The cost of owning?

[John Baker]

I have no clue how many used airplanes are up for sale at this point, I also have no clue about just how many active pilots we have. I'm just wondering that if every active pilot could pick out any plane they wanted, for free, from the "for sale" used aircraft fleet on the market today, how many airplanes would not get a new owner? Or would there be active pilots who did not get an airplane?

I know the aviation industry is hurting big time right now, yet prices for everything, training, airplanes, avionics, repairs, etc. do not seem to be dropping at all. If anything, they are climbing.

I believe we have more equipment than we have current pilots who are interested, but I am just guessing.

Thoughts?

John

 

[Jim Logajan]

Flying is NOT expensive -- if you don't want it to be.

Well I think flying is expensive. Alas. If it had been less expensive, I wouldn't have put it off til I was over 50 years old when I had the spare time and money.

For what it is worth, I think I now know why small GA airplanes sold so well up through the 1970's, and then sales dropped off the proverbial cliff. The sales decline started with an important event that only a handful of people seem to have recognized (first read about it in a book by James Fallows; didn't believe it till I came across the statistics more recently.) The decline in student starts appears to have coincided with the same event.

When I find the time, I should start a thread about it.

 

[Jim Logajan]

Can you give us a hint?

John

First, let's look at the statistics. Check out this useful document - specifically the tables and graphs on pages 22 to 24:

http://www.gama.aero/files/documents/GA_Statistical_Databook_and_Industry_Outlook_0.pdf

Sales didn't just gradually decline over the years - they plummeted right after 1978. In 1978 manufacturers shipped 14,398 single engine airplanes. In 5 years that dropped to 1,811. (Table 1.8, single-engine column.) Unprecedented. From '78 to '81, prices for single engine land airplanes rose only an average of 13%/year (from SEL columns of tables 1.8 and 1.9.) (There was a 40% rise from '81 to '82 - when sales had fallen so far that amortization of fixed costs started to dominate per unit costs.) The GAMA report doesn't contain data for SEL prior to '78 in table 1.9, but the average price for all GA planes from '75 to '78 rose only 12%/year (computed from table 1.7.)

So 12% rises per year pre-drop and 13% rises per year post-drop.

Ergo:
The dramatic decline in single engine land airplane sales was not due to any dramatic rise in prices.

The only thing the statistics show is that fixed costs (and fixed liabilities, like insurance premiums which are tied to the number of planes already sold - i.e. existing fleet size) began to dominate after the sales plunge began. Liability insurance overhead wasn't a cause, it was an effect.

So maybe the decline was due to fewer private pilots? Well take a look here:

http://www.aopa.org/newsroom/statistics/pilots.html

The number of private pilots peaked in 1980, with the most number of students in 1979. The numbers peaked slightly after the decline in sales had begun.

Was it all caused by the sharp rise in oil in 1979? If so, why would it not have recovered when costs dropped? And why would GA sales be affected in 1979 when they weren't in 1973? All forms of transportation would have been similarly affected by increases in fuel costs.

(http://en.wikipedia.org/wiki/1973_oil_crisis)

The reason suggested by James Fallows (and Vern Rayburn formerly of Eclipse Aviation) in his book "Free Flight" (Chapter 3, "The GA Mafia") appears to be this:

http://en.wikipedia.org/wiki/Airline_Deregulation_Act

So prior to airline deregulation in 1978, using private airplanes was a competitive alternative to travel by airlines. Thanks to government dictating routes, flight schedules, and fares for airlines. After deregulation, the hub-and-spoke model the airlines adopted caused fares to drop 30% to 40% (http://www.cato.org/pubs/regulation/regv21n2/airline2-98.pdf , http://libraryonline.erau.edu/online-full-text/books-online/Dereg.pdf )

So once upon a time single engine airplanes were a competitive mode of transportation, which is why they sold so well for so long. When the government's direct meddling in air transport economics was reduced, SEL airplanes couldn't compete.

So if this theory is correct, the way to return SEL GA to its glory days would be for the U.S. government to dictate high airline fares like they used to.

 

[Jim Logajan]

Actually, given the airline industry failures, the passengers are getting low fares subsidized by creditors and shareholders of the airlines.

If airlines actually charged prices that kept them in business GA would look more attractive.

Odd claim since news out just today says airline revenue and profits appear to be doing just fine:
http://247wallst.com/2010/10/14/airlines-will-have-record-profits-for-the-third-quarter/

 

[Jim Logajan]

I don't know whether I buy that or not. I learned how to fly around the time of deregulation and I can't remember anyone trying to make a case for learning by comparing the price of flying yourself to that of an airline ticket. As I recall, most people I knew learned to fly because it was a hobby which appealed to them for whatever reason. I'd say that their motivation was pretty much the same then as it is for people now. I don't remember people being more or less afraid of the perceived danger and it's always been on the somewhat expensive side compared to what average people get paid.

The thing I do notice is that because technology has advanced a long ways since then that people expect all kinds of gadgetry in their airplanes and some feel uncomfortable without it.

But GA sales trended up for decades prior to 1978 and declined sharply and almost permanently after 1978. Personal computers were just being introduced and the global Internet hadn't appeared. People who would have pursued flying didn't simply switch from wanting to fly to wanting to take up stamp collecting. Or that there was a sudden case of mass fear caused pilot prospects to take up down hill skiing instead.

It always helps if a theory explains the facts, and "change in hobbies" doesn't really explain the decline, or why it happened when it happened. If, as you say, motivation hasn't changed, then the same percentage of the population would still be pilots. But the facts don't support that. And ascribing your own motivations to a larger population doesn't seem justified - at least in this case.

What happened starting around 1978 to cause people to move away from wanting to fly and own their own aircraft? Why did it happen in a few short years? As I pointed out, aircraft prices were rising in price at roughly the same rate when sales were booming as well as when sales started plummeting. People keep mixing up cause and effect when they claim liability insurance was the cause of GA decline. The only other plausible theory is the cost reached some sort of trigger level.

 

[Jim Logajan]

The prime interest rate in Jan 1978 was 8%. In December it had increased almost 50%, to 11.75%. By December of 1979 it had risen 10 15.25%, and peaked in April of 1980 at 20%.

How much rocket surgery is required to figure out why airplane sales plummeted?

In 1980 airplane sales had dipped ~35% from their '78 peak. There wasn't any correlation between SEL airplane sales to interest rates after 1980. Why did sales continue to plummet even after interest rates started to decline?

Also, how does the interest rate affect on SEL airplanes compare to it affects on sales of homes, cars, and non-aviation recreational vehicles?