because they ran out of money and just couldn't raise any more. Costanzo was quoted as saying that the venture capital market in Quebec was "dismal".

Costanzo had plans for a four-place Symphony and also a floatplane and a diesel version, but work hadn't really started on those projects, awaiting the money to do that.

Tiger Aircraft

Tiger had actually started producing AG-5Bs in 2002. Again it was not a lack of orders for the aircraft or skilled workers, but it was financing to get through the start-up and certification period. Like Symphony, Tiger was working on certifying a glass-cockpit installation for the AG-5B when they ran out of money. Customers wanted them in the Tiger, but they couldn't find the financing required to get over that hurdle.

Adam Aircraft

This company had been around for ten years when it finally closed its doors on February 11th, 2008. They had a real attention-getting product, the twin-boom, push-pull A500. Heck it was even in the 2006 film version of Miami Vice, because it was so stylish-looking.

There was little indication of problems at Adam until early in the New Year 2008. The aviation media carried stories about Adam trying to raise US$75M-150M to complete the certification of the A700 jet and get the A500 into full production. In the end their closing press release indicated that the reason for the failure was "due to the inability of the company to come to terms with their lender for funding necessary to maintain business operations."

What is going on here?

It is easy to read these three stories of new aircraft manufacturers and think that the problem could be summed up as "under-capitalization" - not enough money to get them through the the certification and start-up process and into production. Smarter companies would have had more money, right?

There are indications that even the most heavily capitalized companies are having problems getting through the costs of certification. Eclipse Aviation, makers of the best selling Eclipse 500 jet that is just starting to come off the production line, have been asking their customers to advance a bigger down payment to the company to help it get all the components certified and production ramped up. The customers have put up an additional US$30M too. Hopefully Eclipse is over the certification and start-up hump now. But if really-well-funded Eclipse has to keep going back for more cash the question remains - is there such as thing as "adequately capitalized" for a new company to start production of a new aircraft?

I don't believe that the real issue here is under-capitalization, I think the real problem is that certifying an aircraft and its systems is far too expensive, and, most of all, that it is not money well spent.

I am not the only one who thinks that certification is too expensive. In a conversation with Zenair principal Chris Heintz a few years ago, just after the company had certified the CH2000 as the AMD Alarus, I asked him how much it cost. He said "Too much.". I asked him if he would certify another aircraft. He was quick to answer, "No".

Talking with the folks at Found Aircraft after they had completed certification of the BushHawk produced the same response - certification was too expensive to make it worthwhile.

The governments of both the US and Canada have created enormously complex sets of rules to certify that aircraft are safe. The rules that a manufacturer has to comply with to build even a small and simple aircraft are bizarrely excessive. Read them yourself on the TC website.

Now I know that there was a good reason to introduce standards for manufactured aircraft in the 1930s. Before we had standards manufacturers produced some very dangerous and badly designed aircraft and sold them to the public. All that ended with the introduction of the first light aircraft certification standards, which were sensible, short and relatively easy to comply with. Aircraft became a lot safer as a result of these rules.

The problem was that the bureaucrats figured even more rules would make aircraft even safer and every year more and more rules were added until we came to the insanely complex rules that we have today. The problem is that beyond the early days the data is pretty clear: they haven't made aircraft safer, just a lot more expensive.

It costs a lot of money to pay to have large collections of engineers in Ottawa and Oklahoma City sitting around making up rules and then enforcing them. The end result is the new manufacturer carnage described above. You just can't have enough money to pay for it all. And new aircraft are not safer than the older ones certified to much earlier and simpler versions of the rules.

The problem is that you can't seem to fire all the certification bureaucrats or even find a way to force them to simplify the rules. Every time an aircraft crashes they add more rules in an attempt to prevent that last accident. If you wanted to certify the Cessna 206H in Canada today it would only be allowed to carry one person - no kidding!

I proposed a few years ago that he CARs be fixed in size and that any time TC wanted to add a new word to them that they would have remove an existing word. People laughed, but I wasn't kidding. You can't have rules that just get more and more complex over time - it destroys creativity in the short term, costs too much money in the mid-term and results in the end of the industry in the long term.

Here is a warning - very soon here we are going to need some aircraft engines that do not burn gasoline, jet fuel or diesel. We are going to realize that we are going to need them quite quickly when the price of oil gets too high and people can't afford to fly or run commercial air services. There will be some great research done on fuel cells, electric engines, hydrogen-burning engines and perhaps other things undreamt of today, but the certification hurdles will stop the innovation needed from happening at all. You can't certify a new type of aero engine today that doesn't run on oil-based fuels, in less than 20 years. The result is not going to be pretty.

In a way the certification process is making the skies safer, because it is keeping aircraft out of the skies in the first place or at least new aircraft out of the skies. Ironically this means that potential buyers of those new aircraft may just have to buy an old aircraft instead. They may have little choice. You can't buy a new Adam A500 today, no matter how much you would like to, but you can buy a 40 year old Cessna Skymaster.

There have been several attempts to create ways around the huge roadblock that is our certification rules. The Canadian advanced ultralight rules and the American copycat LSA rules are two examples. Amateur-builts are another.

But without wholesale reform of the certification rules and also of the the bureaucracy that they serve, I am afraid that the future of certified aircraft is going to be a short one.

1 comment:

Michael Shaw said...

Right on Adam. It's the same with all activities that require a Canadian Aviation Document or certification by the FAA. I bet there are a bunch of small companies (i.e. airports, commercial operators, and the like) that feel the pressure responding to the SMS requirements imposed by Transport Canada.

Mike Shaw