Blog about aviation & marketing

Selling new airplanes – maybe we need a better business model

Airplane Business 3 Comments

The price of a new airplane is very expensive, seemingly getting more and more out of reach as volume stays consistent.  Airplanes have always been expensive, they are hand built and the market is relatively small, so to stay in business, you have to price the product to cover expenses and to make a profit.  I get that!  However, what I have noticed about most aviation manufacturers, is that they simply want to sell you a new airplane…if you show up with the dough to buy one.  Some manufacturers will discount the airplane as an enticement, but that can only take you so far in the road to the sale.  What is severely lacking in this industry, is an aggressive sales approach to double the unit sales AND to sell as many airplanes as possible.  It seems the industry takes the stance that “this is aviation” therefore this is the way we do things.  I 100% believe that is why the manufacturers are declining in new production airplanes AND they are not maximizing their potential!

The business model I am talking about, is trying to sell an airplane outright, without taking a trade in on the new airplane.  You have to understand sales, as it is an emotional experience and if someone has that want and feel for a new airplane, why slow them down?  It makes no sense to me, but this is what occurs a majority of the time. An example is someone I know wanting to buy a new Beechcraft (Textron) King Air 250.  A relatively slow seller for Beechcraft right now, because the C90B is a much lower cost airplane, while the Beechcraft King Air 350 is a load hauling airplane that operates for about the same per mile cost as the King Air 250.  This buyer is ready to go, and Beechcraft has a demo King Air 250 they are willing to discount BUT he has to sell his C90GTX first!  So…five months later the transaction hasn’t happened, and the King Air 250 probably won’t be available when he does sell his C90GTX.  At that point, the deal is killed, and Beechcraft doesn’t sell an airplane.

This is a real example of why they are only selling 28 King Air 250’s per year, when they should be selling at least 50! I have questioned the Textron sales reps why this is, and they all give me a blank stare OR they tell me they just can’t do it.  My question is why?  The answer typically is – the owners want too much money for the trade in?  This is where the car business is something aviation needs to learn from, because I think maybe 2% of the time the customer with a trade in ALWAYS wants more than the Actual Cash Value or ACV as we call it.  It is a matter of educating the buyer what the trade in value is, and you wholesale the airplane into inventory.  This is something we do all day, every day in the car business, because there are some true and distinct advantages to this.  More than anything else, it keeps the momentum going and while the customer is wanting to buy…you let them buy.

By taking into consideration the tax credit that the buyer receives, new airplane – trade in airplane = purchase price so that the tax is only on the spread and not the full price of the new airplane, is something that a new owner enjoys. In addition, the longer the process takes to take new ownership, the less enjoyable and the less chance you have of making the sale.  So while you have momentum, an interest in the product, with someone who is seriously considering buying the product, why create a very tough obstacle to hurdle for them and you? Do you really understand how much money you are leaving on the table?

The way I see sales work, is that it is an infectious process once you have it working, by having more opportunities and success, it is much easier to sell something.  We need these opportunities!

It’s called volume and action!

So why do I think the business model needs to be looked at?  Besides leaving all the money on the table, and believe you me, there is a LOT OF MONEY $$$$ that is not being made by us being lazy.  First of all…if the factory is selling airplanes, and the price isn’t going to work for the customer, shouldn’t you be offering an alternative – like a pre-owned FACTORY certified airplane?  Seems to make sense to me.  Someone who can’t swing $7.5 million on an airplane may not find this out until they start working with you, how about offering an alternative at $3.9 million?  Hmmm????

I think if Beechcraft or Cessna would brand themselves, why would the prospect go and shop around for a brokered deal on the used aircraft market?  Why not take a look at a pre-owned airplane that has been inspected by the factory, along with some upgrades that the service department is charging out at full retail pricing to boot?  They often say can’t be competitive doing this, why not?  If you took the trade in at the right money, made some improvements that make the airplane more desirable and fit the market such as an ADS-B compliant airplane with new dash engines for performance, are you telling me the customer can’t be educated on this value?  And, the factory should be the leading edge product knowledge and support of these airframes, so why wouldn’t that pre-owned airplane bring a premium price?

A lot of buying is done based mainly due to momentum. When you sell price you rent the business, when you sell value you own it! Every time someone that has an interest in a new airplane, they often lose this momentum and a new airplane is not sold.  There are many advantages to purchasing a new airplane, especially if it is centered around a business use because depreciation is a big factor in how the cost of owning an airplane is concerned.  So what the current process involves is – lets see if we can discount the airplane to keep production going and deliveries constant.

I can see where the manufacturer would not have a big interest in selling anything but a new airplane, but if you could double or triple the profitability of the sales department while making the company more profitable, why wouldn’t you?  As a CEO, you would have to understand that if someone didn’t buy a new airplane from the manufacturer, but you sold them a factory pre-owned airplane, AND five years later the buyer was looking to upgrade, why not get the first shot at selling them a new airplane?

The secret to success in retail sales, is to A) have inventory…people like choices and if price is a factor, why not be able to offer alternatives?  B) you need a sales force that is aggressive.  When I see the requirements for airplane sales as having an ATP and fighter jet experience, I no longer wonder why they can’t sell any airplanes! I am sure there are some qualified pilots who can sell, but I would rather find a hungry professional who doesn’t care if it’s computers, luxury computers, or airplanes, as long as that person knows that nothing gets done until it is sold.  C) financing.  You have to have a painless and easy way to get people financed in airplanes, and I think factory leasing is something that needs to be taken a look at.  Why do people lease?  Because a lower down-payment and an easy way to understand ownership based on a payment.  If a company has top tier credit, and you can lease an airplane to them based on a down payment that takes the risk away from a borrower who defaults, then the down payment or some type of collateral can be used to allow the factory or lender to be more aggressive in moving the airplane.

For those who don’t understand a lease, they work very well, with lower payments and not much of a down payment.  To qualify, the business or individual has to own a higher credit rating, because there is more risk to the sale with a low or no money down type of acquisition.  It’s called risk and the chances that the owner may default on the payment…if that occurs, you are out of the money until you can repossess the airplane, which is why a lease must demand a higher credit rating.  Instead of a company or individual having to tie up a lot of cash in a down payment, the lease is viewed from the perspective of what is residual value.  Due to the residual value of an airplane, the company leasing an airplane has a much smaller payment, because they are only borrowing money based on the calendar lease term.  Therefore, instead of making payment on a $7.5 million dollar loan, the payment is based on the purchase price and then subtracting the residual value of in this example, $5.5 million in five years.  Therefore, the lessee only will be making payments on $2.0 million over the five years plus interest and a smaller down payment.  Yes…financing methods and structures are BIG in business, so why there are not options like this is a big reason aviation is sleepyville relative to normal business practices.

There are other business models that can be used in aviation, that are similar to how automotive manufacturers use branding to keep someone in the “family”.  I see the competition from Embraer, Pilatus, and a few others who are becoming the choice among some of the US manufacturers, mainly because of small performance gains or cost of operations.  This is a VERY easy objective to overcome if you have branded your product correctly, because sales is all about relationships!

3 Responses to “Selling new airplanes – maybe we need a better business model”

  1. Ben Says:

    Well said. Lack of engine technology advancement in piston engines to bring production costs down is an issue as well. A new Lycoming IO-540 engine or Continental IO-520 engine used in planes like Mooney Bravo, Sonata TB-20 and Beechcraft Bonanza cost 50-60K!!!! Who can afford that? Guess what a plane needs engine overhaul a lot more than people think as well. Second, lack of production since market demand is not being driven raise costs to buy since fewer aircraft are produced. That may explain why a plan in 1960 cost 20-30K new now costs 800K new like a new Cirrus or Beechcraft. I would love to own plane but the purchase and maintenance costs are sky high for all but the super rich.

  2. admin Says:

    Ben,

    Well…my opinion is most of the aviation sales force is passive at best. They may have a passion for the products, but are terrible closers and don’t look at volume as the method to sell more airplanes by providing options. Buying an airplane, as anything else whether it is an automobile or a house, momentum is key. If you have someone interested and in the market, you have to offer alternatives based on pricing, because this is a big part of counting a sale. If the price is too much, but you have a great alternative from the factory, you are creating a sale AND a client who will be in the market again. It seems once a company or individual discovers the utility value of owning an airplane, they very seldom seem to EVER want to be without an airplane again.

  3. Ben Says:

    Agree. I think we need a revolution in single piston engine and airframe technology and reduction in FAA red tape as well as tort reform to lower the liability costs factored into aircraft production costs. Why should a new Garmin GTN 750 IFR GPS cost 30K to buy and install which has less technology than my $200 iPad with Foreflight?

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