GA piston market size: Can Columbia survive??


#1

:question: Recent deliveries are showing Cirrus/Cessna are dominating deliveries. Over the last couple years, Cessna’s share (again singles) is slowly growing, and Cirrus growing dramatically. Overall market hasn’t been growing, so the remaining piece of pie is divided by the other players. Can everyone else continue to complete?

I’m looking at the consolidation with Tiger/Commander being gone. Piper is only viable since they have a 6-place. Diamond has the family offering to be a potential powerhouse, but isn’t quite getting there.

I think the Columbia plane is quite good, but the management continues to make mistakes and they aren’t going to make it.
-Multiple lay-offs: eventhough most people are eventually rehired, the good people have to be leaving for more security.
-Financial stability: I don’t have any inside information, but have concerns. Columbia laid-off the majority of their workforce last month due to the G1000 issues. Other manufacturers (Diamond, Piper, Cessna) were effected and they didn’t throw Garmin under the bus
-Marketing machine focuses on negative campaign on Cirrus and not on promotion of their product. (Many of the owners seem to do this too.)
-The new turbo Cirrus is selling like crazy. Columbia/Mooney used to own this market and now there are a few dozen turbo-Cirrus going out every month. Columbia has lost its niche with Cirrus and Mooney’s compeition.


#2

If you look at the delivery numbers, Columbia is growing at a faster pace than Cirrus (admittedly from a lower base), so it looks like both Columbia and Cirrus growth is coming from the older aluminum plane manufacturers rather than just each others.

Columbia 2006: 185, 2007 YTD 101
Cirrus 2006: 721, 2007 YTD 268

Columbia is currently at 55% of last full year’s sales while Cirrus is only at 37%.


#3

I’m looking longer term. With their core engineering group disbanded, they don’t have the people to do any big projects. They shown this with program delays on G1000, months it took to address the hail damage, lack of announcements at Lakeland and lack of announcements at Oshkosh. The industry is moving very fast right now and Columbia seems to be sitting still.


#4

I think Columbia is to the point where they can be sold at a profit.

The worst case for Columbia owners would be having to go through Mooney-like angst if the company ownership changed.

The plane is so good that, like Mooney, someone will make them even if the existing company was hypothetically forced to reorganize.

ETA: They didn’t announce anything at Oshkosh, but they had a very impressive display area, probably the best of the show given their Lincoln Navigator demo.


#5

I think Columbia is in fine shape. They have been stealing more and more orders from cirrus and mooney every year. Cirrus was embarrassed after last quarter. However, I think it is evident that columbia has to start working on a replacement. Cirrus is catching them in fit and finish (and other things like handling). Cirrus with its more affordable price and parachute will always appeal to the business man which makes up a lot of the cirrus and columbia orders. Another reason Cirrus sells more is because Cirrus is a marketing machine. Columbia has the worst marketing I have ever seen.

As for the layoffs, they also seem to furlough workers everytime something happens. They have however brought back their workers in previous situations.

Also, Columbia has very poor management.


#6

There is no secret that Columbia is up for sale. I don’t know if the Malaysians will make a profit, or just get out of the deal. Rumors that Cessna was looking at it carefully earlier this year, but walked away.

We’ll have to agree to disagree about the Navigator demo. I’m assuming the purpose was to show the strength of the wing, but I wasn’t impressed. A Navagitor must weigh close to 6000 lbs, so the wing was holding less than 2 g’s.

Eventhough the weights were much lower, I like the old Mooney pictures showing a large group of employees standing across the wing.


#7

I’m inferring that the the recurring furloughs/lay-offs are indicative of weakness in the company. It is great that they have been growing, but I don’t think it is right to say they are stealing sales from Cirrus. Cirrus is cranking out turbos in big numbers and that has to hurt Columbia. Last year, it was just Columbia/Mooney going for the Flight Level customer and now Cirrus is stamping out turbos in huge numbers. I’m sure Columbia/Mooney are a little faster, but various reporters are saying the Cirrus is close.

Columbia needs to get its act together if they want to stay around:
-Existing product was on par (or ahead) of Cirrus/Cessna/Diamond when introduced, but minimal improvements in recent years.
-from outside, nothing apparent to expand product line in either direction. Cessna/Diamond have trainers to jets. Cirrus is in the process of expanding.

Speaking of squeezing out competition, I really do feel badly for the dozens of **LSA guys **that have some good designs out there. There are now a pair of 500 lb gorillas in the market and those guys will absolutely get crushed. Cirrus/Cessna have the infrastructure to support these products in the field (service centers, parts, established supply chain) which puts the mom/pop manufacturers at a huge disadvantage.


#8

I don’t feel a jet is the way to go for CAM. It can easily exhaust money, and send a company spinning. I think Columbia should work on a turboprop that is AFFORDABLE. Thats where the market is and that is where they can make a profit. Selling 100+ jets just to BREAK EVEN doesnt make sense.

It is great that they have been growing, but I don’t think it is right to say they are stealing sales from Cirrus

I really used that word for lack of a better word. But if you look at Cirrus orders, they have gone down, while Columbias have gone up. You could argue that other companies may have "stole’’ the orders, that Cirrus has sold a plane to every living person in this world, or that Columbias hail storm made this year’s numbers look better. I do however think many are getting sick of Cirrus’s arrogance, and low quality build, and have been switching. To sum up; Columbia is in fine shape.


#9

Classic case of a company trying to keep P&L numbers appealing to potential buyers, and cash assets on the Balance Sheet. Columbia is acting like a company that’s for sale. The long term risk of losing skilled labor is overridden by better short term financial statements. They don’t seem worried (or concerned) about the loss of manpower and retraining costs. This is “business for sale” 101.


#10

I disagree. Most buyers looking at a airplane company with no engineering dept. etc. are going to see through that. It doesn’t take an aerospace PhD to figure out that the P&L is artificial without those key people and they only have to look at last years income statement to see that. While a few potential buyers like Cessna or Piper don’t necessarily need the engineers (though I would argue that they should keep the Columbia ones and get rid of some metal benders), no intelligent seller would do something that would narrow the list of potential buyers to only those who already have the engineering and support groups.

What this is really is survival 101. You cut the burn rate to keep the company going for as long as possible and hope that you either grow sales enough to add back expenses later or at least have more time to sell the company.


#11

I would agree with everything you’ve said here if the buyers were another aircraft manufacturer. A company like Columbia can appeal to investors looking for short term positive cash flow, and a reflip or dissolution of assets down the road. The plane itself is good enough to weather different owners. Remember, the current owners came in for just this reason and have acted out the script to the letter.

I think you’re dead on with the Survival 101 concept. But now what? At this point you can reinvest or divest. At this point, it looks like they’re divesting. There doesn’t seem to be any other plan in place for the future.


#12

#13

gtpslim seems to have a reasonable grasp of Columbia’s situation. Here is what they face:

  1. The Malaysian Government has refused to permit new aircraft development. The project to develop a pressurized Columbia 400, the next product exepcted by most in the industry, never got off the ground.

  2. According to company president Wan Majid, Columbia needs to build 3.5 aircraft per week to break even. 15 new aircraft orders per month would be needed to support this manufacturing level, 10% better than what the company accomplished in 2006, a year when the Columbia 400 was without competition. With the 400 now going head-to-head with the SR22 Turbo, can this increased order rate really be achieved.

  3. E-Vade, Columbia’s revolutionary anti-ice system and a major differentiator versus Cirrus’ TKS, has been abandoned by the company in favor of a comparable TKS system. Without E-Vade, how can Columbia justify a price $60,000 higher than Cirrus for its Columbia 400?

  4. The Malaysian Government remains unwilling to inject cash into the company. This is why Columbia Aircraft furloughed 300 employees when Garmin briefly suspended shipments and none of the other 5 companies affected reduced its force by a single employee. Columbia has since restored 60% of its furloughed employees; the question is whether they are just completing work-in-process or are they actually starting new airframes.

Would you be interested in acquiring a company that can’t break even with its current products and needs more than a year to get anything new out the door? The Malaysian Governement has invested over $100 million in Columbia Aircraft; is there any hope that they can recover more than $30 million or so?


#14

Probably not. But then again, the original investors in Cirrus suffered a similar fate even though the plane and company has gone on to be very successful.


#15

In my estimation, Cirrus Design is currently worth more than its investors put into the company. Although its value is probably not as high as its owners would prefer in support of an IPO, it could probably be sold today at a gain. In addition, it is currently selling a new product (SR22 Turbo) and has a jet in development, both of which would factor into any valuation.

In the case of Columbia Aircraft, its value is not only well below the amount invested by its owners, there is significant long-term debt that would factor into any deal that might be made.

Let’s face it, investing in general aviation is a risky business. Looking around today, I would rate Diamond, Cirrus and Piper at the upper end of the valuation spectrum with Columbia Aircraft at the bottom. The ability to bring new products to market is critical in today’s fast-moving GA market.


#16

The initial investors in Cirrus were largely washed out and would not make a positive return even if the company were sold or went public at a very high valuation, as I understand it. More recent investors would probably earn a positive return.


#17

Why are so many aircraft manufactures owned by banks instead of being public (stock market)?


#18

I don’t have a good feel for where Piper will land. I see the Piper Jet is a “me too” into an increasingly competitive market.

Their fixed gear Malibu derrivative could be interesting competition…mostly for the DA50. It all depends on how much of the good stuff needs to be stripped down to meet the cost targets, and where the performance comes in.


#19

Starting with Cirrus Design…

I don’t know where the Klapmeiers went for their seed capital but I do know that the company was in distress when Crescent Capital (now Arcapita) acquired controlling interest and helped to reshape their management team. There can be significant dilution for early investors in cases like this (take Eclipse Aviation as an example) and it is quite possible that the initial investors ended up with a very small share of the company. FYI, Arcapita’s parent is the First Islamic Investment Bank, based in Bahrain.

In regard to why GA companies do not raise funds via public markets, a strong earnings history is necessary to support an IPO and GA start-ups are all facing many years of heavy spending to get through certification. This process, which can take 5+ years (from initial design) is highly capital intensive and occurs before the company can generate any revenue/earnings. Down-the-road IPO’s are not out of the question but even a success story like Cirrus Design seems to have not been able to generate sufficient earnings to support an IPO valuation acceptable to its investors.

Finally, let’s take a look at Piper Aircraft. In June, 2003, Piper was acquired by American Capital (ACAS) which has specialized in turnarounds. The company’s current strengths are:

  1. Strong Management Team - Most of the company’s executive team was established following the ACAS acquisition, including their outstanding CEO, Jim Bass.

  2. Market Niche - The company has established itself in what I call the “GA comfort market”, roomy 6-seat aircraft, both piston and turbine. Their Meridian turboprop at a $2 million price tag is their strongest seller.

  3. Profitability - The company was profitable in 2006 and should carry that success forward.

  4. Parts Business - Do you know how many thousands of Piper aircraft there are out there?

  5. PiperJet - Positioned in the GA comfort market, the numbers on the PiperJet, especially its $2.2 million price, give it the appearance of a winner. Yes, it is more expensive than a D-Jet or The-Jet from Cirrus, but it offers significantly more speed and a far roomier cabin.

Piper came back strong from the devasatation wreaked by 3 hurricanes in one year. A profitable company with strong management, I expect them to be a present and future success story.


#20

Are you saying Piper is coming out with a pressurized fixed gear aircraft? I haven’t heard of that…