First Word: January 2010

Two Good Ideas

Because of aviations higher-than-normal dingbat factor, I don’t see many business ideas in the industry that make my head swoon. Most of them make my head hurt, frankly. Were covering two exceptions in this issue, the Next Dimension Aircraft Cirrus mod project and the basic idea of aircraft

partnerships. In a way, the two are related.

Heres why. If Cirrus has figured out anything, its that magic formula so often proposed but rarely realized: If you build the right airplane, buyers who wouldnt necessarily buy any aircraft or maybe just a “traditional” airplane will write the check for your product. In other words, Cirrus set out to bring the moneyed BMW and Lexus crowd into aviation and theyve by-God done it, more or less.

But theyve also created a problem for themselves. A percentage of the Cirrus demographic is wealthy enough to buy every new model Cirrus has introduced and many have done just that. As a result, there are a lot of used Cirri on the market, especially SR22s. Thats worrying enough, but here comes Next Dimension to mod up those used airplanes with turbos and new glass panels that will make them as capable and attractive as a new SR22, or nearly so, for less money. Cirrus needs every sale it can get, so every buyer it loses to Next Dimension-a project I think will take off-is one it cant afford.

Coming at the market expansion challenge from the opposite end of the spectrum is David Kruger with his Aircraft Partnership Association idea. I don’t know if it can work, but its just a terrific concept, in my view. His notion is to approach the sale of new airplanes strictly from the affordability of splitting ownership through partnerships. Hes trying to get the manufacturers and alphabets signed up to support this and I hope theyre listening.

Wait a minute, you say, this is nothing new. AirShares Elite, PlaneSmart and others are already doing this. Its true, they are, but those efforts are managed fractionals, not true partnerships. You buy into them-they arent cheap-and you essentially get a rental arrangement with concierge service. Cheaper than sole ownership for sure, but because theyre buying new, state-of-the-art aircraft, theyre still pricey.

Krugers argument is that a fractional offering $65,000 down and $800 a month may expand the market a little, but $5000 down and $250 a month for an LSA will ignite the interest of many more who thought owning an aircraft was out of the question for them. So would an economical partnership in a late model high-performance single and APA supports that, too.

Obviously, we need both kinds of buyers, but Ill wager Krugers numbers benefit the industry more. So why arent the alphabets and manufacturers on board? They are in principle, but commitment lags, probably because of inertia. Aircraft salesmen, who are as strapped for resources as any of us, instinctively go for that small number of prospects capable of writing a check. And why wouldnt they? Kruger wants to direct the discussion to defraying the high cost of purchase by sharing the load in group ownership thats real ownership, not a managed fractional. There’s a difference and its not subtle.

The demographics may favor him. He told me there’s an age divide between people in their 50s and 60s who want the privacy of sole ownership for its own sake and buyers in their 40s and younger who are appalled at investing multiple hundred thousands in something they might use for 120 hours a year, if that. Frankly, I think hes on to something.

-Paul Bertorelli