The Decline of the Aviation Industry




by L. D. Alford

The other day, I had the opportunity to hear Russ Meyers, Chairman emeritus of Cessna Company, speak about the potential recovery of the aviation industry from the 2009 recession. His words were full of hope and he assured his listeners that we would recover as an industry. I have news for Mr. Russ Meyers, the aviation industry has been in a decline since 1978 and unless we do something about the causes, we can expect to see it in a death spiral.

The indicators of the decline are obvious, so obvious that Mr. Meyers mentioned at least one of them during his talk. The number of new piston engine aircraft shipped per year was at a peak in 1978 with about 17,000 aircraft. Since then it has declined to around 2000 aircraft. That is a reduction in production of over 850 percent. In the meantime, the number of commercial aircraft deliveries peaked in around 1998. The total number of registered commercial aircraft has remained steady—but all that means is no growth. The problem is that the portal to aviation is through piston aircraft. As piston aircraft go, so goes the entire aerospace industry because, every pilot learns piloting skills beginning in a piston aircraft. No pilots means no industry. The precipitous decline in the number of pilots can be directly seen in non-ATP (Airline Transport Pilot) and student pilots in the United States. From a peak in 1978, the number of non-ATP pilots has decreased by over 50% (from over 3,000 per million to about 1,500 per million). At the same time, the number of student pilots has decreased from almost 900 per million to about 300 per million. This is a decrease of two thirds.

So the number of new aircraft is going down. The numbers of pilots is decreasing, but the skies are more crowded and the number of air operations is inching slowly upward. This shows we are doing much more with much less. The demand is there, but where is the industry and where are the new planes and new pilots? We can also see the number of flights dedicated to the individual flying is decreasing while flights for revenue are increasing. The irony of this is that all aviation, at the beginning was noncommercial—today we are moving toward all aviation being commercial. Europe, Canada, Asia, and Australia have almost entirely achieved this unhappy goal. In the United States, we are still dodging this bullet, but only by a little. We should ask ourselves why have we seem such a precipitous decline in general aviation throughout the United State and the world and what can we do about it.

The first and foremost impediment to general and commercial aviation is cost. Cost is always the driver in transportation, but why does aviation cost so much? In the past, the highest cost to aviation was the training. Like any pursuit, experience and training is the only means to improve. Training cost is the greatest impediment to creating experienced pilots, and the cost of training has more to do with the overall cost of the aircraft than the cost of gas or anything else. The gross increase in the cost of use or ownership of aircraft is a direct cause of regulations and liability.

The number one cause of the high cost of aviation is civil liability. When I worked for Beech Aircraft, approximately a third of the cost of a new aircraft was liability. The moment the aircraft rolled off the factory floor to a new owner, the value of the aircraft decreased by one third. For a million dollar aircraft, this meant the true value was about $600,000 and this was reflected in the cost of new and used aircraft. You can see this today. The value of used aircraft nearly always increases (there are fewer and fewer of them). There is an immediate decrease in value from a new to a used aircraft, but that value begins to climb almost immediately. This decrease in value is directly caused by the liability tail on the aircraft. Today the average cost of liability is almost one half the value of the aircraft and this is increasing. The reason for this liability cost is unjust and uncontrolled tort (civil liability cases) against aircraft and aircraft parts manufacturers. The moment an aircraft goes down, the ambulance chasing lawyers come out of the woodwork. The owner or operator is in many cases dead and the family has no clue about aircraft and aviation—they just want money. When the owner or operator survives, he or she finds themselves without an aircraft and in need of some vindication for their actions. They are all looking for money, and the deep pockets are the manufacturers.

The liability tail on aircraft and aircraft parts is demonstratably unreasonable because we know that over 80% of all accidents in aviation are due to pilot error. The pilot error numbers are likely higher when you factor in a pilot’s incorrect response to common failure situations. When I worked for Beech Aircraft in process engineering, I never saw a case where failure of the aircraft caused the accident. That doesn’t mean it can’t happen. It does mean it is rare. During over thirty years in aviation, I very seldom have heard of a case where the aircraft suddenly failed and the pilot was helpless to recover. The problem is that juries, judges, and the average person doesn’t understand aircraft or aviation and in a reasonable world, none of these tort cases would succeed, but in the lawsuit happy universe of the USA, they are devastating general aviation by increasing the cost of aircraft and components.

The current 18 year rule on aircraft liability was supposed to help fix these problems. Russ Meyers was a key architect in getting this rule that shields manufacturers from liability for aircraft designs over 18 years in certification. General aviation has been living with the unintended consequences of this law since its inception.

The major unintended consequence—the aging of the general aviation fleet. Who is going to design a new aircraft if there is a guaranteed 18 year liability open tort zone on it? Current designs, especially those that are over 18 years old will continue, but what about new designs. The main reason the congress passed the 18 year rule was because, at the time, no new general aviation aircraft had been certified in the USA in about 20 years. The passage of the law brought out a frenzy of new aircraft designers and manufacturers. Most of which have folded before getting a single certified aircraft out of the hanger, and the existing manufacturers have generally failed to bring any new designs to market. This means the Beech Bonanza and the Beech Baron, both post WWII designs, are still the bastions of the top end of piston general and charter operations. How a fifty year old design can be the peak of any industry is beyond me. Usually only the government displays such gross incompetence, but the marketplace of general aviation is so perturbed by first tort and second government interference, there may be little hope of any real recovery.

And that’s cost driver number two—government interference. We like to call government interference, government regulation, but that’s just candy-coating. The second major cost in aircraft is the cost to meet government regulations. There is no indication that government regulation results in safer or better aircraft. In my experience, government regulation results in overbuilt and over priced systems. I’ll state this clearer. Any benefit that might be seen in the regulation of aircraft design, manufacture, or maintenance is lost in intentional noncompliance (due to cost), loss of market (due to cost), restriction of new and innovative designs, restriction of use of aircraft, loss of training and experience (due to cost), reduction in implementation of new technology (due to cost), and unnecessary weight increase (due to equipment requirements—weight equals reduction in performance and therefore increase in costs). Do I advocate an unregulated aircraft market—yes I do. All the regulation of foods in the marketplace will never reduce the chance of food poisoning—it just increases the cost of food. Likewise, in aviation, you can regulate all you want but 100% safety can’t be achieved in aviation until you can’t fly at all. If anything, aircraft regulations must decrease. The rules that currently govern aircraft certification would make those theologians who argued the number of angels that could dance on the head of a pin, blanch. The greatest increase in general aviation right now is the unregulated light aircraft market and the very lowly regulated experimental aircraft market. In fact, the regulations on aircraft are so onerous that the US government routinely exempts themselves from them. For example, the President of the United State’s aircraft all have waivers to FAA regulations to reduce cost and allow higher technology equipment on them. How do I know? I was the Chief of System Safety Engineering for these aircraft, and I non-concurred on the airworthiness of them more than once. I say, what is good for the President of the United States is good for all the other pilots in this country. The fact President’s aircraft doesn’t have to meet the same requirements as the rest of the aircraft in this country is shameful.

The costs of regulation are borne by the pilots and owners and the worse regulations are those that prevent an owner or operator from using an aircraft in the way he or she wishes. I have an ATP (Airline Transport Pilot) certification in multiple aircraft and my personal aircraft is certified for Part 135 (commercial operations), yet I can’t use my own aircraft for any commercial or fully reimbursed operations. The brunt of this again comes down to regulations and their unintended effect (or intended effect in many cases) on general aviation.

Number three greatest cost driver is the flag carrying commercial operators. These are domestic and international airlines. In the 1970s, aviation was a much less restricted market. In general, regulations for general aviation aircraft allowed the use of these aircraft for commercial operations. They did not have to meet the Part 135 requirements of large commercial operators. The charter market was vibrant and growing. It covered those airports and areas that airlines could not. Then in 1974, airlines petitioned congress and forced charter aircraft to meet the same requirements as the large aircraft. In a day, charter aviation was gone. Only small specialty carriers and high cost carriers could stay in business. In 1973, the average person could afford a charter flight. In 1974, they could not. The airlines killed charter aviation to increase their business opportunities and to increase their control of the commercial marketplace. In one fell swoop, most Americans lost an enormous amount of freedom. In 1973, almost every airport in every state could be economically reached by the average person, by 1974, only the airlines were an economical means of air travel, and they only cover the major airfields.

It took almost 30 years, but charter aviation has clawed its way back from the brink. The cost, pain, and inconvenience of airline travel has slowly brought back the charter niche and the airlines are noticing. The reason for current petitions to congress from the airlines to go to “pay to play” in aviation is to kill charter aviation again. Unfortunately, “pay to play” as Canada, Europe, Asia, and Australia already have discovered, will kill general aviation. “Pay to play” means the pilot pays directly for the use of services that today are paid through fuel taxes and other levies. Currently, the air infrastructure is viewed by the government like a freeway. It is a highway in the sky built by the government to provide a safe flight environment for private and commercial flights. The airlines want to turn a public resource into a toll road. This is why private aviation is only available to the rich in Europe. No one but the very rich and airlines can afford the costs to fly. “Pay to play” additionally results in less safety and more accidents. Pilots have to choose between paying for a weather briefing or going without. Choosing to pay to file a flight plan or doing without. Choosing to illegally fly an approach or paying for Air Traffic Control to give them an approach. “Pay to play” is promoted by the airlines as an issue of fairness, but the reality is that aviators already pay for these services in fuel and other levies. The airlines just want to find a way to reduce competition—like they did in the 1970s.

These three problems, liability, regulation, and airline interference, need to be solved before aviation can make a comeback in the United States and in the world. Tort reform ideas like “loser pay (where the loser in a lawsuit is required to pay the costs of the winner),” adoption of European ethical standards for US attorneys (in most European countries an attorney’s fees are fixed—they cannot legally benefit from a case beyond their normal fee schedule), and limits on non-real loses (pain and suffering) are necessary to help bring back aviation. We should get rid of the 18 year rule. It would be unnecessary after tort reform, but the law actually impedes aviation.

The over-regulation of aviation costs everyone. It is almost impossible to reduce regulation. The easiest way would be to reduce the FAA’s authority. This could be accomplished by congress or by the executive.

The final cost driver is very difficult to eradicate. The airlines will exert any market and political authority they can to control competition. The means to prevent this is to give back to the people the ability to unlimited use of their own aircraft. In other words, the FAA should allow any private aircraft to be used for any commercial operation as long as the aircraft is used according to the handbook requirements and as long as the pilot is properly certified for the commercial operation. This would immediately open aviation up to the average person and help bring back charter operations in the United States.

So here is the bottom line, aviation is not recovering and has not been since the 1970’s. The only way for aviation to begin to recover is tort reform, reduce regulations, and reduce restrictions on commercial operations. These actions will bring back aviation and allow general aviation to grow at the rates it did in the past. Otherwise, we are headed to a point where only the airlines, the rich, and corporations will be able to use the skies. The individual will be forever locked out of the freedom of personal private aviation.