Sport Pilot Talk

Doc, good idea on an LSA ad in AARP. I tried to introduce an info piece on LSA in that magazine awhile back, but never even got a reply. They run all sorts of other stuff in their rag about what the 55+ generation is doing with post retirement years, but never a peep about LSA. Maybe I wrote to the wrong department, or the subject was too radical for them.

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Tecnam Flyer

Have you seen the new 4 seat from Flight Design? They are suggesting a price of $250,000, $50,000 less than a C172 or Piper Archer. Why not just price it at $300,000?

What you might not know about Hyundai is that they entered the US market only after establishing themselves as a major player elsewhere. When I lived in Korea (1967 - 69), they had already been Asia's major heavy equipment supplier for over a decade. So, they had a wealth of resources and experience to draw upon. The really successful LSA manufacturers (Tecnam, Evektor, Remos, Flight Design, etc.) similarly have extensive backgrounds in a related field, which they are bringing to the production of LSAs that are, frankly, better than most and more affordable than many. Yes, they're still expensive, but compare them to Piper and Cessna, and you'll see that they're doing something right.

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The opinions expressed in this post are those of one CFI, and do not necessarily represent the position of the FAA or its lawyers.
Prof. H. Paul Shuch, Ph.D., CFII, LSRM-A/GL/WS
AvSport of Lock Haven
http://AvSport.org fly@AvSport.org

What I'd like to see, if anyone knows, is what is the profit per unit for LSA producers, and how many airplanes they have to sell before they break even.

It doesn't change the elasticity of the market. That's the problem. Elasticity is in large part a measure of current vs. potential market size. The market has for decades offered aircraft in the sub-$20,000 range (used part 23, 103 ultralights, some homebuilts, etc.), on up. Everyone who could be pulled in by the idea of a $20,000 two-seat plane is already in, thanks to used Cessna 150s. Sport Pilot licensing increased the size by reducing the medical certification burden, but that has been very very slow to materialize as a real gain in market size.

The reality is that most people don't fly because they have no idea how to start flying, they have preconceived notions about the price, and frankly flying scares them.

When a new LSA comes on the market with a low relative price, say $60k, it is competing against $20k used planes on the secondary market, kit makers who claim $60k plus some sweat is enough to buy a kit and get a better plane, etc. As a result, the new LSA maker doesn't see a sales volume advantage relative to their $100k+ competitors. They sell for less but don't pull buyers away because there are already more planes than buyers. By raising their price to $100k, they retain most of the customers who would buy their plane anyway, and get an extra $40k per sale. A win all around.

Hyundai is selling into a huge, stratified, and within each strata very elastic market. Everyone buys cars, and they all price shop, and they hop levels based on price and perceived benefit all the time. Introducing a new car at used car prices will pull latent "must have it, don't like used, want cheap" buyers off the secondary market and into new car dealerships.

I would love to see the GA/LSA market become similar to the car market. What is missing isn't lower prices, and what is preventing it isn't the high cost of building aircraft. It's very simply the size of the buyer pool. Add more potential buyers (which helps to raise the market elasticity) and prices will go down.

Jon V, your theory assumes a huge mark up per LSA. Can you prove that?

Jon V, we'll see what happens with your theory when the new 4 seat FD hits the market. If the claimed performance of the new FD is even close to reality and the price is $250,000, then there will be no reason for a buyer to choose a C172, Piper Archer, DA 40 or SR20-22 at current pricing.

Can I "prove" it?

No. Without digging through the manufacturer's accounting ledgers there really isn't going to be proof.

However, I can analyze public information and infer it.

For example, a CH750 kit will set you back about $20,000. The firewall forward and basic finishing is likely another $20,000. Those are retail prices, remember. They claim under 400 hours build time and have demonstrated building (and flying) one during Oshkosh. If we figure labor at $25/hr and estimating worst case hours that's another $10,000 for a total of about $50,000 with some retail markup included. Price for a completed CH750 S-LSA: $99,900.00.

Recognizing that Zenith was already making a decent mark-up on the kit, that means there good reason to expect $50,000 in mark-up for the S-LSA model.

For another example, a factory built Marlin 5EXi will set you back about $30,000 (18,000 UKP). That's a fully custom built (to order) performance car which, again, shares many construction methods with LSA aircraft. Again, they have mark-up in that $30K price tag. An American Legend Cub (which shares some construction methods) will run you $125,000. The disparity implies, without conclusively proving, substantial mark-up.

Anyway, you seem to be trying to claim this is my theory. That's flattering, but this is just basic economics 101 level business theory. Elasticity and optimal pricing is something I first read about while doing my minimal required economics study as a teenager. The theory is not mine, not new, not fringe, not conspiracy...it's firmly mainstream, widely accepted, basic "this is how you run a business" type knowledge. It's one of the tools that successful businesspeople use every day all around the globe.

I guess your reasoning to conclude a $50,000 markup would be valid if the only costs associated with operating a factory and selling completed airplanes was labor. BTW, $20,000 firewall forward is pretty optimistic.

Probably so. The current retail price of a Rotax 912ULS, new in the crate, is right at $19,000 before freight charges.

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The opinions expressed in this post are those of one CFI, and do not necessarily represent the position of the FAA or its lawyers.
Prof. H. Paul Shuch, Ph.D., CFII, LSRM-A/GL/WS
AvSport of Lock Haven
http://AvSport.org fly@AvSport.org

Nope.

Remember, they already have costs from operating a factory (equipment, warehouse space, etc), building airplanes (demo, prototype, trainers, etc), selling airplanes (giving demo flights and the like), design, licensing, advertising/marketing, accounting, overhead staff, etc. Those costs are already reflected in the kit price. Whether they sell the plane as a kit or completed they must recover their NRE and overhead.

Since they can backlog orders and build off the backlog they have no special inventory expenses. Since they can charge deposits (up to 100%) to begin construction they have no cost of capital to worry about.



Maybe. Chump change difference though. Doesn't matter if the total cost is $20,000 or $25,000, the total is a LOT less than the asking price of $100,000 for the completed plane.

As for it being low, I don't think so. I found RETAIL prices in the $17,500 to $21,500 for complete engines, figured $2500 for the rest of the FWF, to come out with about 20K as a dealer/manufacturer. Unless you can show me that dealer cost list matches retail I think we should keep my number.

I can tell you for a fact that these LSA Mfg's are not making big bucks for an SLSA. I know what two of them pay to get them to this country to sell and the distributor and dealer do not make that kind of money. Actually I was a little surprised it wasn't a bit more. If they had big mark ups those planes would cost us $175K.

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Roger Lee
Tucson, Az.
Light Sport Repairman - Maint. Rated
Rotax Repair Center - Heavy Maint Rated
(520) 574-1080 (Home) Try Home First.
(520) 349-7056 (Cell)

Everyone along the chain gets a slice of the markup. The manufacturer gets some, the distributor gets some, the dealer gets some. If you are just looking at the cost to bring a plane into the US vs. retail you aren't seeing the whole picture.

I've never worked in the airplane manufacturing business, and I'm guessing you never have either. So we're both making assumptions. From the little bit of research I've done on kit planes, I've concluded that once the prototype is completed and tested, there is not a whole lot of costs associated with selling kits. The ones I looked into all the airframe parts were fabricated in asia. Once an order for a kit comes in it appears to be just a matter of putting in orders with your suppliers, recieving the goods and inspecting them and shipping them back out to the customer. I don't really know for sure, but I have to think there is a whole lot more liability costs for selling complete airplanes than kits.

Nope, never worked in aviation. I have done work with various real products over the years, but never airplane manufacturing. Still, business is business as they say.

Looking mainly at the major kit makers (Van's, Zenith, etc) I'd say you are selling them short. If you are talking about plans and the fringe kits, I agree with you that some are very low overhead "kitchen table" sorts of operations.

Sticking with Zenith for the moment, they've got a factory in Missouri. Facilities at an airport. They do training, workshops, sample flights, etc. from there. From what I recall their more complicated production (welding and the like) is done in Mexico (the country), not Asia. They have employees, salespeople, everything else.

As for liability.... as any entrepreneur will tell you, "that's what bankruptcy is for." (Joking, kinda.) Seriously, though, I doubt a kitmaker, especially a modern kitmaker providing quick build kits with pre-drilled skins, pre-formed ribs, pre-welded fixtures, etc. has any less liability than a full S-LSA manufacturer.