The Cirrus SR20 that I often fly was created by a couple of brothers in the Midwest. When they needed expansion capital about 10 years ago, the company was sold to Arab investors. With the capital in place, Cirrus grew to dominate the market for piston-powered airplanes purchased for personal transportation (leaving Cessna and Piper to sell into the flight school market). When they wanted to improve the avionics, they switched from Avidyne (Massachusetts-based)/Garmin (Kansas-based; Taiwan-owned) to all-Garmin. Last year the company that makes the engine, Continental, was sold to a Chinese firm. Today, Cirrus announced that the entire company has been sold to a Chinese airplane manufacturer (press release). So Cirrus going forward will essentially be an all-Chinese show (counting Taiwan as culturally if not politically “Chinese”).
20 thoughts on “Cirrus airplanes are now 100 percent Chinese”
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One usually does not have to ask you this – What’s your point?
One of the unanticipated consequences of the world coming around to the U.S. economic point of view is the globalization of corporations.
National borders will mean less and less to companies, shareholders and their customers going forward.
I have a problem with company’s who give China unhindered access to their technology, (technology that they may have spent decades acquiring) in order to obtain contracts that provide short term gains at the expense of their strategic economic position.
Look what happened to Japan and their bullet trains. They were forced to reveal their technology in order to build trains for China. Now China is building their own trains (World record for speed) using technology that China now claims they “invented.”
The Cirrus deal, however, seems to be a straightforward acquisition. I don’t think there is a tremendous amount of proprietary technology at Cirrus and at least the Chinese are actually buying versus stealing the blueprints.
Anonymous: I didn’t bring this up as a story about financing or economics. The total revenue of Cirrus and Continental, the two companies recently acquired by Chinese parents, would probably not add up to one day’s worth of mobile phone exports from China to the U.S.
I think it is interesting because the Chinese have not had a general aviation industry and there has been almost no market in China for these kinds of products. With fresh minds from a culture with no preconceived notions of GA in charge of two major piston GA companies, there is a possibility of some big changes and innovation in an industry that has been essentially unchanged since 1960 (not counting avionics, of course).
Thanks for posting. Very depressing news. I could get into a long argument with @Anonymous, but not without using a lot of not so family-friendly language.
Gordon: I don’t think it is depressing. U.S. investors stopped wanting to invest in GA some time in the 1970s (one reason why Cirrus was funded by the Saudis and Kuwaitis; Americans were putting all of their money into Las Vegas real estate development at the time). As a pilot and consumer, I’d rather have foreigners investing in new GA products rather than nobody.
[Aside from the well-known product liability angle and the U.S. tort system, I think part of the reason aviation investors don’t like GA is that it is easier and much lower risk to make money in the hypertrophied U.S. military contracting world.]
Phil,
Lack of a market is not the problem – restricted airspace is, and that is changing – slowly.
The Chinese are making the first tentative steps in de-militarizing their airspace. At the moment this liberalization is aimed at business jets but may eventually encompass the needs of light airplanes.
The fact that the Chinese (I don’t think there is much of a need for a distinction between the government and industry) are interested in Cirrus only bodes well for China’s future airspace liberalization.
I am interested in what kind of approach will gain favor there – an American approach or the European model, where every single event (Take off, touch and go – instrument approach etc.) is accorded an ATC fee.
Jon: I think the fact that they have not allowed anyone to use airspace has led to the lack of a market! Anyway, I’m selfishly not that interested in what happens in China since I don’t plan to fly there. I’m more interested in whether the new investors will, for example, finance the Cirrus Jet, a very innovative product (amazing interior layout), or develop a four-seat airplane with a quiet interior and decent climate control, etc. Then I want to use the new products here in North America.
Well, it’s certainly not a welcome situation for anyone wanting to develop aircraft in this country. Of course, it’s not a new situation, maybe even better than 25 years ago. But it sends a strong message to young innovators that they shouldn’t waste their time designing small aircraft, which I think is terribly unfortunate.
I’ve followed the progress of and contributed to two U.S. non-profit organizations that are each developing aircraft (the Angel 44 and the Maverick flying car) and it’s clear there’s still a lot of room for innovation, but so little capital. These organizations (TKEF and I-TEC) are developing aircraft to be used off the beaten path, so to speak, where they’re not competing against cars on interstates and scheduled airlines, but canoes and 4WD’s.
Anyway, there’s a LOT of land left on this planet that’s still almost inaccessible, yet small, advanced aircraft could radically increase the utiity and value of this land. The economics go beyond just the ROI on an aircraft project. I’d hate to see the next Burt Rutan give up on aviation just because Wall Street doesn’t see the value in it.
Gordon: Have you flown inside the Angel 44? Did they achieve their goals for reduced interior noise?
Phil,
I can’t imagine that the Chinese are buying Cirrus with the intent of shelving the jet.
Completing the design and certification of the jet will be an educational experience for them well worth the purchase price irrespective of the airplanes commercial viability.
That said, making the airplane a commercial success would enhance their aviation “face” and my money says, should this deal close, the jets future has been assured. (Barring some unforeseen technical fault or economic problem.)
Gordon,
I think shying away from developing small aircraft is a smart financial decision.
Cirrus is arguably the most successful innovator to arrive on the light fixed wing scene and the only capitol they have been able to attract has been from the middle east and China. No American capitol is knocking on Cirrus’s door.
The only way aviation is going to grow is for it to be an industry that has appeal to the middle class market. Only rich people can afford a $300,000 to $600,000 four seat airplane.
No, I haven’t. Don’t know about the noise issue, AFAIK the main problem now is lack of a suitably-sized aviation diesel engine (apparently the Thielert engine, even if it does get produced, isn’t right for the 44).
TKEF took so long to certify and get the Angel into production (now building #6), that the whole fuel situation changed. Apparently the main interest still for the current model is in Latin America. They’ve done some preliminary work on a suitable diesel engine, and are now looking for some engine folks to help with detailed design/testing/certification.
The engine seems like a very worthwhile project, BUT will there be investors?
As far as a “smart financial decision” goes, the problem is, there are a lot of investments that make sense at a system level (eg developing the third world) that don’t make sense on a piecemeal basis.
It takes vision and patience to put the parts of a system together. The U.S. used to be the best in the world at making those sorts of investments. It’s still true in many industries like IT, it’s just sad to see it no longer be true of aviation.
There is only one reason the chinese are buying US aviation companies; there is nothing technology wise they couldn’t replicate at lower cost already.
The real reason is that if you get something certified by the FAA, it’s certified pretty much anywhere.
So over the next decade, see virtually all the R&D staying in the US, done by mostly US engineers. Then after certification, production will be in China.
And that’s not necessarily a bad thing; with the exception of the choice of O-200 and standard BRS making the 162 un-flyable for two average sized males, the C162 is a lot of aircraft for the money. No doubt thanks to Chinese production.
“The engine seems like a very worthwhile project, BUT will there be investors?”
Depends on what you mean by “worthwhile”. If you mean “likely to give investors a good return” then there will be investors. If you mean “something I wish someone would do, but I’m sure as hell not putting any of MY money in” then probably not…
Bas: I don’t understand your theory that the Chinese are buying U.S.-based aviation companies as part of a certification process. There are many foreign-designed and foreign-produced aviation products that are FAA-certified. I’m not aware of a requirement that a company be U.S.-based for it to apply for FAA certification (though it is conventional for the company to apply first in their home country).
Phil: I think China is an exception. I don’t think there is any example of a Chinese aircraft getting certification abroad at all in the past, save for some of its communist partners.
Most civil aviation authorities in countries you allude to have a long-standing working relationship with the FAA on matters such as reciprocal certification agreements.
If you were in investor wanting to build aircraft in China, would you prefer to have it (and all tooling) designed in the US and certified by the FAA so everyone, everywhere will accept it, having FAA guidance close by throughout the process. Or would you put your faith in getting Chinese certification first only to find out you missed some critical steps the FAA wants to see and have a long delay in getting international certification?
Not to mention the value to customers or knowing it was at least designed in the US. It seems to work for the SkyCatcher, compared to the sales figures of foreign, arguably more capable LSAs…
The Chinese are going to have to bring a whole lot of fresh capital to the table to dig Cirrus out of a deep, deep hole in its core business, much less the jet program. I had a long conversation with a Cirrus insider who’s familiar with the company’s financial situation, and he points out several things:
1.) Cirrus’ core business has been surviving by stretching payables to remarkable levels — some payments are 2-3 years in arrears. Not only do they have to pay this back, but because of their direct sales model, they need a massive amount of new working capital if they start ramping up production as the market firms up. This may suck up as much as $30-40 million in cash to get payables back on track and build up inventory and the demonstrator fleet once again.
2.) Cirrus has been siphoning off jet deposits in order to survive. Those who made their deposits in the belief that the $$ would go toward the jet would be shocked to know that the money has been used to fund core operations instead. The jet program probably needs another $100 million to complete certification, and there’s no money from deposits left to fund it. It all needs to be new capital.
3.) Cirrus has an insurance problem. Accident rates are higher than the norm (possibly because of the combination of delicate aircraft, rich owners, and mismatch of airplane capability with average experience level of the pilots — in other words, a lot of Cirrus pilots are rich guys who bought more airplane than they can handle at their experience level). To save money, Cirrus has self-insured more than the norm; the chickens are coming home to roost as accident frequency increases in the installed base, and either higher insurance rates or higher loss rates will increase costs over time.
4.) Cirrus dares not to cancel the jet program because $30-40 million in deposits would immediately need to be refunded. The Vision Jet program has been kept alive on life support for two reasons — a.) they can’t afford to kill it; and b.) MAYBE they could find the greater fool who would put the $100m in before the game is discovered.
These are the reasons dozens of potential investors who have looked at Cirrus as it has been shopped over the last 2 years have taken a pass. Now, it’s the Chinese who will need to deal with these problems. Fixing them all — and buying the company on top of it — will probably take as much as $200 million in capital over 4 years. Grab some popcorn, it should be a good show.
Mike: Ouch! I bet the Saudi/Kuwaiti investors are happy that China Aviation Industry General Aircraft didn’t talk to you before closing the deal!
As far as insurance goes, I thought that accident rates had been trending down towards the average for planes used for transportation, e.g., the Bonanza. They’re going to be higher than a C172 if only because the C172 mostly stays local. What’s your source for the current higher accident rate? Our quoted private insurance rates for the SR20 were about the same as for any other plane with a similar hull value (and much lower than a retract or multi).
$200 million doesn’t sound like that much for a company backed by the Chinese government. Especially if it means that they can have 100 percent of the personal jet market (the twin-engine VLJs aren’t truly personal since you have to train like a professional pilot).
To philg’s point about accident rates:
COPA published the following last summer, in terms of fatal accident rate of SR2X per 100,000 hours. Quoting COPA:
“Past 36 months: 1.73 [per 100,000 hours]
We use a 3-year average because, with a modest fleet size of 4,600 airplanes flying about 750,000 hours per year, the accident rate varies substantially with only a few accidents. By contrast, the GA fleet contains 200,000 airplanes flying about 24,000,000 hours per year, or about 50 times more aircraft flying about 32 times more hours.
Past 12 months: 1.91 [per 100,000 hours]
In the past 12 months, there have been 13 accidents in approximately 682,000 flight hours for a rate of 1.91 per 100,000 hours.
Lifetime of the fleet: 1.71 [per 100,000 hours]
During the lifetime of the Cirrus SR2X fleet since mid-1999, there have been 65 fatal accidents in 3.7 million flying hours for a rate of 1.71 per 100,000 hours.
GA fleet: 1.24 [per 100,000 hours]
This compares to the overall general aviation rate of 1.24 for 2009 (ref Nall report published by the Air Safety Foundation).”
(COPA correctly points out that comparing Cirrus to the GA fleet is a tough comparison, since the GA fleet also includes high-end turboprops, etc., that are often piloted by professionals.)
My key point, however, was not about the accident RATE, but rather the fact that the installed base — and therefore the number of accidents — is growing over time, and therefore the combined cost of product liability insurance and deductibles/settlements/investigation cost for the company is continuing to grow while the company is not.
This is something that happens naturally for an aircraft manufacturer — in the first few years there are not many insurance claims, but since the aggregate size of the claims roughly follow the size of the fleet (and not annual shipments), product liability insurance eventually becomes the single largest line-item of cost for an aircraft manufacturer.
So my point was not made from the owner’s viewpoint (i.e. cost of insuring a single airplane) but rather from the fleet standpoint (i.e. cost of insuring the fleet for product liability), which is how a manufacturer would look at it.
Ownership of Cirrus will be an interesting and perhaps the China’s most dramatic introduction to date to a distinctive feature of the U.S. economy: the tort bar and the wondrous world of product liability.
Please note that the Chinese have invested in the US RV market as well. Maybe this is how the flying car will get built:
http://online.wsj.com/article/SB10001424052748704615504576172410117309984.html#articleTabs_comments%3D%26article