Common inquiry
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“I have a question about growth of the Special Light-Sport Aircraft market. The FAA estimate for growth in the Light-Sport Aircraft (LSA) market is nearly flat, showing about $50 million in sales each year for the next 10 years. That seems not particularly well informed. Do LSA companies have their own forecasts? Does anyone have better information than FAA?”
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An Industry Summary Response…
By Dan Johnson,
Chairman of the Board of Directors,
LAMA — Light Aircraft Manufacturers Association
March 6th, 2007
[UPDATED September 30th, 2007]
FORECASTING THE LSA MARKET
This summary is divided into two segments. The first is the expected number of aircraft sales and their dollar volume. The second regards the marketplace for these aircraft. Obviously, a close relationship exists.
AIRCRAFT DELIVERIES & DOLLAR VOLUME
Regarding the FAA’s forecast data — many industries rely on government data. Sometimes government has the only data available. And sometimes, when an industry is well established and government can take their usual macroeconomic view, their data are fairly reliable. However, due to FAA’s lack of familiarity working with this brand new industry, their forecasts appear overly conservative. FAA relies on industry information combined with their registration database. The latter experiences a considerable lag in reporting and is therefore only useful over a long run. In addition, this new Sport Pilot/Light-Sport Aircraft (SP/LSA) regulation was once conceived to “fix” the two-place ultralight “problem,” so FAA counts transition of ultralight aircraft to LSA and ultralight pilots to Sport Pilots as a substantial share of their forecast. At the early phase of implementation, this makes FAA database information suspect regarding the coming wave of factory-built Light-Sport Aircraft and Sport Pilot Certificate holders.
I’ve been around this industry since before ultralights and watched it develop every step of the way. I have also worked in this industry for many decades and have an insider view not possessed by FAA personnel who move in and out of their management jobs. We’re on our third or fourth generation of FAA leadership of SP/LSA, depending on how far back you go. My viewpoint — and that of several other industry officials — is more consistent than FAA’s. I believe industry-generated information about the present state of the LSA community to be superior to FAA’s.
The European microlight model also has some value in forecasting U.S. developments, but (1) is itself dated due to government lag, (2) represents several countries each with their own regulation and way of counting business, (3) revolves around a less capable (microlight) aircraft description, and (4) is a smaller overall market than USA even when you add all countries together. However, I will factor the European and worldwide market into estimates for the longer-term future when LSA rules may be adopted in their countries.
First, let’s look at the present market leader, Flight Design, which has maintained a consistent 20+% share of the LSA delivered in America through the first two years of the industry’s existence.
Flight Design indicated worldwide annual sales of about $20 million in 2006 and expects more than $30 million for 2007. They also expect these growth rates to continue for 2008 and 2009. Managing Director, Matthias Betsch, says, “According a conservative approach and according to the registry data, a minimum 100% growth rate should be expected in the next five years.” I agree that this can be conservative, that is, with Flight Design likely to reach $60 million in annual sales by itself, due to several factors. Most other companies exporting to the U.S. will also do well, and we’ll gain some stronger American producers, but Flight Design has a solid lead and may be difficult for other LSA producers to catch — assuming Flight Design can keep up their pace of product development and production increases. One exception to this statement involves Cessna.
Cessna had several issues to resolve before they entered the market, but after considerable investigation they made one conclusive statement: “We are done studying the market. We definitely see a market for Light-Sport Aircraft.” By itself, that is a significant statement. Cessna is planning on producing 700 aircraft per year although they expect to ramp up from 150-200 aircraft in their first, predicted for 2009.
EXPECTED SALES AND REVENUES
Based on the above scenarios and adding my own tracking of all other LSA providers, I see the following estimates as reasonable. Notes for each statement appear below.
In 2005, the industry delivered about 200 aircraft, valued at about $15 million.
In 2006, the industry delivered about 400 aircraft, valued at about $38 million. (Note 1)
In 2007, the industry should deliver about 600 aircraft, valued at about $60 million. (Note 2)
[UPDATE Sept. 2007 — FAA registrations from January through August 2007 total 557 units; total registrations since the first registrations in 2005 were 1,192, substantially validating this conservative forecast to date.]
In 2008, the industry may deliver 1,000 aircraft, exceeding $100 million in value. (Note 3)
In 2009, the industry may deliver 2,000 aircraft, exceeding $200 million in value. (Note 4)
• In the first five years of LSA deliveries, the total forecast deliveries may equal 4,200 aircraft valued at approximately $413 million.
In 2010, the industry may deliver 2,500 aircraft, exceeding $275 million in value. (Note 5)
From 2011 to 2014, worldwide sales are presumed to steadily increase to an annual total approaching 5,000 unit deliveries, exceeding $600 million and possibly reaching $1 billion annually. (Note 6)
• In the first 10 years of LSA deliveries, the total forecast deliveries may exceed 25,000 aircraft valued at more than $2.5 billion.
Note 1 -- In 2006, the declining value of the dollar vs. the euro caused an increase in dollar volume, but also more pilots are asking for higher cost equipment to be installed and this also drove up selling prices.
Note 2 -- See note #1...both occurrences are continuing in 2007. But many factories are still increasing their production plus the existing pilot market is still discovering LSA. Flight Design is well ahead in ramping up production and, as such, may continue to command a liberal share of the market. Further note that Cessna is expected to make its announcement of entering the Light-Sport Aircraft market no later than mid-year. [UPDATE Sept. 30, 2007 — Cessna, and Cirrus Design, made their entry official at the EAA AirVenture Oshkosh 2007 event. As expected, this caused many previously uncertain general aviation pilots and leaders to declare, “LSA appears here to stay.”]
Note 3 -- By 2008, many factories will have the capacity to deliver more aircraft and the distribution networks under construction for the last three years will begin to achieve greater market outreach and sales. Cessna may enter the market in this year, but I estimate their initial production may be modest, perhaps 200 aircraft. [UPDATE Sept. 30, 2007 — Cessna will not enter the market until third quarter 2009, according to their statement. However, Cirrus will enter the market in 2008, thus the 1,000-unit figure for the 2008 calendar year remains my forecast.] Dollar/euro valuations and general increases in prices and equipment will drive up prices to a greater extent than lower-cost producers entering the market will lower it.
Note 4 -- By 2009, Cessna should be fully invested in the market and, assuming expected market acceptance, they will rise to the lead position in the industry due to their very strong brand and large base of outlets (nearly 300 Cessna Pilot Centers plus Cessna STAR sales organizations). Some previous LSA suppliers may be hurt by Cessna’s entry, but the current strongest players, such as Flight Design, American Legend, Evektor, Tecnam, and others should enjoy increasing sales because of Cessna’s entry and the validation of the LSA industry that their entry represents.
Note 5 -- In 2010, five years after the first aircraft were FAA approved, the LSA market will be entering a maturing phase. Market infrastructure should largely be in place with training and sales available widely throughout the USA, certainly so with Cessna’s added distribution and service channels. In addition, the global market for LSA will begin to develop seriously.
Note 6 -- As the LSA market matures, it is expected (due to actions occurring vigorously in 2007) that many other countries will adopt ASTM standards such that a true global marketplace can develop. This is unlike the present situation of each country having its own (costly) certification system and relying on uneven reciprocity agreements to allow foreign products to become approved in other countries. Longer-term plans will begin to pay off. Countries such as China and India represent later-term markets and the future is bright for lower-cost Light-Sport Aircraft to make great inroads in many countries. American producers will become much stronger and will add to the best European producers in offering a new class of highly capable aircraft to nations around the planet. Therefore, forecasting unit deliveries in the range of 5,000 aircraft may even be conservative. Factoring in the time value of money, annual sales reaching $1 billion is not overly optimistic.
MARKETPLACE FOR LSA DELIVERIES IN AMERICA (Next Five Years)
Two primary markets exist for the sale of LSA. One is the as-yet completely untapped market of non-pilots. These markets are extremely broad and varied and that very diversity makes penetrating the market a major challenge for aviation as a whole, and even more so for the SP/LSA community. One identifiable segment is the so-called motorsports community, an affinity market consisting of those enthusiasts buying motorcycles, boats and personal watercraft, ATVs, RVs, and the like. This community counts over 32,000,000 American participants and a converting a mere sliver of this market represents a tremendous growth direction for aviation (only a 1% conversion over time could increase the pilot population by more than 50%). Since SP/LSA is the new entry point of aviation, it stands to reason that if aviation can penetrate the motorsports community, SP/LSA would benefit the most.
Fortunately, LSA producers don’t have to wait for this potential market to be tapped.
EAA and AOPA, the two largest pilot organizations in the world, have independently estimated that 125,000 to 130,000 pilots may look favorably on LSA for purchase. The thinking behind this interest in LSA has three components.
Firstly, Sport Pilots do not need a current aviation medical exam. A valid driver’s license provides sufficient evidence of medical fitness to supplant the typical Aviation Medical Exam. As the pilot population is aging, the number of otherwise reasonably healthy pilots facing a time when they cannot earn a Medical is large and growing.
The second group is general aviation (GA) pilots who are at the end of a career or lifetime of flying. For them, the larger, more expensive to buy and operate GA aircraft are no longer necessary and may be more sophisticated than needed by those pilots. Yet these pilots still enjoy flying, especially in a recreational or regional travel framework. As LSA sell for half or a quarter as new general aviation aircraft, they are far more economical to acquire, especially when a GA pilot trades down from a more expensive GA aircraft. Older but well maintained GA aircraft often sell for an amount that easily permits a cash purchase of a top-of-the-line LSA.
Thirdly, fuel costs will continue to rise and aviation fuel could become scarce due to relatively low production compared to auto fuel. Since many Light-Sport Aircraft can fly faster than a Cessna 172 while burning less than half the fuel, they offer an excellent value. The most popular LSA engine (Rotax) can burn auto gas, and in fact, prefers it.
SUMMARY ANALYSIS OF ABOVE INFO
The number of aircraft forecast in this summary should exceed 25,000 LSA valued at more than $2.5 billion over the next ten years. Even if only one in five of the EAA/AOPA body of potentially interested pilots makes a single LSA purchase over the next ten years -- a reasonably conservative estimate -- then reaching the sales figures above is entirely achievable. Any level of penetration into the motorsports community could dramatically increase these figures.
DISCLAIMER
As with any forecast of future events, many factors will affect the above performance and these figures must be regarded strictly as informed guesstimates. Some macro factors (weather, politics, terrorism) can present potential negatives, but new technologies and improved procedures and processes added to market excitement should offset any normal downside. All information presented in this summary is well considered using reliable sources of information but conclusions are not the result of a scientific study.
If I can be of further assistance, please don’t hesitate to contact me as shown below.
Dan Johnson, president
DAN JOHNSON MEDIA CORP
LSA MARKETING GROUP (a LAMA affiliate)
Chairman, Light Aircraft Manufacturers Association
Membership Secretary, ASTM F.37 Executive Committee
8 Dorset Road
St. Paul MN 55118-1915
********** USA **********
Cell/Mobile: 651-592-7565
Landline/Fax: 651-450-0930
E-mail: Dan@ByDanJohnson.com
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