President Obama getting business done
aboard the most advanced business aircraft
in the world, Air Force One.
When President Obama last week lumped together business jet owners and hedge fund managers — what average citizen doesn't think of Bernie Madoff when he hears that phrase? — as examples of rich people getting unfair tax breaks, it was clear that the gloves had come off. The President was once again picking what he perceived as an easy target and again it is business aviation. The President singled out accelerated depreciation as a special tax break that the very wealthy enjoy and that the country can't afford.
The problem is that the President himself made accelerated depreciation — which is, at heart, a tax break on business aircraft — part of his own stimulus package. So when he attacked the break, he was attacking his own program. The White House has officially declined credit for the creation of the program, though it has not denied its endorsement of it.
The problem is, the President wants his cake — getting credit for helping to revitalize American industry — and eat it too — by attacking those fat cat bizjet owners as leverage to get tax increases in his budget fight with Congressional Republicans.
My mom used to tell me when you want to get to the heart of the matter, look not at what someone says but at what they do. The President is one of the world's foremost users of business aviation — as has been every chief executive for 50 years before him — and when campaign season is in full swing (as it seems to be half the time these days), his bizjet use is supercharged. He knows that important people doing important business and living their lives use bizjets to get things done. That's because he's one of those people. The bottom line is, President Obama understands perfectly how useful bizjets are. So it is politically cynical of him to vilify bizjet "owners" for political gain while he benefits from the very model he demonizes.
The other big problem for President Obama is that the bizjet model he is now attacking is responsible for billions of dollars of economic activity and hundreds of thousands of jobs in the United States. If it takes some tax incentives to help create an environment in which people continued to buy the airplanes that support that kind of activity, the President should do the right thing, pass up the opportunity to make political hay at the industry's — and the American people's — expense and get down to the hard job of making tough choices.
Because when it comes down to it, the President is really just lobbying for tax increases, but regardless of which side of that issue you fall on, it serves no one's best interests to attack such an important part of our national economy. There's simply too much at stake.
Read more of Robert's recent blog posts.
All Comments
Robert, I wish you would place your concern where it is more needed.
According to the GAMA databook 2010, the GA industry worldwide produced 781 piston singles and 763 bizjets.
What is wrong with this picture? It would be like Chevrolet making the same number of cars as Ferrari. In fact even this comparison does not come close because the average bizjet costs about 50 times what a piston single costs.
In total dollar amount, the turbine GA industry racked up $20 billion in sales last year. Total piston sales? About $400 million, and that includes twins. That is two percent of turbine GA sales.
TWO PERCENT!
WHAT IS WRONG WITH THIS PICTURE?
Now I understand that Flying mag gets a lot of advertising bucks from the bizjet folks, and I enjoy reading the flight tests. But if you are going to raise alarms, I think it is well past time to start wondering where the piston GA industry has evoparated to?
The average piston airplane now costs nearly $500,000 according to those GAMA figures. Going back just to 1994, in those same GAMA figures, the average price of a piston plane was well under $200,000.
In that same span, purchasing power eroded the dollar by just 32 percent. It means the piston airplane should now cost under $300,000, not $500,000.
In those same figures we see a one-year jump of $100,000 in 2007-2008, from $335,000 to $435,000. That is 30 percent jump in price in one year. Of course this was in the midst of the piston single boom, with over 2000 unit a year selling. Any greed involved here?
The GAMA book is here: http://www.gama.aero/files/GAMA_DATABOOK_2011_web.pdf
Look we don't need to even look at these numbers to know what is what. Who can afford to buy even a new C172 as a family plane? Nobody that I know.
The bizjet industry is NOT going anywhere. The Chinese are buying 50 Gulfstreams. New billionaires are being minted everyday as our casino economy continues to roll the dice for the benefit of speculators and high-stakes gamblers on Wall Street.
Very soon, the bizjet sector will be all that is left of GA. But who cares, right?
The ill health of the piston market is of tremendous concern to us.
(Because I wrote about an attack on business aviation doesnt' mean we don't care about the piston market place. I wrote about GPS last week; therefore, I don't care about VORs? Becasuse I editorialized about the dangers of ice means I think we should all start flying through thunderstorm cells? Give me a break.)
However, your contention that the bizjet market is not in trouble flies in the face of the facts. The US business jet manufacturing industry has shed more than 20,000 jobs since the start of the economic downturn. Those are 20,000 men and women with families and homes. In your words: "The bizjet industry is NOT going anywhere." Tell that to the people who are out of work because orders have been cut by more than 75 percent in the past three years. Tell them where our concern is most needed.
Robert, I absolutely care about those 20,000 folks who have lost their jobs in the industry. I also care about the hundreds of thousands of ordinary folks in other industries who continue to be downsized for one reason alone---billionaire investors who demand the utmost return, which forces manufacturers to outsource industry lock stock and barrel---to China, India, etc.
The bizjet industry is on solid footing. I'm an engineer in the Part 25 sector and this downturn is temporary. It will bounce right back in the next year or two. A lot of it is due to bad PR due to excesses by some. Nothing wrong with business aviation, but people are getting a bit peeved at a billionaire class that thumbs its nose at ordinary folks who are standing in bread lines...
Obama is kicking an easy target. That's what politicians do.
And how many thousands were employed in the piston industry 30 or 40 years ago, when the industry was pumping out 10,000 new pistons a year? I remember when my dad bought a brand new Skywagon on amphib floats---and ended up flying our family for 5000 hours in that plane. On a pharmacists's income.
I don't know any middle class professional today who can afford to spend half a million on a new plane. That is the problem. When my dad bought his plane you could buy an entry-level plane for about two or three times the cost of a new car. Today a Skyhawk costs TEN TIMES the average car.
That is the problem. As an engineer I KNOW that an affordable airplane can be designed and built. Industry can do amazing things. America built over a quarter of a million airplanes during the half decade of World War 2. It is bizarre that we are now dinking around with 700 pistons a year each costing half a million.
We need to be pumping out tens of thousands of "Volkswagens" of the air for $50,000 apiece so that ordinary folks can get back in the air---just like in decades past. Frankly I don't see Flying doing anything to promote this idea, or even awareness of it.
The first step is discussion. There is a crisis and there has been for a long time. New airplanes have been out of reach for about the last couple of decades. Yet nothing has ever been said about this, intelligent or otherwise. It's like the problem does not exist.
You are right on many counts and wrong about our coverage of it.We have written extensively about low cost options, including LSAs and sport planes. We have written about electrics before anyone else was. We have devoted a number of features to alternatives to new airplanes, and we have devoted great amounts of space to partnerships and other cost saving approaches to ownership. I have spent the last decade covering the shared ownership beat. To say that we haven't written about it or covered it is facile and irresponsible. What we haven't done is come out and called for the brand new sub-$100,000 four-seat single no more than we've spent our off time hunting for Nessie. A realistic viewpoint and coverage of costs and the market is the tack we've consistently taken and will continue to take.
With all due respect, those options you mention are working?
LSA, partnerships, used planes, etc are NOT the answer. That is crystal clear by now. And if you think the sub-$100,000 airplane is an imaginary beast then you are the one that is mistaken.
How is it that India can build a 4-seat car for $2,500? How was Piper able to sell a brand new Cherokee for $70,000 in today's dollars? The universe was different then?
Maybe that is the world view that Jack Pelton sold you---or whoever is running that show now. Has nothing to do with reality.
The AFFORDABLE airplane is an engineering challenge, nothing more. A new design that leverages economies of scale in the metals industry, for example. Toyota builds a car in 20 hours,with a lot more value add than in a lightplane, which, from an engineering perspective is a ridiculously simple machine.
I can get a Van's kit built professionally for me, legally, here in Canada, for under $100,000. So what's the problem? Even with a ridiculously expensive aircraft engine and using yesterday's technology with a zillion rivets.
I don't think you are doing any good by pooh-poohing even the possibility of the affordable airplane. Why not keep an open mind?
Robert, I agree. While my example is off topic, it reflects a habitual disposition on the part of this administration. President Obama made even more disingenuous remarks about the several thousand for-profit colleges and universities that educate a range of students from A&P Mechanics to physicians and surgeons. In doing so, he caused billions of dollars of damage to the industry and further restricted access by the poor to higher education. His motive was to push the business to the community colleges even though every expert told him that they did not have the capacity and, with state budgets in crisis, could not possibly ramp up to meet even half of the demand. We see a similar pattern of behavior here. Tens of thousands of individuals fly on private jets much less expensively than any practical alternative. This includes everyone from the president to physicians performing emergency services in the nation's rural areas. President Obama's portrayal of private jet owners as "fat cats" rolling in cash goes against the facts and, if he knew this, constitutes lying. I hate to say it but this administration goes about its business by playing on latent class issues, attempting to pit one group against another in the hopes of securing votes. It is not inspiring.
Robert, you're 100% correct. I'll leave the debate about piston vs. bizjets for somebody else (with an axe to grind). To me, GA is so small to the average Joe that splitting it up into piston and turbine segments is a meaningless and unhelpful distinction. We're all in the same boat.
Any objective observer would admit that Obama is completely hypocritical here. We love factory workers if they build cars, but somehow if they build Cessnas, we're allowed to trash them. I don't get it.
The bigger concern, for me, is that "business jet owners" is becoming a catch-all negative term that many politicians are using to sum up everything that's wrong with America. This is a cultural issue with major long term implications for GA--if we're associated with greed/excess/criminality/whatever, we're all hurt, even if we fly a Cub.
I completely agree about the cost of new piston aircraft killing GA.
I’ve been following the reviews of LSAs in Flying and other publications since they and the Sport Pilot certificate first became available. The hoopla indicated that they would reduce the cost of obtaining a pilot certificate. Yet, as a pilot and CFI, I just don’t see it happening. I understand the partial truth of the recent AOPA study that show that the quality of instructor is a factor in the decline of the student pilot population and the number of new pilots, but I don’t believe that the quality of training is any worse than when there were many times more pilots in training and actually flying in the mid-70s.
Instead, I believe that the cost of flying, renting, and owning even the simplest of new aircraft has become prohibitive for most pilots - or potential pilots. As a comment above says, I don't know anyone who can afford a new plane. When I started flying in 1973, a new Cessna 150 could be purchased for less than $12,000, and a Cessna 172 or a Piper Cherokee for around $15,000, about 3-4 times the cost of a basic new car. Now a new Cessna 162 Skycatcher sells for about $112,000, nearly 10 times the cost of the 1973 C-150 and about 7 times the cost of a basic car. And the June issue of Flying featured an article on the Piper Archer that sells for slightly more than $300,000, a whopping 20 times more than a basic new car. But what about technology? The new car is far better than the 1973 version; it is fuel-injected, computer controlled, requires minimal maintenance, and lasts for 200,000 miles or more. The Skycatcher? It is a new design, but with the same basic construction, engine, and carburetor as the 1973 C-150 in which I learned to fly. The Archer is a design that has hardly changed in 50 years. Yes, it has a glass panel, but as Don Harrington of American Flyers aptly pointed out in the same issue, “glass is overrated”. Sure, the moving map technology is nice, but I have a GPS in my car that keeps track of my position to within a few feet, and it cost less than $100. As a CFI I can testify that, for flight training and most flying, glass cockpits encourage pilots to ignore the most basic part of VFR, simply “looking out the window”. (There’s a reason it is made of plexiglass and not aluminum.) And it seems to me that many pilots produced in aircraft with the new avionics seem to be proficient in pushing buttons, but lack the basic stick and rudder skills that pilots trained in aircraft with no avionics at all seemed to possess (see the Colgan Air and Air France crash details for proof).
So the pages of Flying and other aviation magazines are filled with articles touting the wonders of “new” aircraft like the 50th anniversary Beech Baron that (other than trim and avionics) is no different than the 1975 model (but sells for $1.4 million), and the Archer ($300,000) that is essentially the same airplane that Piper produced 16 years ago. I'd love to own an airplane, but any new production airplane (and most used ones) are so far out of my price range as to make even dreaming of owning one unrealistic. And even if they were not outrageously expensive, there’s little about them that is really "new". Yes, LSAs are new designs and quite interesting, but the overview of 3 models in the June issue gives a hint about why the cost of flying hasn’t come down… the price of the 3 models – the aircraft that were supposed to cut the cost of flying – ranged from $131,000 to $163,000!
A local flight school near my home rents their new LSAs for $150 per hour. Add the instructor, and the cost per hour of training is in the $175 per hour range, meaning that obtaining even a limited Sport Pilot certificate can cost well over $5,000. One local flight school that uses Cessna 172s with glass panels estimates the cost of a Private certificate at $11,000, but that only includes 45 hours of flight time, so the actual cost will likely be significantly higher. Compared to the $750 cost of my Private certificate in 1973, the current cost of learning to fly is 15 times what it was then; not even the cost of health care has risen that much in this time period!
So what does this mean in the real world? In my opinion, the unrealistically high cost of aircraft is driving all but the most wealthy out of the market, both as student pilots and as buyers of new aircraft. (And the "really wealthy" seem to be buying bizjets, not single engine piston-powered planes.) I don’t know the answer, but I do know that the cost of most other new technology has fallen drastically during the last 30 years while flying costs have dramatically increased. (For example, I am writing this on a $400 computer that has thousands of times more capability than a computer that sold for $4,000 in 1980.) The truth is that if I wanted to learn to fly today, I would not be able to afford it, and I'm not actively flying for the same reason. If Flying, AOPA, EAA, GAMA, and other GA organizations are to be effective in preserving aviation for future generations, they must work together to find a way to cut the cost of flying to a level that the average person can afford. A hundred years ago a politician made a name for himself by quipping “What this country really needs is a good 5 cent cigar.” I don’t think it is entirely tongue-in-cheek to say that what GA really needs is a good $50,000 airplane. If someone could build it, it could very well save GA. But if not?
Non-current, low-time, SEL-Instrument pilot here, but I try to follow general news and aviation, to please take my thoughts with appropriate grain of salt.
Seems to me a lot of the reason that the cost of piston planes has grown so wildly is what we now expect: perfect safety record (and assocaited liability risk and insurance costs), modern instrumentation and avionics, air-bags, parachutes, etc.
A comparison is that cars are no longer 4 tires, engine, windows and FM radio; they now have air-bags (with cut0ff switches) and expensive emissions control devices. There are few remaining VW's. The Army stopped buying $250k Hueys and $10k Jeeps, and replaced them with higher performing but costly $8M Blackhawks and $100k HMMWVs. In many cases these expensive improvements are good, but they are costly.
I expect industry (both cars and planes) is also at fault. US Automakers have little interest in producing a $5k car, even if they can, due to low profits. Is Cessna doing the same thing to aviation?
Obama simply likes to score some political points by using class warfare tactics. He panders to the left wing of his party. Never cared for his politics.
Flying Magazine has done a great job of covering all aspects from the day I first started pumping avgas on a flight line in the late 70's till now. I have always found that Flying has covered all aspects of our industry. But if you only read select articles then you might think otherwise.
Our industry has multiple problems to deal with: Certification, the FAA has set up an almost impossible process of rules and regulations to deal with before the first airplane rolls down the line. Trying to regulate stupidity out of the equation will never work and until we realize that people make mistakes and there are no guarantees in life then the cost of building a new airplane will never come down.
Yes, if you fly anything in to the side of a mountain at 200 kts you will die.
Which brings me to liability: Yes if you fly a plane into the side of a mountain at 200 kts. while in IMC and not IMC rated, you will die. Don't blame it on the manufacturer, of the engine, the avionics, the airframe, the exhaust etc.
When the industry is left alone and not over regulated technology and innovation prospers. This holds true with any industry. The 100,000.00 airplane is out there, you just have to build it yourself (less regulation). Some better than others but they are out there.
As far as Obama and the "fat cats" this is just another case of class warfare. I will take a crooked "fat cat" any day over a corrupt and or over regulating government. At least I can choose to buy or not to buy the products as for government, no choice, their way or the highway. The Fat Cats purchase the planes which employs the pilots, line technicians, manufacturers, assembly people etc.
Our problem is not the rich buying the products it is the government over regulating our industry that is. Just check what it cost to certify a plane in the 70's and what it cost now. Can you imagine where would be if we relied on the government to develop computers and cell phones. Cell mail?
By the way, forgot to add in my earlier post that I've seen a very similar discussion among SCUBA divers. "Why is the gear so costly?". "We're pricing new participants out of the market", etc.
Similar liability issues. Less regulatory issues. Definitely 'technology creep', where manufacturers aren't content selling a $200 steel regulator built to 1980 standards, when a 2011 Titanium model will sell for $800, even though the 1980 model performed perfectly and was safe.
Yes, Obama uses biz jets. Air Force 1 (2 747s owned an operated by USA, Inc.) costs north of 300 million dollars a year to operate. I say if Obama is against business aviation, he should fly coach, like the rest of us.
Obama's jabs at "fat cats" are lame politics, but really no different than the other side blaming the budget problems on "welfare queens". Both sides do it and it's a distraction. Beyond that distraction and the rhetoric, I see a bunch of smoke, but not much fire. At the end of the day Obama was stating (although clumsily) the obvious, eventually various stimulative tax breaks will have to be rolled back as part of an effort to balance the budget.
As one who bought a single engine piston, put it on leaseback, and took the depreciation tax benefit, I can tell you it's a really good deal. Under bonus depreciation you buy a $350k aircraft and (assuming you have the income or business profits to offset), and knock most of that off your gross income in the first year. It was really nice getting and $50,ooo tax refund a couple years ago! However, without bonus depreciation, it takes just 5 years (oh, the horror). Five years to depreciate an aircraft that will last 30+ is still a good deal.
In either depreciation case, the money is really just a loan from the IRS. When you go to sell the aircraft you get to recapture that $$ as ordinary income. My point is that the "Obama as Socialist" meme has gained such cultural traction that all it takes is the mere mention of "corporate CEOs" and "business jets" to get us frothing. In reality, tax policy under Obama has been VERY friendly to people in my tax bracket (although I do appreciate the promise of ongoing support from the Tea Party). Personally, I don't find the notion of rolling back some of those tax break goodies to be all that offensive as part of an overall budget plan that includes large spending cuts.
Saying that the President is "against" business aircraft or (worse) that he's "duplicitous" (whether you can spell it or not) based on the President's comments is a bit over the top. Nobody is suggesting getting rid of depreciation or proposing in any way substantially negative treatment for aircraft versus other property. Instead, it's one of a series of tax break removals proposed to help reduce the deficit.
If you benefit from the break, it's certainly something to be concerned about, but calling names and falling back on political buzz-words such as "fat cats" likely won't help.
There's probably a place where arguments over how and whether to tax the rich or the poor (or nobody at all) are on-topic, and where the politics underlying all of that are relevant, but I don't think a leading aviation magazine is really the right place. At best, you're just annoying half of your audience by missing the key point: eliminating bonus depreciation might reduce the sales of business aircraft in the future. By how much? Over what time period? What are the economic considerations? Who knows? Certainly this article provides no insight into that key issue, because it busies itself instead with appearances and politics. And that's unfortunate.
Hold on a second, taildraggerguy.
"GA is so small...that splitting it up into piston and turbine segments is meaningless" you say?
Please go and click on the link to the GAMA databook I posted above. The tables of numbers for GA sales are on page 15. GA turbine sales are $20 billion a year. That is TWICE the size of the entire Hollywood movie industry.
GA is not small. Bizjets are big business. Pistons are small. The $400 million in piston sales is TWO PERCENT of turbine sales.
It is incredible to me that people can have such misperceptions.
Jdevine, I'm glad you got your slice of the pie. You don't seem too concerned about anyone else. Yes, this is the only way to buy a new piston plane, put it on leaseback and then write off the purchase price from your tax bill.
At least you are truthful in saying that the Obama administration is just as biz-friendly as the previous regime, probably more so.
Problem is where does this lead? A generation ago LOTS of middle-class people could buy new airplanes, as pmartin777 pointed out. Today, almost nobody can. A generation from now, even you and other well-heeled buyers won't be able to do this neat trick of buying a new plane and having the government pay for it. Because piston planes aren't going to be made anymore.
Also interesting to see the usual comments about the high cost of certification, liability, etc. How much does it cost to certify an LSA? The answer is nothing because all you have to do is sign a bunch of papers that your airplane meets the industry standard. But they still cost more, pound for pound, than a certified Cessna.
Most people do not in fact realize that the FAA who everyone loves to bash, years ago brought out new rules for certifying light planes. It's called the primary category and the rules are incredibly streamlined. The complete rule is in Part 21.25: http://www.flightsimaviation.com/data/FARS/part_21-24.html
The airplane can be up to 2,700 lb or 3,375 lb for seaplanes. Single, naturally aspirated engine, four seats max, 61 knot stall speed. That's it. Those are the rules. In order to get the type certificate all that you have to do is provide a "statement" certifying that the airplane meets airworthiness requirements and that the proper engineering has been done.
Sound simple and cheap? Yes it is. In fact two ultralight companies have certified planes under these rules, Quicksilver (using a 2-stroke Rotax engine) and RANS, using a Rotax 912. If these very small companies can do it, well you get the picture...
This rule has been in place for many years now. I believe since the mid-1990s. Yet no one is taking advantage of it. Why?
Simple answer. Go back above and see how important pistons are to GA manufacturers. How much effort would you put into a product that is only two percent of your sales? That is the situation with Cessna and other GA manufacturers. Why should they spend money on this? They simply crank out the same old 60 year-old airplane under its original TC and simply jack up the price to what the market can bear.
This is the luxury-goods business model. Sell very few units but make a huge margin on each one. It works fine. For now. No telling if this will hold up for another 10 or 20 years.
It takes 1,000 man-hours to build even an LSA. A C-172 is probably more. The 180 hp engine in that Cessna costs about $30,000, which is more than a good family car. A 350 hp corvette LS1 engine is sold by GM for $5,000. http://www.crateenginedepot.com/store/LS1-Without-ECM-and-Wire-Harness-1...
A 300 hp aircraft piston is going to cost about 15 to 20 times more.
Yes there is absolutely a way to build a factory built airplane for $50,000. No question. I say that as an aeronautical engineer who has worked in design and flight testing of transport category airplanes for many years.
A piston single has more in common with a giant-scale model than with a transport aircraft. It CAN be built for peanuts. The rules are there, the manufacturing technology is there, the off-the-shelf parts and materials are there. All that is required is the business will to do it.
And that is where the problem is. The GA industry has given up on the low end of the segment. The LSA industry is basically a bunch of cottage manufacturers who do not have the engineering or manufacturing skill or imagination to design and build a low-cost aircraft. They are happy to sell a handful of airplanes a year at exorbitant prices to pilots who have lost their medical. That's all that business amounts to.
Cessna decided to design an LSA using the exact same manufacturing method that was the standard 70 years ago. Sheet metal and rivets. This was okay in the 1940s when labor was cheap, but in today's financialized manufacturing world, it won't work. That is why cars are built in about 20 hours on robotic assembly lines.
Doesn't mean you need huge investments like that. The whole key is a purpose design that is meant to use off the shelf components. Let companies like Alcoa and Thyssen do the heavy lifting. They have huge economies of scale and manufacturing sophistication. They hve invested billions in sophisticated tooling and they stamp out aircraft metals for peanuts, in all kinds of shapes and sizes.
The key is to use these marvelous off-the-shelf pieces to quickly put together an airplane. That is possible---with the right design and manufacturing method. And yes, there are people working on that right now.
But it does not help that the "leaders" in aviation media and alphabet groups are simply fiddling while private-piston aviation burns, as pmartin777 pointed out. If a new plane cost three times what a new car cost in the 1970s. Then it IS possible to build a new plane today for three times what a (much better) new car costs today.
The American public does not oppose business execs zipping around in jets, as long as they pay for it: indeed this privelege is embedded in the American Dream.
Subsidizing the biz-jet industry with public money is a different story, as is using public money to bail out mismanaged companies while their (failed) execs still use the jets. Accelerated depreciation is a tax-break that every American ultimately pays for.
On another note, saying that exec use of private jets is justified because the "hypocritical" President of the USA uses them is a cheap shot that may get support in media targeting different demographics, but readers of Flying are not intellectually inept, regardless of political affiliation.
How is it a cheap shot to point out blatant hypocrisy? I'm not even saying that the tax break is sacrosanct, just that it's a cheap shot to lump in bizjet owners with Bernie Madoff. I know a lot of business jet operators, and they're people who use jets because they work and their companies are more profitable, not less, because of their jets.
Good point. More jobs outsourced overseas. The hollowing out of our industrial base, our local town and city tax base, and the entire middle-income class continues.
And do you know why they are going to China? Go and ask the Wall Street hedge fund managers and other billionaire "investors." They demand big returns on their investments in manufacturing, and the only way manufacturers can deliver that is to shut down domestic factories and go where the cheap labor is.
Welcome to the "financialized" economy, where Wall Street is king. I don't know what the financial overhead is for a new piston airplane, but when you buy a new car, fully half of its sticker price is the built-in finance costs to make that car and bring it to market. HALF!
The finance sector is now a third of GDP. What's wrong with that you say? Well finance is an extractive activity. It produces nothing, but takes out "rent" from the productive economy, by way of interest, fees, etc. It is exactly like a tax.
So we are all paying a 33 percent tax to the Wall Street Robber Barons. In the 1960s when lots of ordinary folks were buying airplanes, the finance sector was less than 10 percent of GDP. We have seen a huge increase in our tax to Wall Street.
That is one reason why it is difficult to build affordable airplanes today. Difficult yes, but not impossible. Another member here pointed out how everything has gone down in real price, except aviation. You get a hell of a lot more car for your money today than 30 years ago. Same for you computer, even your lawnmower.
I paid $1500 for a lawnmower 20 years ago, in 1991 dollars. When I bought a new one recently I paid $1500 again, in today's dollars, which are worth quite a bit less. So the real price has gone down. But the lawnmower I got had a bigger, more powerful engine, hydrostatic transmission and is quieter and better in every way.
It is absolutely unacceptable and outrageous that we have to pay $300,000 for a basic 4-seat airplane and $150,000 for an LSA.
And just one more observation on the GAMA numbers. The price of turbine planes has gone less than the price of pistons in the same time period, 1994-2010.
Average cost of a turbine GA plane was $7 million in 1994. Today average price is $17 million, a price increase of 240 percent. However, today the total number of turbine sales includes a bigger proportion of large-cabin airplanes, many of which did not even exist in 1994, such as the Bombardier Global Express series and Gulfstream 550.
If we had separate numbers for bizjets by size category, we would see a very modest increase in the cost of turbine equipment. Not only that but the technology has improved dramatically. Today's turbofans are incredibly fuel efficient, better than what you get with a diesel engine in your pickup truck, for example.
They have fadec, autothrottles and many other improvements. As someone who works in the industry I can tell you these amazing machines have incredible manufacturing value add. If you ever saw how a single-crystal turbine blade is made, you would have a whole new appreciation for the ingenuity and value that goes into these machines. So you are getting a lot more machine for your bizjet dollar today.
Pistons are made exactly the same way as 70 years ago. But piston airplane prices have jumped by 260 percent in the same time period. An absolutely terrible value proposition. Even if I had $300,000 to burn I would never throw it away on a new Cherokee (excuse me, Archer) or Skyhawk.
And yes, I absolutely agree with pmartin777 that glass panels on these primary airplanes are completely superfluous and actually a distraction that probably does lead to bad pilot habits of keeping your head down.
Well, actually, every single part of a new Skylane is better than the old. The paint, the structure, the glass, the interior materials, the avionics by a large factor, the seats, the restraints, the gear, the tires, the manufacturing processes that lead to better engines (albeit not as much better as we'd all like) and even the aerodynamics and creature comforts. Other than every one of those things, piston airplanes are exactly the same as they've ever been.
@Robert Goyer
Please quote the exact comment where Obama 'lumped bizjet owners with Bernie Madoff'. I have not seen anything even close to that inference. The quote from Obama I read was:
"I think it's only fair to ask an oil company or a corporate jet owner that has done so well to give up that tax break that no other business enjoys,"
Now, despite the fact that I understand Bonus Depreciation has in fact been available to capital equipment purchased in other industries, that's a far cry from inferring that jet owners are criminals. So, please cite the actual quote that is so offensive.
Lastly it is not inconsistent or hypocritical to call for the sunseting of a stimulative tax incentive that he endorsed. These incentives are, by their very nature, temporary.
What's the difference what Obama said?
He is bought and paid for by Wall Street, just like very other POTUS in recent memory, as well as every member of Congress. Just look at where their campaign contributions come from.
That is why we are being reduced to debt serfdom. Even high income folks like jdevine are getting the short end of the stick, relative to the billionaire class. Case in point, the massive wealth transfer resulting from government bailout of Wall Street.
As far as I'm concerned they're all Bernie Madoffs.
After considering Robert's comment about "every part" of today's Skylane being better, I have to disagree.
The aerodynamics are exactly the same. The engine is almost exactly the same, so those are the two big things right there. Structurally the airplane is the same, as far as I can tell. Certainly the structural strength is no better.
Mostly the improvements are cosmetic. Better uphostery, sure. Better, but heavier, plexiglass? Sure. Better quality paint (thanks to PPG), sure. Better radios? Sure there is a lot more gadgetry, but how much value that is, is debatable. Yeah the seatbelts might be better, and the tires, etc. Big deal.
That is in no way comparable to what we have seen in bizjet evolution. First of all today's "average" bizjet is twice the size it was in 1994. And then the huge technology increases I already mentioned.
A case could be made that the bizjet value proposition has actually improved over the years, like many other products. The piston value proposition has done nothing but death-spiral.
If you complain about the cost of aircraft, don't turn around complain about the manufacturing moving to China or India. If you value strong unions with highly paid members them you should not be complaining about paying high prices.
As for those that envy the wealthy and say so, it comes off very petty. It is a fact of life, no matter who you are, there will be people with more than you. Whining about it does not strengthen any point.
Regarding the targeted elimination of acceleraled depreciation, the gentleman was right in saying that this is merely a deferral of tax since it will all be recaptured when the aircraft is sold assuming that there is no loss on sale. This is a classic demagogue tactic that has no real merit but stirs up uninformed passions.
My small flight school has (had) two C-172 leased back from an affluent pilot who obviously enjoyed the tax advantages and passed this on to the school in the form of a reduced hourly charge. He has recently decided to sell the aircraft and gave the school two weeks notice. The school is trying to find another lease-back situation and this has become much harder because of the possibility of potential owners losing the tax advantage. Three jobs are at risk...and I assure you, they are not "fat cats".
@Land Pilot: Great, let's move all manufacturing overseas, bust every union and repeal the minimum wages, heck open the boarders so we can get the cheapest labor possible. Let's all just turn into a 3rd world country of wealthy dictators and a peasant class. Will that make you happy?
The problem isn't the workers, it's the shareholders and execs demanding larger and larger profits.
Maybe you're an exec for Cessna or Cirrus?
I know Flying makes it's money off of these corporate tycoons, so I understand their rush to their defense.
But pretty soon you can have all the airplanes to yourself because only a handful of fellas can afford one.
Cessna and Cirrus can each sell 4 planes a year to some Dubai billionaires because no regular Joe in the US will be able to afford it.
If you continue to crush the middle class, you are demolishing this country. That means GA will be reduced to rubble.
Won't it be nice to see a bunch of 182s and Bonanzas rotting on the ramp while the only thing flying is some bank's jet!
Hey landpilot, who is whining? Who is "envying" the rich?
Not me or anyone else here. I get to fly some pretty nice equipment and I make more than enough to live in dignity and provide for my family. I am not interested in trading places with anyone on the Forbes list. I certainly do not look up to moneychangers and other kinds of dilettantes. The people I look up to are astronauts, physicists, engineers and surgeons.
Your pithy wisdom is meaningless to the reality of our economic and political situation.
You seem to think the problem is unions and workers being able to make a decent living wage, so they can own a decent home and pay their taxes which build up local infrastructure, shop in the community and support local businesses, and put their kids through college.
Funny, I remember growing up in the 1960s and '70s when just about every factory was unionized. This was also the time when an ordinary guy could go down to the Cessna or Piper store and pick up a brand new airplane, including my dad. Tens of thousands were made each year. Good thing too, because if it was like today we would have no used airplane market. And then we'd all be flying RC.
Today, we have no unions to speak of and hardly any industrial jobs of any kind. But we do have Wall Street, boy do we ever (and the Forbes 400 list). And who can buy an airplane today?
So much for your economic theory. No it is not necessary to ship jobs overseas. Yes it is possible to make quality products domestically at fair prices, while paying workers a fair wage.
That is how it used to be. Too bad that is not how it is now, thanks in large part to people like you who believe the pabulum being dished out by the plutocrats who are bringing our system to collapse.
Robert,
I for one am getting sick of the arrogant attitude that you are expounding more and more now that you're in charge of Flying magazine. Get real, the world and the economic picture has changed dramatically in the the past 5 years. The richest 1% of the American population has more wealth than the combined wealth of the bottom 90%. But do I begrudge them? No. Its the American dream to work hard and enjoy the ethical financial benefits that should come to you. But that doesn't mean if economic realities rear their ugly head and hard choices need to be made that, I as a member of the lower 90% should be happy to see tax breaks and depreciation models maintained while the rest of us are forced to do with less. Everybody is going to have to take some hard medicine. What worked in the recent past (accelerated depreciation) does not mean it is the best economic tool for today's situation. Whether you like him or hate him at least give credit to Obama for saying we all need to share in the pain. I don't see you coming up with any plans, just complaining.
How about using the bully pulpit you were given to start conversations on what we can do to actually get the ball rolling rather than trashing anybody who wonders if the tax burden (benefits) are equal. I find your editorializing to be biased, and imflamatory and that's not what I wanted when I subscribed to Flying magazine.
Just my opinion.
Here is the reality of the tax system. If you are a hard-working professional and make a good income you will be taxed at the highest rate of 35 percent.
If you are a member of the Forbes 400 you are paying an effective tax rate of 17.2 percent. That's because you are making most of your huge paycheck on capital gains which is taxed at only 15 percent. http://www.ctj.org/pdf/irstop400.pdf
And the IRS document from which these figures come from: http://www.ctj.org/pdf/irstop400.pdf
Even Warren Buffett has publicly complained that he pays lower tax than his secretary, who makes $60,000 a year. http://www.timesonline.co.uk/tol/money/tax/article1996735.ece
I do not begrudge anyone who is working hard and making lots of money, ethically. But I certainly see a problem when 400 individuals who have more wealth than 150 million ordinary people combined, do not pay their fair share.
I agree with the above comment. We should be talking about solutions to getting people into the air with affordable airplanes for the everyman. Not kvetching about a handful of billionaires losing a few tax breaks. Let's leave that to Forbes.
Sorry, madea mistake with that IRS link. Here it is: http://www.irs.gov/pub/irs-soi/06intop400.pdf
The ongoing concentration of wealth at the top is pretty much indefensible when viewed in light of statistics showing CEOs, who in the ‘60s & ‘70s averaged around 40 times the wage of the ordinary worker, are now making some 273 times the average worker’s pay.
Even worse are the regular announcements that the CEO of some business that is in a death spiral of massive losses with workers being shed right & left just got a big raise.
These are, at the very least, public relations problems of the first magnitude and are dry tinder for the flaming class warfare rhetoric spewed by the president of our country.
ON THE OTHER HAND, there is a vast misunderstanding played upon by the class warfare crowd. Most Americans hold a mental picture of billionaires as versions of Disney’s Scrooge McDuck, hoarding their wealth away from society as cash in some huge money-bin where they amuse themselves by diving into it and showering gold coins about.
The reality is that the book wealth these people hold is not hoarded at all but by and large is the value placed on the business infrastructure of America, which provides our jobs and products & services used by all of us. Yes, they live well, sometimes obscenely well, but even the money they spend on themselves in turn flows into the pockets of the workers who provide whatever goods or services they purchase.
What’s needed to correct all this? Hell, why are you asking me? I practically flunked high school.
Hold on a second. Where do you get the idea that billionaires invest in the "business infrastructure" of America?
That is absolutely NOT TRUE. This may have been true at one time in the past, but for several decades now big investors and the funds they control have been investing almost exclusively overseas, in China, India, etc.
Case in point, the Cirrus sale to China. Or the Continental sale, or many many others. Why don't you pick up the telephone and call these good guy billionaires and point out these investment opportunities in the business infrastructure of America. I'm sure they just missed that...
But even their investment in manufacturing overseas is a tiny trickle of their wealth. Mostly their money goes to casino gambling on the derivatives market. Do you know the size of the world derivatives market? Look it up, it is $500 trillion. That is more than 30 times the GDP of the US.
There is not even that much money in the world. But these financial wizards figure out a way to pull off such a trick anyway, through leverage, which means borrowing, btw.
The fact of the matter is that these good-guy billionaires are in fact a huge liability, not an asset. They are destroying our system, like termites eating away the structure. Even Warren Buffet has called derivatives "financial weapons of mass destruction."
How did it get like this and what is the answer? There are plenty of people who have the answer and it is not rocket science. After the depression of the '30s the Glass-Steagall Act was passed to rein in the finance sector and its abuses.
That was repealed in the 1990s, thanks to Wall Street campaign contributions which are the biggest source of funding, by far, for politicians. That is how the system works. The billionaires have bought the "people's" government and now do as they please.
Since then we have seen the finance sector balloon in size and the introduction of derivatives which did not even exist until recently.
Now when someone points out these facts, they are a class warrior? Ridiculous. Is Paul Craig Roberts a class warrior? He was Reagan's Deputy Treasury Secretary and is considered the father of Reaganomics. And after that editor of the WSJ. See what he says now about these good guy billionaires and the usurping of political power by the money men.
Soon there will be nothing left. Never mind owning your own airplane, we will have matters of basic survival to worry about...
Hi garnaut,
Being somewhat familiar with the very things you complain about (the finance industry, outsourcing, offshoring, increased productivity, the decline of unions) I think we'd agree about little - not nothing, but little - on any of those topics.
But there is one thing we agree on: airplanes cost WAY too much today. They're not 10% too expensive: they're 500% too expensive. Airplanes are very simple pieces of equipment, comparable in complexity to a ski boat, and certainly far less complex than a car or even an agricultural tractor.
It seems to me that there must be ways to build airplanes not just a little cheaper but almost an order of magnitude cheaper. Affordability won't happen by moving production to China, nor by unionizing the workforce either. It will take something much more fundamental, on the manufacturing side and on the design side. A vastly cheaper airplane probably won't look like what we're used to, and may not have the kind of performance we're used to - just as a $2,000 Tata isn't a Camry.
Certification could be another problem, but one step at a time.
Got any thoughts?
Thomas, yes I have some definite thoughts on how to create the affordable airplane.
Btw, certification is not a problem. See my post above and the link to the primary category rules.
You are absolutely right that light airplanes are VERY SIMPLE machines. They absolutely CAN and WILL be made at a very low price point. Like I said before this is a design and engineering issue. You need to be able to take off the shelf parts and materials and add minimal value---labor, machining, etc to those parts.
This is a matter of ingenuity. And yes it can be done. Metal airframe is the way to go, but a different kind of structure and assembly method. Rivets must be minimal and of the pulled type. Bonding and sandwich type structures, tubes, etc.
These are the raw materials of the affordable airplane. Forget about composites, they are way too expensive as raw materials and require a lot of labor or expensive automation. Either way a lot of value must be added. With metal we already get finished pieces for peanuts that have had incredible value added by very large players in industry.
And yes, there are certain aerodynamic configurations that lend themselves more easily to this kind of approach.
That's the airframe. The other biggie is the engine. Here again, completely new approach is needed. And here again, we can just take off the shelf stuff and combine it to what we need.
I happen to like the direct-injection 2-stroke cycle as used in outboards. four-stroke fuel efficiency, but 2-stroke power density, smoothness, low parts count, low heat rejection to reduce cooling drag, etc.
This is not rocket science. The problem is that NOBODY has decided that there must be a better way to build an airplane. They just use the same approach as before. If the car industry did this, we would still be driving model Ts. Same with the transport plane industry, we would all be flying on coach on DC3s, with Pratt radials and props...
Paraphrasing the song, Aviation got 99 problems, but Obama ain't one.
Politics has less to do with the decline of aviation than our corporate culture does.
Wall Street wants bigger returns on investment and has no qualms shutting down a US factory and moving their jobs to China if it means a fatter bonus check.
Finance, Insurance, Lawyers and the like gorge themselves on the blood of hardworking, hard thinking America, stifling growth and creativity, while contributing no value to society
Case in point: A new basic Cessna runs $300k and up. What do you get? An aircooled engine, magnetos, mixture controls, etc. Honestly? How are we still paying up the nose for archaic technology that pre-dates my parents, while a $25k Hyundai has uber-fadec liquid cooled 100k mile trouble-free operation.
I can build an RV-10 for half the cost of a 172 and end up with a plane that just blows it away in performance. When did custom-made become cheaper than mass-production? Henry Ford is turning over in his grave.
Obama just thinks jet operators need to pay their own way, not get welfare tax-breaks that the rest of America pays for.
Please keep politics out of this publication unless there is a compelling reason to do so. You are only tarnishing the stellar objective reputation of Flyingmag.
I agree, the politics of business jets is a distraction. However, the "passive" vs "active" income distinction in the tax laws has been bad for flight schools.
OK folks, let's talk about "Wall Street" and its qualm-less demand for profits. First of all, it isn't really Wall Street at all. Wall Street helps companies to raise capital by issuing new securities (stocks, bonds), but the demand for profits comes from the investors who buy, hold and subsequently trade those securities. Those investors are mostly mutual funds and pension funds, and many - maybe most - of them aren't even based in New York. The money being invested by those funds is primarily the retirement savings of middle class workers. Sure, there is money from billionaires in there too, but it's swamped by the savings of the middle class.
Those demands for profits turn out to be nothing more or less than the sound of the middle class, saving for retirement.
There's nothing immoral, unethical, or un-American about demanding value for money, whether that money is an investment or is being used to buy a product. We all do the same whenever we shop.
Next, let's consider this business of worrying about where planes are produced. It is an arithmetic fact that every dollar a foreigner invests in US companies, and every dollar a foreigner spends on US products, has to come either from selling products to the US, or from US investment in foreign factories. We want to sell products overseas, and we want foreigners to invest in US factories. At the same time, people complain when US money is invested overseas, or when US consumers buy foreign products. They're two sides of the same coin. You can't have one without the other. When you "buy American," you also undermine foreign investment in America. Funny how no-one worries about that.
The labor cost advantage of other countries is not as great as you may have been led to believe. Productivity is what matters. If you hadn't noticed, US-built Volkswagens are being exported - to South Korea! (And the money to pay for that factory came from... US purchases of German-built Volkswagens). The US can - and does - compete with anyone in the world. But, it's more competitive in some areas than others.
Lawyers and lawsuits are a price we pay for not having to deal with EASA (the US relies more on liability law and less on regulations to protect consumers). I agree that the price seems too high - not that I'd want to wish EASA on us either. By my estimate, liability insurance adds about $30k to the price of an LSA. That's excessive, if I'm right. (I have yet to be authoritatively corrected.)
Garnaut, you mention engine options. The problem, as I understand it, is that the owners of reliable low-cost engines (from Honda to Evinrude) don't want their engines used in GA because of the liability risk. Thus we end up using custom designed aero engines, at enormous expense.
Also, I'm not totally convinced that composites are the wrong answer: first, because low-cost production of metal parts also requires expensive capital equipment; and, second, because I can't help thinking that part of our answer will come from molded plastic parts. Remember, "cheap" may also mean "heavier."
Good discussion, all!
Thomas, I think your views on the finance sector are colored by your experience in that area. I would much rather talk about technology than economics, but I think we all have to realize that our system has been hijacked by the finance sector.
There is no getting around it that the 1/3 of GDP that is now the finance sector is a tax on all of us. Our economy has been financialized and de-industrialized. This is completely to the detriment of everyone.
It is industrial production that makes possible the good life that comes when you can make lots of stuff at low cost. People simply do not realize the importance of this simple fact.
Industry even wins wars. America's ability to crank out hundreds of thousands of airplanes, tanks, ships, etc was the main reason it was able to defeat Japan. Same with Russia beating Germany. It was industrial output that was decisive.
Today we have incredible industrial technology and processes that are practically miraculous in their ability to crank out products at unbelievably low cost.
It is industrial output that raises living standards, not finance. Finance takes out rent from the productive economy. Think about it, what does finance actually produce? Absolutely nothing. (Well other than destructive gambling called derivatives trading).
Now you say that Wall Street helps companies raise capital. If you look carefully, you will find that issuing securities is only a very small part of the income stream of Wall Street. A vast majority of income is from their own trading, which includes stocks, bonds and derivatives.
For example, right now the Wall Street banks are posting multibillion dollar quarterly profits. How? Here is what they are doing. Right now the Federal Reserve lending rate to banks is effectively 0 percent. Banks are borrowing this money from the government, then turning around and using it to buy Treasury bonds which pay interest of 2 to 3 percent.
Are they buying bonds from companies and manufacturers to help them grow their business, employ workers and increase output? Absolutely not. They are buying bonds from the US government, using money borrowed interest-free from the US government.
Now you know what, I would like to be able to take part in such a sweet deal. Could I go to the Fed window and ask for a zero-percent loan? Yeah right. My role (and the role of 300 million other people) is to finance this outright stealing through my taxes. http://blogs.law.harvard.edu/philg/2009/10/17/how-wall-street-is-making-...
Look the money has to come from somewhere. If you are trading and making money, then it means that there has to be someone on the other end losing money. Yet each and every one of the banks is making billions. The only loser is the taxpayer.
So much for Wall Street being an honest business. And yes, I count the entire finance sector in there, regardless of whether they are physically on Wall Street or not.
Now you also make an error in your explanation of how the balance of trade is conducted. You say that "Every dollar a foreigner spends on US products, has to come either from selling products to the US, or from US investment in foreign factories."
Not true at all. The US is the only country that pays for its foreign purchases in its own money, the dollar. That is why the dollar is called the Reserve Currency. It is also used by third parties trading among themselves, say China buying Saudi oil. It buys in dollars. The dollar is in effect the world currency.
When China, Japan or anyone else sells products to the US market, the US pays in dollars. It is the only country that can do that. That is why China now has a couple of trillion dollars in its piggy bank (that it does not really want). The only thing they can do with those dollars is to buy stuff from the US, or invest in the US. Mostly they invest in Treasury bonds issued by the US government.
They would actually prefer to buy US industrial companies like GE, Boeing, etc. But they are not permitted to do that of course, for obvious reasons. So bottom line is we get all kinds of cheap crap from China to fill the Walmart shelves. Plus we get somebody to cover our government budget shortfall.
Not a bad deal, eh?
Now the only problem is that this is NOT GOING TO LAST. China and other big countries are working out arrangements to drop the dollar as the trade currency. Some oil producing countries have already dropped the dollar. When the dollar stops being the world reserve currency, the US will overnight become a third-world country. Please see economist Paul Craig Roberts, and many others, on this point.
But getting back to your point, it is obvious from this that US companies or investors absolutely DO NOT need to invest overseas in order to balance the trade deficit. The trade deficit is balanced by China (and others) buying US government bonds. Which means the Chinese are letting us pay them for their manufactured products in dollars which they can't use (naturally they would prefer to be payed in their own currency but that's not going to happen), so they just lend those dollars right back to our government.
It's a losing proposition for the Chinese, but they go along with it because it lets them grow their industrial base and create employment for their people. This is a wise long-term view. Now the reason Wall Street is also investing in China is because they can get fatter returns. That is the honest truth.
They are getting in on this game because it makes for fat bonuses at Christmas time. But you can see how they care diddly about the long-term health of the country, exactly opposite to the Chinese. While China is taking short term financial pain to ensure long-term industrial gain, Wall Street is doing exactly the opposite. Wall Street Greed is behind the hollowing out of our industrial base, plain and simple.
You also say that pension funds that represent ordinary folks are making these overseas investments in order to benefit us. Again this is not an accurate picture. First of all, the pension funds of ordinary people are dwarfed by the hedge funds that are basically gambling pools of Wall Street capital. That is an incontrovertible fact.
So out of all the Wall Street money being invested overseas, a tiny portion of it is going to benefit ordinary folks' pension funds.
The bottom line is that the middle class is being pauperized. We are losing the good industrial jobs that were the bread and butter of family income and the ladders of upward mobility.
Look I work in industry. Other than the fat-cat CEOs who are making obscene amounts of money, industrial corporations by and large are getting the short end of the stick too. They have to dance to Wall Street's tune. They do not want to shut down factories and relocate to China.
But that is what the shareholders demand. And those shareholders are Wall Street banks, hedge funds, etc.
That is the whole problem in a nutshell. We have seen the finance sector (which is a parasitic drag on the real economy, to borrow an aerodynamic term) take over. Industry has been relegated to the sidelines.
Now the only thing that is going to save us is to take off our blinders and see these simple facts for ourselves. Never mind the propaganda coming out of Wall Street and their mouthpieces in the media. That is all baloney and fairy tales.
@ Thomas Boyle
What do you mean by "Passive" vs. "Active" distinction is bad for flight schools? I had an aircraft on leaseback for 5 years and had no problem meeting the IRS tests for "Active Participation". Meaning, I could pass the depreciation losses through to my personal income. The IRS tests for meeting the "Active" bar are fairly basic (100hrs documented involvement/yr, rents less than 7 days, "marketing" agreement with flight school instead of lease agreement, etc). All of these tests can be met will a little planning and a little actual participation.
Now, for those that just was to buy a plane, give it to a flight school, not be bothered with it again and take a $300,000 tax deduction, that's a passive activity and it's perfectly reasonable for the Government not to give that taxpayer a $100,000 gift just because they could buy an airplane.
Hi Jdevine,
Yes, the idea is to buy a plane, give it to a flight school, and take the depreciation against earned income for tax purposes.
I have never understood why the distinction between "active" and "passive" income: it makes no sense to me that someone with a high passive income (Warren Buffet) should be allowed to take this tax benefit, while someone who has only earned income (his secretary) should not.
I'm not really debating the public policy side of it, in terms of a $100,000 "gift" (actually a loan in the form of a reduction in taxes taken from their income, largely recoverable when the aircraft is sold with a depreciated tax basis). However, I have never considered earned income to be the Government's money, as you apparently do.
@ Thomas Boyle
"However, I have never considered earned income to be the Government's money, as you apparently do."
Haha, you state you're not debating policy, then immediately make a misleading, inaccurate and pejorative comment aimed at me based on what, your tax policy opinion! For starters, your passive v earned example is inaccurate.
There is no reason that the secretary in your example can't take advantage of this tax benefit if they can come up with the capital to buy the aircraft in the first place. The only determining factor for active/passive is whether or not you meet the IRS tests for active participation. If you don't, it's a passive activity and losses can only be used to offset income from that specific passive activity. In that case, the secretary would be required to actually have a successful (profitable) passive activity and offset those gains with the passive losses (just like Warren B).
Passive activity losses are quite reasonably limited to passive income as a simple means to discouraging people from "investing" in an activity (which they do not participate) for the SOLE PURPOSE of generating losses to offset other earned income. In other words, a tax dodge. So I get it that you don't like the income tax, but so long as it exists (which it will), treating passive/active income separately makes sense.
Hi garnaut,
I agree, we should probably stick to commenting on aero technology: no-one here will much care about the finance industry or trade issues. As I said, you and I would agree on some things - for example, I remain vehemently opposed to the bailouts, because they wind up protecting the powerful from their big mistakes, and sticking the middle class with the bill. (As a widely-circulated poster said, "You wouldn't buy our s**tty cars, so we're taking your money anyway" - and something similar applied to the financial system bailouts).
But many of your other comments, I would disagree with. Yes, I know something about finance, but I'm also an engineer, and have started real businesses doing real "stuff." Many of the things you blame on "Wall Street" are the - often personally very painful - side effects as millions of people rise out of poverty and start competing for jobs. And, contrary to all the headlines, US manufacturing isn't being hollowed out (nor is US agriculture, which gave rise to all the same headlines a century ago): manufacturing output in the US is actually accelerating, not declining, in real terms. That doesn't mean there aren't layoffs: there are, and they're painful. Of course, there always have been: you don't see many cartwrights or coopers (or even farmers) anymore.
As for trade, the arithmetic is correct. China returns its dollars to the US pronto - before they ever leave the US - by a) investing in US business (Cirrus and Continental are extreme examples), b) buying US products (think Boeing), and c) buying Treasury bonds and bills from the US government (as you note). The government, famously, does not save money, but immediately spends the dollars on US business, US products and cash transfers to individuals. Yes, someday the Chinese will probably cut back on their purchases of US Treasuries, but the only way for them to do that will be by either a) buying more and selling less in the US or b) investing more in US businesses.
Counting hedge fund trades as "investment" is like counting people coming into a factory every morning as "employment" - you have to account for the people walking out at the end of every day, too. Hedge fund and bank prop desk trades are a zero-sum game, for the most part, like the people walking in and out. In the end, the bulk of the actual investment money comes from ordinary investors, and that's where most of the investment gains go. The huge bonuses at the banks are like the huge bonuses for industrial CEOs: they're spectacular, and I don't like them either, but they don't have much to do with the real value of finance or industry.
Any thoughts on how to get an aircraft engine made for $600, or a complete aerostructure for $25k?
Cheers!
@Jdevine,
(I'm assuming that "@" is equivalent to "in response to")
Nothing I said was pejorative. If you're offended by the suggestion that the government owns our income, we agree. If you do think it owns our income, we don't. Public policies can be constructed about either, and can be debated, but I wasn't doing so.
I can dislike income tax while accepting it is necessary; and I can accept it is necessary without thinking of an income tax cut as a "gift" from the government.
My passive v active example wasn't inaccurate, and I WAS debating that aspect of public policy. The secretary has to take steps to either create income to offset, or create additional non-value-adding work in order to claim the activity as active income. That actually does seem like bad public policy to me: I don't see how his/her taking the tax loss against his/her main source of income is different to Buffet taking it against his main source of income (passive). If either is a "tax dodge," both are. If one isn't, the other isn't. This isn't about good public policy: this is just another way to squeeze the wage-earning middle class, who aren't powerful enough to do anything about it. And in that sense, it absolutely does "make sense."
garnaut,
One other thing that may make you feel better (as it does me) when you hear all the stories about the Chinese being long-term-oriented while the US is all about near-term investment gains.
I'm old enough - as I suspect you are - to remember hearing exactly the same about the Japanese in the 1980s.
Remember the Japanese, and how they were going to take over the world?
Cheers!
Thomas, $600 is a mite low for an engine of an kind.
Previously I mentioned the GM LS1 engine, $5000 for 350 hp, which is less than $15 a hp. Btw, this engine has pretty decent power density almost 1 hp a lb. I think weight is about 400 lb.
Outboard 2-stroke of 300 hp is even better power density. An aircraft version of this engine would easily pass 1.5 hp/lb, using air cooling. As was said back in the day, liquid cooling on an aircraft makes about as much sense as air cooling on a submarine...
Here is my favorite. Opposed piston 2-stroke cycle with direct-injection. Fuel efficiency will be higher than today's 4-strokes. power density will be even better than outboards.
And here is the biggest plus, cooling drag will go way down. As an engineer you can appreciate this. In an opposed piston engine there is no cylinder head (and in 2-strokes there are no valves).
It is the cylinder head that absorbs most of the heat in an engine. The heat balance on an engine is something like this: 30 percent goes to making power, 30 percent out the exhaust and 30 percent rejected to coolant, whether air or liquid. the other 10 percent is friction losses.
In an opposed piston engine, you can cut the heat rejection to coolant to almost nothing. All the heat goes out the exhaust pipe. Heat transfer is a function of surface area and you have eliminated the entire cylinder head surface area. It is like trying to boil water in a very tall skinny pot. There is very little heat transfer surface area.
It is frankly ridiculous to use an engine that has exhaust valves in any airplane. The exhaust valve soaks up nearly 2/3 of the heat rejected by the engine. It is the Achilles heel of the engine.
So that is an engine that is incredibly simple, robust, fuel efficient, cooling efficient, and can be made cheap as dirt. Direct injection is nothing more than diesel-pump injection and that has been around for 100 years.
It is also the kind of engine that can be made cheaply with off the shelf parts. I could build one of these in my garage using two crankcases and recip assemblies from existing 2-stroke aircraft engines. All I would have to make is the cylinder that goes in between.
Minimal machining to make that from existing round stock. Plus add the high-pressure pump. So add up how much that costs, it is peanuts.
garnaut,
You've obviously put a lot of thought into this. I'm assuming that using a complete, or near-complete GM or Toyota/Honda/Evinrude engine is out of the question because the OEM won't allow it, and anyone trying to buy more than a handful of "replacement" engines is going to get scrutinized - and stopped (and sued), if they are putting them in airplanes. Is that your impression?
Out of curiosity, what makes marine outboards so light?
It's not immediately obvious to me that the need for cooling is markedly less in an opposed piston engine. The heat transfer area is bore circumference x stroke x 2, while in a conventional engine you would add the end area of the cylinder. Intuitively I'd have guessed that's maybe 25% of the total area, so the new design would need 75% as much cooling based on area. But - all the heat has to be removed somehow.
I see that Diesel Air Limited in the UK is pitching a 100hp engine similar to your proposal. It is liquid cooled for some reason, and weighs about 200lbs (vs 140 lbs for a Rotax 912). Part of the reason for that may be that it needs a centrifugal compressor to supply the air. And of course they have to connect 2 crankshafts through gears (which makes me wonder - why not go for a higher RPM, geared prop, and lighter engine?). Still, it seems rather heavy for a 2-stroke. PowerPlant Developments also reported a 3-cylinder (?) opposed-piston diesel in 2007, saying it would be on the market by 2010 and would produce 100hp for the LSA market, weighing about 150lbs, also using a turbocharger for air. No sign of what happened to it.
Do you know what happened to them?
P.S. - The PowerPlant guys set a prospective price of $18,500...
Everyone, Robert Goyer wins the spot landing contest for today! He's right on the mark with this one. If you use "business aviation", wouldn't you be the best one to advocate its usefulness!
Thanks Robert and everyone else at FlyingMag, see you at Oshkosh!
Thanks,
Thomas, I'm not familiar with those engines you mention.
A compression-ignition (diesel) engine tends to be heavy because you have to contain the very high cylinder pressures for one thing. Also diesels are limited in piston speed because of the slow burning of the fuel, which means they cannot rev high.
In order to make good power density you must rev high. Yes you are right on the money about the gearing. An OP engine is a natural for built-in gearing, because you have to gear the two cranks together anyway. You just use one big diameter gear in the middle to drive the prop with two small crank gears on either side.
Your understanding of heat transfer in an IC engine is somewhat flawed. Very little heat is transferred to the cylinder bores. The heat is mainly confined to the combustion chamber. In a typical aircraft engine look where the cooling fins are. About 90 percent of fin area is on the cylinder head.
In an OP engine the combustion chamber is the space between the two piston tops coming nose to nose. There is a very small sliver of cylinder bore there for heat transfer. The piston tops do take a fair bit of heat, but that is transient. They are cooled right away with the blast of fresh air into the cylinder. don't forget there is no separate exhaust stroke. The fresh air is blasting in and pushing the exhaust out ahead of it.
Not only that but we can ventilate the engine by increasing the scavenge ratio. This is the ratio of incoming air to cylinder volume. We can go as high as 3 to 1 or higher if we need to cool things in there. Doesn't matter because it is just air and no fuel so we can blow as much air as we want through that cylinder. The fuel is shot in only after the pistons are at top center.
This also cools the pistons. In an OP engine the fuel is sprayed directly at the piston tops. This does two things, it cools the pistons and it atomizes the fuel very effectively due to the vaporization of the fuel on the hot surfaces.
Have a look at this OP engine, which is in fact a diesel. Single cylinder, completely home-built. There is only a couple of cooling fins. The engine really needs no cooling to speak of. http://www.pattakon.com/pattakonOPRE.htm
Btw, this is a high-rpm diesel due to the pulling rod configuration which lets the piston dwell longer at top center and therefore allow burning of the fuel even at high engine speeds. That is why it is so light. It puts out 70 hp at a weight of 44 lb.
Another thing is the smoothness. The engine is completely balanced. It does not even need to be tied down. Have a look at the video where it is just hanging from a string. If you tried that with any other engine that engine would be bouncing all over the room like a grenade.
And yes, OEM from established vendors is out. Nobody is interested in light aviation. And I don't think it is because of liability, etc. I think it's because it is so tiny. Our GA piston industry has effectively killed this entire business over the years.
It is now a very specialized boutique business selling a handful airplanes (and therefore engines) a year. At ridiculous prices.
If you were cranking out 10,000 planes a year you would have all kinds of engine vendors interested in supplying.
Btw, a direct-injected spark engine can also run on diesel fuel, just as well as on gas. And that is what lots of outboards do, particularly the military versions. Also the 2-stroke drone engines for the military because military now is on single fuel across all services.
This would neatly solve the fuel problem. Jet fuel is available everywhere. Avgas is a thing of the past and should be forgotten asap.
Thomas, just to add the "why" of why little heat is transferred to cylinder walls.
The temperature of combustion is very high, around 4000 to 5000 degrees F. This happens as the piston is pretty much stationary at top center. As the piston descends on the expansion stroke (power stroke), the expansion of the gas in the cylinder is what makes work.
The heat energy is transformed into work energy by the expansion of the gas pushing against the piston and by the time the piston reaches the bottom of the cylinder the temp of those gases is drained, now well under 2000. So the cylinder walls do not see those high temps.
Plus this not quite as hot gas is only next to those cylinder walls briefly as the piston descends. (And as it goes back up on the exhaust stroke in a 4-stroke engine).
In a 2-stroke you don't have an exhaust stroke, so the time of exposure to the cyl walls is half. The blast of cool air blows right in while the piston is at the bottom. Btw in an OP engine the intake ports are at one end of the cylinder, while the exhaust is at the other end. Very efficient flow.
Also your question about why those 2-stroke outboards are so light. the powerhead (engine itself) on a 300 hp V6 outboard 2-stroke is about 200 lb. And that's with heavy cooling jackets which also cool the exhaust.
Two stroke engines are light because they have a fraction of the parts of 4-strokes. OP is lighter still because you also eliminate the cyl head.
