Why airplane engines are expensive (one North Carolina lawsuit)

According to this Avweb piece, Continental has agreed to pay $20 million to the children of some people killed on a 1977 twin-engine Cessna 421.  The settlement came out of a North Carolina lawsuit (where former Democratic VP candidate John Edwards made his fortune suing ob-gyns).  To judge from the Avweb article, the evidence against Continental was slim.  The NTSB report, as usual, blames the pilot.  In this case it seems that the pilot shut down the working engine and failed to feather the prop on the dead engine.  So instead of one strong engine and one low-drag feathered engine, he had one medium-drag idling engine producing almost no power and one high-drag dead engine (though actually the NTSB says that they couldn’t find anything that would have prevented the right engine from operating).  The maintenance on the engines does not sound as though it was done very carefully; the NTSB reported 124 hours since the last oil change (recommended interval is 50 hours).  So… even if the engine really did quit, it might have been due to inadequate maintenance and not Continental’s negligence.  And regardless of the reason for an engine failure, a multi-engine rated pilot is supposed to be able to manage the failure (though of course many are not successful and “the second engine carries you to the scene of the accident”).

What I find interesting about this case is the comparison of the $20 million number to the approximately 1000 new airplane engines that a company like Continental is able to sell every year for certified airplanes (i.e., not kits).  There are about 2500 piston-engine planes sold every year.  About half of these are sold with Continental engines, the other half with Lycoming.  An airplane engine costs around $20,000 new.  So basically this $20 million settlement is equal to nearly all of the revenue that Continental could hope to earn in one year from selling airplane engines and perhaps 5-10 years of profits.

15 thoughts on “Why airplane engines are expensive (one North Carolina lawsuit)

  1. It sounds like the legal claim is something about the engine shouldn’t have caught on fire after the crash. The crash didn’t kill the pilot and passengers, the ensuing fire did. Cause of death was carbon monoxide poisoning, probably due to smoke inhallation.

  2. Most airplane and aviation engine manufacturers are confronted with the same problem: minimal volume of sales and huge liability tail. As Phil says, Continental only sells a couple of thousand engines each year (the company probably has other revenue from re-manufacturing and the like but not much). “GARA” limits somehow the liability of manufacturers but not much. I do think the high cost of liability insurance has already killed the light airplane industry. For the past decade jets and turboprops have outsold piston planes. If you are going to build aircraft, make them expensive so you can insure them. Besides, the operator will make sure that his 5$M jet is not flown by Sunday drivers. And, many of the aviation-accident lawsuits are without merit. The general public is basically ignorant about aviation issues (as any pilot can attest). That makes aviation tort particularly tricky. The public is used to the extraordinary safety of on-schedule airlines and refuses to accept the risk presented by smaller, less capable planes, pilots, training, and systems.

  3. To patxaran, re “The general public is basically ignorant about aviation issues (as any pilot can attest).” Can you name an issue that could bring a large lawsuit where the general public isn’t basically ignorant?

  4. “So basically this $20 million settlement is equal to nearly all of the revenue that Continental could hope to earn in one year from selling airplane engines and perhaps 5-10 years of profits.”

    They also do a healthy business selling new engines for old airplanes and rebuilding engines. In this case the engines were rebuilt seven years prior.

    Nonetheless it is true that a large part of the cost of many aviation components–including the airplane itself–is liability to lawsuits. The pilot is frequently most responsible, but the manufacturer can be deemed partially responsible. Because most states practice joint and several liability, that leaves the deep-pockets manufacturer on the hook for the entire judgement should the pilot have less than $20M in assets.

    Also, the volumes on most aviation parts are low and so they derive little benefit from mass manufacturing techniques. Finally, red tape often adds a lot (e.g. handheld aviation GPS units start at $600 but certified IFR GPS installations cost at least ten times that.)

  5. Todd: I’m part of the general public, and as such, ignorant about most issues. The common man (or woman) does have a lot of common sense. I must say that one of the most rewarding experiences I have had was serving as a juror. (I’m a naturalized American citizen, born and raised in Europe.) The problem is that to assign fault in many tort cases common sense is not enough. As you correctly point out one needs some technical knowledge. The root of all the problems facing the small airplane segment of general aviation is the current refusal of society (particularly this society) to accept risk.

    Chris: Are costs hight because volume is low, or is volume low because costs (liability) are high?

  6. At least Teledyne/Continental makes enough to buy (I assume) liability coverage to protect themselves in this situation. Flight instructors could theoretically be on the hook for accidents, as in this case an arguement could be made that the pilot’s training was at fault when he/she failed to “identify, verify, feather”. CFII/MEI’s however don’t have much in the way of assets generally and usually minimal liability coverage, making them a poor target for the lawyers. I hope that our host has thought through protecting his assets before doing something as liability-intensive as teaching primary students in a helicopter.

  7. 32 Papa: Insurance is not a magic source of unlimited money. In the long run, we can expect that Continental is going to pay more in insurance premiums than the insurance companies pay out in settlements. That $20 million has got to come from customers. Insurance might smooth out the flow. One of my flight instructors was in fact sued by the wife of a Malibu pilot who took his airplane into a thunderstorm, but I don’t lose sleep over the possibility of being sued. If I didn’t want to be sued, I would stay home and watch cable TV all day.

  8. I agree that insurance is not magic. It does however limit the company’s financial liability in a given year at least. They could always go the Maule route and not have any liability insurance, with a plan to declare themselves bankrupt in the event of a large judgement and hope for the best. I wonder what percentage of our GDP goes to liability coverage. Healthcare is a good chunk of GDP and tons of percent of healthcare dollars goes to liability either directly to insurance companies, or through other less obvious ways such as the CYA emergency room workups.

  9. Oh yeah…I wouldn’t lose any sleep over getting sued, but at least consider the reality. If you’ve got 1M or even 2M smooth(which I’d be suprised if you could even get for a helicoptor) insurance for instructing, in the face of 20M dollar awards you have to know that there is an element of risk to your assets.

  10. Did this settlement get thru the review process and not be reduced? A lot of big settlements are reduced on appeal. That reduction is not “big” news so gets put on page 30 or so. “The law is an ass” – some lawyer is quoted as saying that.

  11. Just compare: Boeing and Airbus, have annual revenues in the billions. There have been no airline fatalities during the past five years in the USA. Small aircraft manufacturers have revenues that are a small fraction of that of the “two big ones,” and during the past five years there have been more than 3,000 small aircraft fatalities. Now, who is going pay for that liability? The pilots who have an annual incomes of $35,000 and no assets? The FBOs? The flight-by-night charter operators? No, the cost is going to be paid by Continental, Raytheon, Cirrus…

  12. Liability continues to have a tremendous negative impact on standard of living. We should either do one or the other. If we are going to have a legal system where anyone can sue anybody for anything then perhaps we ought to ease up on all the governmental regulations. We don’t need both.

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