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Monday, September 1, 2003

So Long, Starship

Matt Thurber, Editor (mthurber@pbimedia.com)

As you’ve no doubt heard by now, Raytheon is busy scrapping the entire fleet of Starships that it built in the 1990s.

Ultimately, the 50 or so Starships that Raytheon built fell victim to the unavoidable truths of aviation marketing: first, as well as an odd-looking airplane performs, it will never outsell conventional-looking airplanes and second, if your odd-looking airplane doesn’t perform as well as or better than a comparable normal airplane (i.e., the successful King Air series) and it costs more, the market for the oddball is going to be extremely small.

About 10 Starships made it into operation, the rest reportedly languished in storage. Now the remaining 40 are making their way on a final flight to Marana, Arizona for their ignominious end: being chopped up and incinerated at Evergreen’s boneyard facility.

Sad as it is to see Raytheon destroy its historic progeny (especially in view of the reported $500 million that the program cost), Raytheon’s move is actually brilliant.

Raytheon claims that the reason it is destroying the Starships is because of the high cost of supporting the fleet. The company also will benefit from not having to buy any more insurance to cover the liability tail for the Starship fleet.

The reason Raytheon’s destruction of the Starship fleet is brilliant is because Raytheon has unwittingly hit upon one of the only ways that the aviation industry can grow into the future.

What do I mean? One of aviation’s biggest problems is lack of volume. Too few aircraft are ever built, and the fewer the number of a product, the less costs can be spread over the volume of that product. Aircraft are incredibly expensive to design, certify, build, and maintain. And only a few thousand airplanes are ever built per year, and those aren’t even the same types. People often wonder why aircraft parts are so expensive, compared to automobile parts. Annual auto sales in the U.S. alone reach almost 20 million per year. Aircraft account for just a tiny percentage of the number of autos built, yet their development costs are an order of magnitude greater.

So, if we could figure out a way to increase the volume of aircraft produced, prices would naturally drop. Is there a market for more aircraft?

That’s a tough question. Airline travel is down because demand is down. Business-owned aircraft are selling at lower levels, too, and that market may be temporarily saturated. Light aircraft sales remain at historically low levels, higher than the bottom, but not much higher. If we want to sell more aircraft, we need more passenger demand, more business flying demand, more need for helicopters, and more new pilots wanting to own a light airplane.

Or do we?

There might be a better way. Raytheon, in its desperation to eradicate the Starship from the face of the earth, might have stumbled accidentally (or maybe they thought of this already) on the solution to the volume problem: get rid of the old airplanes.

What is the one factor that is depressing the need for new aircraft? That’s right, old aircraft. Desert airports in the U.S. are full of old airliners, some of which are not so old. Airlines have mothballed thousands of airplanes, and while many will never fly again, some are just waiting in active storage to be resurrected. In other segments of aviation, thousands of old airplanes are flying, some decades old.

What if all these old airplanes suddenly disappeared from the marketplace? What if Raytheon, Cessna, New Piper, Airbus, Boeing, Dassault Falcon, etc. somehow were able to gain ownership of their old fleets and simply destroyed them? Wouldn’t this have a beneficial effect on the marketplace? Wouldn’t this increase demand for new aircraft? Wouldn’t this also accelerate development of new equipment and more efficient engines?

There is a precedent for Raytheon’s bold move. Cessna did exactly the same thing when it abandoned the helicopter market. Cessna’s Skyhook, a good performer by all accounts and a decent seller that could have spawned a family, ended up on the slag heap of history, utterly eliminated from the skies by Cessna itself.

If I were an OEM these days, I would be looking carefully at the older models in my fleets and figuring out how to get these airplanes out of circulation. If I was smart, I might be able to persuade certification authorities to limit the functional lifetime of my aircraft (no extensions to life limits permitted), thus ensuring the culling of the old fleet and boosting demand for my new products.

First Cessna, then Raytheon. Who’s next? We’ll see.

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