(Development and Procurement Cost of Aircraft, Version IV)

The following contains some quotes from Daniel P Raymer's book Aircraft Design: a Conceptual Approach, Third Addition. Management wishes to give Mr. Raymer full credit for extending his insights into the cost of aircraft production and other analysis. Meyers Aircraft Company has, however, taken that approach to new levels as will be discussed in the following article. This book is required reading for many aeronautical engineering courses and remains a staple of engineering cost analysis and justification to this day. We look forward to purchasing any new versions that become available. The reader is encouraged to purchase Mr. Raymer's book should one have a serious interest in the design aspects of aviation. Thank you, Mr. Raymer.

Mr. Raymer states, "Aircraft, like bologna, are bought by the pound. In 1999, most aircraft cost, roughly, 200-400 dollars per pound of DCPR or AMPR weight (DCPR or AMPR weight, Defined in Chapter 15, typically equals 60-70% of empty weight)." (See, I told you to get the book) Applying this to the 200D today yields a sales price of roughly $450,000. That would be accurate if we had to amortize the cost of all the tooling and R&D, which fortunately for prospective purchasers, we do not.

Cost Estimating Relationships (CER's) developed by the Rand Corporation are published as the DAPCA IV (Development and Procurement Costs of Aircraft) model. DAPCA estimates the various cost for all departments including engineering, tooling, manufacturing and quality control groups. Development support, flight-test and manufacturing material costs are also directly estimated by the DAPCA. The cost of the engine(s) and avionics must be supplied independently of the DAPCA. Manufacturing hours follow an industry stand average 80% learning curve. This means that for every doubling of production quantity, the cost per aircraft goes down roughly 20%. One must be careful here, as this makes cost comparisons virtually meaningless between a brand new aircraft and one which has already been produced in the hundreds or thousands.

The DAPCA assumes a ten year product life which also is an industry standard if there are no significant changes to the product. One other issue needed to be addressed to develop a meaningful model is the "fudge factor." Mr. Raymer gives the following factors as guidelines: Aluminum - 1, graphite-epoxy - 1.8, fiberglass - 1.2, steel - 2, titanium - 2. These factors assume a large, established aerospace company and do not reflect the economies of a small company building in conventional materials. Using some real world cost evaluation factors for lablor and man-hours as reported by industry for comparable aircraft, management has determined that a "fudge factor" of .4 should be applied to the DAPCA model. Management has applied the DAPCA to several aircraft projects with known costs and has independently determined the validity of the Rand Corporations assertion that the DAPCA, coupled with the appropriate factors, is accurate to within +/- 5% of actual costs.

The DAPCA, however, is an averaging CER. One must use a little crystal ball prognostication to determine the actual suggested selling price of an aircraft. Through careful market analysis and observation of industry trends, a realistic 10 year production quantity may be inserted into the DAPCA to determine an acceptable pricing level at a given rate of return. But this does not reflect cash flow. Many companies fail due to this basic mis-understanding. Through a sophisticated mathematical array involving many iterations developed by Meyers Aircraft Management (Paul), it is possible to determine fairly accurately the cost for any given serial number unit at a point in time. There are a significant number of aircraft which must be produced to arrive at the serial number which is actually sold at a price above the manufacturing cost. (Many companies experience this but don't know how to plan for it from the beginning, hence the number of failures is high due to this lack of understanding.)

We have chosen to present only four examples for the reader's perusal. These illustrate the averaging nature, not the cash flow analysis, which is proprietary. They will show, however, that the selling price at a 30% margin for the production and certification of only one aircraft is exorbitant compared to the same determination based on the sale of 500 units over the ten year period. The production quantity of one can be considered the cost to obtain the Type Certificate in constant 1999 dollars. Various factors for the cost of money have to then be applied which is beyond the scope of this article.

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Paul M. Whetstone, President

Email pwhetstone@meyersaircraft.com

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