Single-engine jets? Diamonds in the rough, or albatrosses? That's the question that springs to mind as yet another North American aviation company gets snapped up by foreign investors.
The news yesterday that Diamond Aircraft had been purchased by Middle East financial concern Medrar came as a surprise to us only because we didn't know the details of what must have been a deal in the works for months. The fact that Diamond founder Christian Dries finally gave in to the mounting costs of running an airplane manufacturing business during this protracted downturn is no surprise whatsoever. This stagnant economy has tested much larger and deeper pocketed concerns than Diamond.
The sale leaves us with few North American-owned Part 23 light airplane makers extant. Cirrus is owned by a Chinese firm; Piper by a firm based in the far East. Hawker Beechcraft, which produces two highly regarded but premium light GA products, the G36 Bonanza and the G58 Baron, and Cessna, which maintains a complete lineup of piston singles, are the two mainstays. Both have been enduring financial challenges of late. Hawker Beechcraft just announced more layoffs on Monday, and Cessna is under new leadership; that latter change looks promising, though the profitability of Cessna's piston-single lineup is always a topic of debate in Textron boardrooms.
And then there's Diamond.
When it burst on to the scene 20 years ago with the two-seat Katana trainer, Diamond was a breath of fresh air. The little then-Rotax-powered composite single was not a perfect trainer by any stretch, but it did a lot of things right. While payload challenged, it provided a roomy cockpit. The long, slender sailplane-like wing provided plenty of lift, while the controls felt somehow very conventional. Flight schools, starved for new trainers in the 10 years since the Cessna 152 had last been produced, snapped up the Katanas, and over the years Diamond, with its manufacturing in London, Ontario, Canada, continuously improved the design.
It also added new products. The four-seat Diamond Star--I flew it first, back in Austria at the parent company's headquarters--was a great take on the four-seat transportation airplane. Not as fast as a Cirrus or as versatile as the slower Skyhawk, the DA40 fit a niche and did well. It's wonderful flying manners and great safety record attracted flight schools and private buyers in decent numbers. The twin-diesel TwinStar, a truly revolutionary but engine-addled design, added to Diamond's innovator cred but also to its financial woes.
And then there was the jet.
When Diamond rolled out plans for its single-engine jet, the aviation world took notice. Mac flew an unpressurized version and reported positively on it, though it was clearly a work in progress.
Speculation was that the jet was the centerpiece of the company's plans for the future. But news from Vero Beach last month calls that notion into question. Piper, as you remember, decided to shut down its Piper Altaire (nee PiperJet) program because it calculated that it couldn't reasonably expect to recoup the investment that it had already made and certainly would continue to make in the program for a product whose very certification prospects--a single-engine jet flying in the mid-30s--was in question.
How different is it for Diamond?
Good question. While it is a single-engine jet, like the Altaire, the Diamond product is intended to go only up to 25,000 feet, an altitude that I can fly in my Cirrus piston single. It's also a lot slower than the Altaire would have been, by nearly a hundred knots, and it also looks like a good bet to come within shouting distance of the single-engine stall numbers, something the Altaire would have needed a lot of help getting an exemption for.
This shifts the focus away from safety to economy. Is a turbofan the best, most economical way to ply the mid-20s? Clearly, no. A turboprop burns much less fuel at these flight levels. Will people still buy the D-Jet (or the similarly market-focused Cirrus Jet)? The signs are that they would. In large enough numbers to justify the certification and production of a jet? The folks at Piper's parent company thought not. Is it different for Diamond or Cirrus? Thanks to the easier certification targets, it very likely will be less expensive. Still very expensive, but perhaps doable. The good news is that the new owners are excited about the jet and are willing to invest to get it to the finish line. Let's hope it works just like that.
The other thing I wonder about is Diamond's relationship with Canada. It's believed that one of the reasons that Diamond, an Austrian company, landed in London in the first place was for the relationship they would have with the certification wing of Transport Canada, an association that turned out to be very positive indeed. But with Canada voting with its wallet that Diamond wasn't as important to it as it once seemed to be by turning down a loan program to the manufacturer earlier this year, despite Diamond's hard lobbying for the funding, one wonders if the long honeymoon might be over.
With a new owner, that possibility is all the more real. When establishing its North American presence, Embraer landed in South Florida. I love London, but I've been to both places in November. Just saying.
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Submitted by ChampPilot44 on November 15, 2011.
What it means is that another North American company is owned by a hostile nation. I'll include China in that statement because I feel like they are also hostile towards most of the world.
At least Flying mag is still owned by good ol' Americans...woops, no it isn't.
Submitted by femanvate on November 15, 2011.
I differ with the first comment in substance but not style. The Middle-East and China are not hostile nations and would have more to lose if they pursued belligerence. However, selling American companies overseas takes away jobs and converts America from a producing economy to a consuming one. Wealth comes from a nation adding value to raw materials or other product and exporting more than it imports. Sadly, most American corporations seem to be blindly exporting ownership, jobs, technology and profit for short term financial gain. Teach your grandkids Chinese or Arabic , because they just might need a Visa someday to move to a place with better opportunity.
Submitted by rnqubain on November 15, 2011.
I differ with the first and second comment. America is the champion of capitalism and hence free trade. Why would it be wrong for foreign capital to flow into North America and by doing so save some American jobs, wouldn't that be better than the alternative..... close down such a great company that helped revolutionalize modern GA!!!
I think the fact that the Arabs are investing in such a volatile economy and more so industry, should bring us hope and relief. The Mideast carriers are expected to spend between $350 and $450 billion on boeing and airbus airplanes by 2030.
Submitted by DigDug on November 15, 2011.
Dubai is hostile toward the U.S.? Then why do we sell them F-16s, Apaches and Black Hawks? According to our own State Department: "The UAE contributes to the continued security and stability of the Gulf and the Strait of Hormuz. It is a leading partner in U.S. counterterrorism efforts, providing assistance in the military, diplomatic, and financial arenas since September 11, 2001." Doesn't sound like a "hostile nation" to me.
Submitted by sunny boy on November 15, 2011.
Although I don't see foreign investment as a negative, when you see Piper, Cirrus and now Diamond taken over by foreigners, you have to ask the question: Can American Business not see the opportunity in owning a business that has unlimited potential in a world where personal transportation will only grow in importance?
Submitted by north36 on November 15, 2011.
This is clearly where politics and business merge. When we look at the downturn we need to remember that the downturn is the result of government policy begun in the 1980's with progressive deregulation and decreasing tax rates. The combination of those two vectors produced a diminished middle class whose average salaries have not risen in these nearly 30 years, and a financial industry which has promoted itself with record profits. Banking is not the same as manufacturing, by the way.
The culmination of this was the housing debacle and the mortgage debacle, clearly signaled by the fall of the savings and loan industry and large companies such as Enron...
The solution, of course, is at the policy level: restoring regulations (compare this to sports: without good rules, the bullies take the high ground and the game gets trashed), and structuring the tax code such that those who make the most off of the system pay for the infrastructure and the well being of the workers who ultimately consume the products.
When it comes to aviation, there will always be a market for the very rich, but until we return to policies that promote the middle class accumulation of wealth, the market for 172's, Warriors, Diamond DA-40's, Cirrus SR 20's and the like will continue to shrink.
Unless we similarly promote a policy which establishes the value of local airports, and go after those who do away with them...such as the past mayor of Chicago audaciously did, the aircraft industry will continue to slide.
Any one care to join "Occupy Wall Street" to return the financial power to what once was the middle class???
Submitted by zuluflyer on November 16, 2011.
Very lucid and inciteful comments by north36, DigDug & rnqubain.
However, I don't concur completely with rnqubain - "America is the champion of capitalism and hence free trade" .... free trade, perhaps... but I think that capitalism in the US has a somewhat bloodied nose right now since the referees left the game.... we need rules to play...
I think you need to look at a few other countries that have a much better performance in the capitalism area .... so long we allow "self regulation", without thinking of the national interest, we'll continue to lose capital and companies to other countries... and the path to consumerism will be further entrenched. Time to start pushing education and stop shouting "States rights!!" - what about American rights ??? and it start with engineering education - not lawyers, etc.
Submitted by Doug Fredlund on November 16, 2011.
Foreign companies have a long history of throwing money down the "rat hole" we call the U.S. Aviation Industry. Better their money than ours. It was said a few years ago that a company needed to go bankrupt three times to make the overhead costs sustainable. I'm wondering if that figure has changed much over the years? But it does point up the problems associated with manufacturing products in America.
Submitted by greid on November 17, 2011.
Robert,
I noticed that you did not mention Mooney Aircraft Corp in your article. To my knowledge they are still American owned. However, I understand that your omission is probably justifed since Mooney has not produced any airframes recently.
As a Mooney owner, I am conflicted about the fact that they were not one of the companies to attact foreign investment. On one hand, it would sure improve the availablility of parts and insure the continuity of the mark, on the other, people would complain about non-american ownership of another North American GA manufacturer.
I think on balance as a consumer, I would prefer that support for the products I own and seek to maintain would remain rather than wory about to whom the economic benefits accrue.
Submitted by Vermeer on November 17, 2011.
As a Canadian, I'm a little conflicted about this sale. The Canadian government had already provided a $20Million loan to Diamond for the D-Jet program. The real problem was that Diamond decided to invest $65Million in their Austro diesel engine & relied on the Canadian government to support the D-Jet program.
The thinking was that they would have no choice to do this or see 400 jobs disappear from western Ontario. Bad calculation: Canada already has Bombardier/Learjet, Bell Helicopter, Rolls Royce & Pratt & Whitney Canada to support through this bad economy. Bombardier alone is worth $Billions and provides over 30,000 jobs (the transportation division has another 34,000).
I love the Diamond piston planes (DA-42 NG is my dream airplane) & I'm sure the D-Jet will be a success because it is a lot more realistic than the other jet programs. Middle eastern financiers are already present in high technology and pharmaceutical, so why not GA aviation?
Nick Prudent
Montreal, Canada
This sale is a great move and if the D-Jet can fulfill the $350Million it generated in pre-orders, Diamond will leapfrog Cirrus in annual sale.
Submitted by Thomas Boyle on November 18, 2011.
north36,
I agree with your point about income distribution. But thinking that higher taxes will help, falls into the category of logic that says, "something must be done, this is something, therefore this must be done."
I'm still trying to figure out how higher taxes could help the middle class.
Or how higher taxes on customers and investors help aviation or create manufacturing jobs.
If I had kept just a small fraction of the taxes I've lost in the past few years, I could have bought a lot of aviation toys I haven't bought.
The government isn't going to spend tax receipts on toys for middle class pilots. It's going to spend it on the priorities of the politically powerful, like it always does and like it's done so spectacularly over the last several years. To pay for all this, the government primarily fleeces the middle class, because - as Willie Sutton put it - that's where the money is. The middle class are not rich individually, but there's a lot of them, and unlike the rich they have no way to escape. That's why, in the end, taxes that are justified as being "only for the rich" invariably land on the middle class eventually.
If you have enough income to be a private pilot, you're paying for the government, not the other way around. So be careful what you wish for: more government, you can have - but it will come with less flying, maybe none.
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