Super Cub Gross Weight Mod.

[ground loop]

Gunny, You must be misreading my posts. I wouldn't disagree at the non-profitability of the business. Like a said earlier, it is dying(I was shocked to hear a rumor that AvAlaska shut its doors, if it is true does that mean that the business wasn't worth selling) (How long is the line to buy the fixed wing division of ERA). If you are in the aviation business because you love it, you would want to see it developed to its full potential. The debate is more accurately defined by asking if what they did is motivated by desperation or altruism.
However, back to the FAA. What do you think that the value of the wipline mod would be without the FAA stamp of approval?

 

[Gunny]

ground loop - Sorry if I misunderstood your arugments.

As to what the mod is worth without the FAA approval: It is worth the present value of all future cash flows that it can generate discounted at the appropriate discount rate. Sounds like gobbledy gook.

All future cash flows would be cash generated by selling the product minus all cash costs .

The appropriate discount rate would be a rate of return that takes into account other opportunities to earn a return with the same capital.

For example:

The long term (20 year) treasury bond which is generally considered an indicator of a long term risk free rate of return was yielding 4.9% on 6 Jan 05.
The premium for investing in large company stocks over and above the risk free rate of return (determined as the mean of returns over the period of 1926-2003) is 7.2%.

The additional premium for investing in micro-cap company stocks over and above the risk free rate and large equity rate (also determined as the mean of returns over the period 1926-2003) is 4.0%.

Since Wipaire is at least a micro-cap company (market cap between $300,000 and $300 million) the appropriate rate of return for the risk we are assuming by investing in building wing mods at Wipaire is equal to the risk free rate of return (4.9%) plus the large equity premium (7.2%) plus the micro-cap equity premium (4.0%) or 16.1%.

The reason we add these rates of return is because we gave up each of those returns to invest in building wing mods at Wipaire. Giving up those choices represents a lost opportunity to earn a return, or the opportunity cost of alternatives.

So, to put a hard number on what the mod is worth without the FAA approval we would discount the cash flow generated by the mod at about 16%. Since discounting cash flow for long periods of time (20-30 years) is difficult, we could capitalize the annual (one year's) cash flow.

The capitalization rate is equal to the discount rate (in this case 16%) minus the long term growth rate. Historical inflation is usually used as a proxy for long term growth and 1926-2003 average inflation is about 2.5%. So you could capitalize the cash flow by dividing it by (16% - 2.5%) or 13.5%.

So, if you can estimate annual cash flow then:

Annual cash flow / 13.5% = value of the mod without FAA approval

The obvious problem now becomes what is the annual cash flow generated by the wing mod. Anybody have any suggestions here? If we can find a reliable estimate of that value we can put a hard number on the value of the mod alone. What would the spar braces etc sell for as parts alone? What are the costs to manufacture those parts? Any manufacturers want to throw out some ball park figures?

Is this the part where you tell that it is worth nothing because nobody would buy it without FAA approval? You may be right. Or perhaps there would be no market for it if it weren't for consumers (135 operators for example) that needed such an approved mod. Is the market being regulated or are regulations making the market? Tough questions.

Anyway, the return data I used above is from the Ibbotson book, "Stocks, Bonds, Bills, & Inflation" 2004 Valuation Edition which is a widely accepted resource for return data. Hope this sheds some light on the issue.

 

[Crash]

Crash, What kind of floats do you fly? What percentage of the market in Alaska own edo floats?

Ground Loop: I run Baumann BF-2100 straight floats. Alaska is still about 90% Edo 2000's, would be my guess. 50 years of the only game in town makes them the standard. I think most of the new float purchases are Wipline or Baumann though.

I sometimes question why I even spend money on insurance with the way insurance companies try to get out of paying a claim. There is always something wrong with the plane or pilot they can find. Crash

 

[T.J.]

Dang Gunny, I'm impressed with all that talk about investments.
I've got $398 I'm thinking about investing in Nigeria. Would you be interested in giving me a hand with that? :lol:

 

[diggler]

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[Crash]

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[diggler]

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[Crash]

Diggler, according to "Maule Guy" we both fit into the "blow hole" catagory so you can't get under MY skin. Actually you make sense 90% of the time. Crash

 

[mvivion]

Gunny,

Great clarification. A year or so ago, I learned what a manufacturer of one line of new aircraft actually clears on each airplane they sell, and its about on the order of what you describe.

Ground Loop,

The EDO floats were not "tested to 2000 pounds". They are rated as 2000 floats because the fresh water displacement of one float is approximately 2000 pounds. That's how floats are rated, and it has absolutely nothing to do with structures or strength. Further, the floats were certified on the Cub by someone, Piper, I believe, but maybe EDO. That's the basis for approval, and it requires all sorts of testing, including flight test. The floats themselves are just parts. Its up to someone to STC them. When they were stc'd on the Cub, the flight test and engineering was done at 1760 pounds (don't ask me why 1760 instead of 1750), NOT at 2000 pounds. To increase this to 2000 would require engineering and ensuring that all structures and fittings would take the guff, then complete flight test. That is many dollars.

When EDO went to certify their 3500 amphibious float on the Cessna TU 206, the FAA required them to do a full certification flight test and engineering certification, even though the aerodynamically identical U 206 was already approved on these floats. This involved over 100 spins in the TU 206, by the way.

The FAA shouldn't "favor" one manufacturer over another? Good grief, ever hear of the US Patent Office? How about copywrights? The government protects individual companies' proprietary rights all the time.

You don't seriously think the music industry is going out and arresting people for sharing music over the internet, do you? Its the govmint, Dude.

Your government example has nothing to do with the discussion at hand.

MTV

 

[diggler]

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[ground loop]

mvivion, What happens when you fly a Husky A1-B on Edo 2000's. Does the GW decrease?

 

[mvivion]

Groundloop,

The Husky A-1B is NOT approved on EDO 2000 floats. It has not been STC'd on those floats, and in fact, since the B model Husky is certified at 2200 pounds on floats, the EDO 2000 floats would not provide the minimum reserve bouyancy for certification purposes at that weight (note, for example, that the Cessna 170-a 2200 pound GW aircraft, is NOT approved at that weight on EDO 2000 floats), so who would want to go through all the approval hoops, only to have to restrict the gross weight?

The A-1B Husky is approved on model 2130 EDO floats, however, which are essentially an extended version of the 2000's. Kenmore did the certification testing, using the Aviat prototype Husky for flight test.

Now, here's one for you: What happens if CC or someone else does get approval for a 2300 pound GW for cubs? That also will require recertification of float installations, and more than likely, at that weight, it will require a larger float than has ever been installed on the Cub to take advantage of the increased weight.

MTV

 

[ground loop]

mvivion, This is good for me, I am learning. Is there a 2000 lb applicaction for edo 2000's? When edo engineered them, did they only make them good enough to float 2000 lbs., not fly at a 2000lb load? Do all other external mods that were tested at 1750 GW become invalidate with the wip mod. For example, 31" bushwheels were probably spun test on a 1750 lb cub. Either cargo pod was probably tested on a 1750 cub. And, I am sure the list could grow. Do they all need to be retested? Could the insurance companies stack of attornies use that argument to not pay?

 

[S2D]

Are Edo 2000's used on the PA-12 and PA-14 ?? If I remember correctly they have higher gross weights don't they?

 

[diggler]

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[ground loop]

Diggler, It is the last thing that I want! If you read my posts, you would see that what I wanted was a more broad interpretation of the STC.

 

[mvivion]

Ground Loop,

Diggler is correct: Its up to the IA who installs the STC, and the FAA person who reviews it (yes, they are supposed to) to verify that a newly installed STC is in fact, compatible with all other mods (both STC and field approved) on that particular airplane.

The EDO 2000 float has been approved on several airplanes at or slightly above 2000 pounds, including the Cessna 170. My point was, it cannot be approved at 2200 pounds, due to the reserve bouyancy requirement. As noted, this is an entirely different issue than any structural or aerodynamic issues, but they all have to be met. I believe the PA-12 and 14 were STC'd at 1925 on EDO floats, but somebody else should be able to tell us for certain what the number is.

Installing floats on an aircraft and getting them approved is a big deal, and pretty complex. I wouldn't want the job, and I'm glad Wip, Baumman, Aerocet, PeeKay and EDO are all still doing at least some of that.

Aviat approved the A-1B Husky on Baumman floats themselves, so they are on the TC, so at least some of the manufacturers are pursuing STC's for their aircraft as well. Generally, though, they work with the float manufacturer to get it done as an stc.

MTV