Aircraft insurers adopt ‘wait and see' attitude about covering very light jets

Aviation International News » September 2004
October 20, 2006, 8:40 AM

Beyond the merriment that the very light jet is coming to market, the insurance industry is preparing to drop the curtain in the final act.

“It’s tomfoolery, hype–a lot of pilots are going to realize that they’ve been drinking their own bath water,” said Ann Thickey, one of Global Aerospace’s senior underwriters, from her Los Angeles office. “We’ve warned OEMs that numerous pilots who have put down deposits for a VLJ will be told in the end they don’t have enough flight hours, training or type ratings–regardless of what OEMs try to convince them.”

Despite naysayers, the desire for the VLJ that thrives in the hearts of many pilots was validated at this year’s EAA AirVenture in Oshkosh. Eclipse promoted its Model 500 big time, as did Cessna with its Mustang and Adam with its A700. Even Jim McCotter of the now defunct Maverick Jets parked his wares in the grass, hopeful that his one remaining prototype would again ignite the imagination to fly the “leader.” (Financially challenged Safire Aircraft, however, pulled its exhibit at the last minute.)

Scott Brown, president of W. Brown & Associates Insurance, headquartered in Irvine, Calif., the underwriting arm for XL Insurance Specialty, said the idea perpetuated by OEMs that simply producing a VLJ, and then presto, anyone can fly it, is a disservice. “Press releases on OEMs’ Web sites, at airshows and fly-ins may whet the appetite of pilots, but we don’t plan to underwrite anyone’s VLJ until the type has been flying for at least one year,” he said.

“Cessna’s Mustang is the exception, but we see a six-month cautionary period with that airplane, too, at this point,” Brown noted. “Most OEMs are so focused on FAA certification and deposits, they are missing the big picture; they need to provide us or any other insurer with a solid training program one year before delivery. Most OEMs aren’t openly discussing training programs because they don’t have one, but they want people to buy a VLJ from them with promises of insurability.”

He added that his company was perhaps more cautious than Global, but for the most part, he said, the other seven insurers in the U.S. agreed with the premise that OEMs were selling the idea that obtaining insurance was something “insignificant at point of sale but would be an easy, quick and painless process down the road.”

Most insurers share the wait-and-see attitude of Brown & Associates. They will tally accidents and incidents during each VLJ type’s first year. The insurance companies agree that Cessna “is different,” because it has a long history of bringing insurable products to market– especially in recent years with its CitationJet line. In fact, most insurers are basing future jet training insurance approval on what Cessna has already done, full-motion, level-D simulator training provided by FlightSafety International, which is the standard insurers are seeking.

In the case of the Citation Mustang, the Wichita-based manufacturer isn’t sure if FlightSafety will win the bid for training. According to Cessna president and CEO Jack Pelton, “someone will be providing that same level of training; training is everything and we’ve never downplayed that fact.” He added that a manufacturer’s ability to provide a parts inventory would play a key role in the eyes of insurers.

Insurable or Unreasonable?

Insurers agree that an OEM’s inability to provide a healthy inventory of spare parts could complicate an owner-pilot’s or Part 135 operator’s quest to obtain reasonable insurance rates. The insurers are aware that many of the manufacturers import parts from outside of the U.S., but they are leery and want proof of accessibility.

One of Brown’s senior underwriters, Ernest De Spain, said the cost to insure VLJs depends on more than just how many hours or how much training a pilot has. “History has shown us that airplanes have been certified by the FAA, but in many cases after the airplane has been out for a couple of years, the manufacturer has gone out of business,” he noted.

“We look beyond the airplane itself and scrutinize a company’s product-support history, which is going to be a problem for startup OEMs. For example, here in the U.S., parts inventory for the Piaggio Avanti amounts to about $3 million, which tells me they have inventory here to cover the value of only one airplane. That becomes a problem when you have 40 aircraft flying around and one or more become damaged because there isn’t adequate surplus inventory to service the aircraft.”

Piaggio America, representing the U.S. and Canada for parent company Piaggio Aero Industries, one of the world’s oldest aircraft manufacturers, does not agree with De Spain’s analysis of what a good insurable risk is. “It is true that our current parts inventory is $3 million, but so what?” countered Tom Appleton, Piaggio America’s CEO since last year. “That’s the most ridiculous, absurd comment I’ve heard. Global Aerospace insures our aircraft. In fact, because of our excellent safety record on the Avantis in the U.S., insurance rates have dropped. Has De Spain heard the terms ‘same-day-delivery UPS’ or ‘overnight FedEx’?”

De Spain continued, “Here in the U.S., for example, we’re having problems with older Piper aircraft; they have support but a dwindling supply of parts, which creates a lag and higher cost for insurance.”

Thickey agreed and described the VLJ as a “new genre,” calling for stringent guidelines, and said Global would require OEMs to “show them the money,” proving they will be able to support their products. “People from our company will scrutinize balance sheets and capital equity,” she said. “We know Textron backs Cessna, but who is backing these startups?”

Some insurance brokerage firms believe that insurers are being too harsh on startup OEMs. Doug Johnson, president of Georgia-based Insuramerica Aviation, said that in today’s world, you can get anything in about three days via UPS. “You can order a part via the Internet or by phone; if it exists, you can get it within three days,” he said. “We have 200,000 aircraft flying today in the U.S., from Boeings down to the littlest Cessna. Most of these aircraft are at least 25 years old–it’s a universal problem.”

Bill Behan, president and CEO of Colorado- based AirSure, described some underwriters’ requirements as “something they should mail to Santa Claus. If these insurance underwriters really try enforcing the impossible, I’ll be a very rich man because I know it’s not going to happen. They can ask for anything, but that doesn’t mean underwriters won’t insure pilots. Because the VLJ is new and the insurers are convinced only low-hour pilots will try to fly jets without proper training, they are playing hardball, doing their best to intimidate everyone. As for the Piaggio or the Pilatus, I’ve been very successful in obtaining insurance for pilots who fly them–this is nonsense.”

Those Darn Dot-commers

De Spain said that because they are an unknown, the cost for insurance on VLJs could be much higher initially than premiums currently being quoted for larger, existing jets. For example, he said, hull insurance for a $1.2 million VLJ could cost the pilot about $35,000 annually, and a basic $1 million liability binder could add another $5,000 or $7,500 to the annual premium. Those figures could quickly double, he noted, for Part 135 operators; the aircraft would fly more and liability coverage would need to increase tenfold.

“You can blame dot-commers for the rationale,” he explained. “It wasn’t that long ago when rich dot-commers purchased expensive aircraft (piston, cabin-class twins or turboprops) and found they couldn’t get insurance because they were low-hour, unqualified pilots. They believed they had the right to fly the aircraft because they were rich enough to buy them; the insurance industry proved that was untrue. The same thing is going to happen with these VLJs.

“The problem is that these aircraft might be sold to individuals who know they are low-time pilots but believe they can move into the jet easily and quickly. That might be fine as far as the FAA or the manufacturers are concerned, but the insurance companies are going to put a stop to it. Since there is no law requiring a pilot to purchase any aircraft insurance, a number of rich pilots are flying without it.”

Thickey said this is also the case with several Part 135 operators; she advises passengers to ask operators to show proof of insurance. “You wouldn’t believe how many Learjets are flying without insurance; some charter operators have switched insured aircraft for uninsured aircraft,” she says. “Make sure the tail number of each airplane is written on the policy.”

Training Expectations

Startups might be getting cool responses from underwriters, but it’s not because insurers are worried about rich dot-commers. Today they are worried primarily by the prospect that rich owner-operators will fall foul of overconfidence in their abilities to operate VLJs. They are not so concerned about pilots employed by Part 135 operators to fly the jets; most of them will likely be highly trained pilots, many from Part 121 operations.

All insurers have said they will require VLJ pilots to have at least 2,500 hours TT, including 250 jet hours and about 1,500 hours of flying complex, multi-engine aircraft. They also require all pilots to have a current instrument rating and proficiency in exercising its privileges.

Where does that leave startups such as Albuquerque-based Eclipse Aviation or Englewood, Colo.-based Adam Aircraft Industries? Global has agreed to underwrite Eclipse 500 operators who satisfactorily undergo Eclipse’s curriculum-based factory training. However, it hasn’t agreed to underwrite the Adam A500 piston twin or A700 twin turbofan; Global says that while it will consider the Adam airplanes, Adam hasn’t yet provided it with details of what the training will involve.

When asked if it planned to purchase an L-39 for upset recovery, or if it is considering sending pilots to the North Dakota University Aerospace School, as Eclipse has chosen to do, Adam Aircraft declined to answer any questions related to training. “We’re not ready to talk about it publicly, but I know our customers have been asking us the same thing; we know we need to address this in the future,” a spokesman said.

Camilo Salomon, president and CEO of Miami-based Safire Aircraft, said he is a firm believer in providing the best training possible. “This is something we’re talking to underwriters about, but yes, I believe simulator training and other types of training are extremely important. When we unveil our training program, pilots will understand that flying our Safire Jet isn’t to be taken lightly; however, I believe that few owner/operators will purchase our jet–this is really for the air-taxi business.”

Brown won’t even discuss Safire’s or Adam’s aircraft because he hasn’t seen a training program from either developer. However, he looks more favorably on Eclipse. “Thus far, Eclipse may be the exception to our rule of not insuring new, unproven aircraft,” he said. “We might underwrite the high-hour pilots, but we won’t take the low-hour, transition pilots. First they will have to pass their jet training.”

Brown compared the process behind insuring Cirrus’s piston singles with what it will be like for purchasers of the VLJ. “Today, if you want insurance on a Cirrus, you’d better have 1,000 flight hours, an instrument rating and training at UND,” he said. “Insurers set those standards for a Cirrus but not for its competitors yet, because Cirrus changed the way we viewed performance; it was the first aircraft in that category to have an all-glass cockpit with a PFD, MFD, sidestick and, for extra safety, a ballistic parachute. However, its speed was an issue–it went faster than other airplanes in its class.”

He noted that before those training standards were set, too many low-hour pilots who had been flying “typical” piston airplanes had too many accidents or incidents because pilot skill did not match the capabilities of the aircraft they were flying.

The thread binding all insurers is the analogy between Cessna’s training prowess and Cirrus’s advanced technology. The insurers interviewed for this article all rated Cirrus’s products as wonderful airplanes and noted that pilots were to blame for previous accidents involving the company’s aircraft. A common theme among insurers was, “If they had only had more flight hours, ratings and training, maybe they would not have had to pull that chute.”

That theory does not sit well with Alan Klapmeier, Cirrus’s founder, president and CEO: “It’s very disappointing that the industry can’t accept, as a last resort, a pilot pulling the chute to save his life, or the lives of his passengers, without being ridiculed for being alive.” Klapmeier added, “I’m thinking about producing a single-engine jet, a ‘personal jet,’ but pilot training alone shouldn’t be enough–not for any aircraft. We think it’s worth spending the money to add as much safety as possible.”

Underwriters are concerned that low-time VLJ pilots could encounter the sort of unfamiliarity problems (but exacerbated by the VLJs’s greater speeds) that Cirrus pilots had initially.

“We’re not the only insurance company that will be sending in-house pilot-engineers to scrutinize every nuance of factory-based training offered by OEMs; we are concerned,” Thickey said. “Our engineers would like to flight-test the aircraft too, and although we’ve agreed to underwrite Eclipse even though it doesn’t have a full-motion simulator, we’d still like the company to have one in the future because we believe it’s the safest way to learn real-world aircraft characteristics without the loss of limb or life.”

Vern Raburn, Eclipse’s CEO, said he doesn’t plan to do that. “We feel that we have a superior training program. Each pilot-student will be required to have jet time in our 500, and we believe that is the best way for a pilot to learn how to fly the airplane he will be type-rated in,” he said.

Raburn, who is a highly rated pilot, said he’s aware that not everyone agrees with his idea of using an L-39 jet trainer. He asserted that even though the L-39 is a tandem two-seater it will teach pilots the skills they need to recover from an upset.

Thickey said Global likes the idea that Eclipse is doing something about upset-recovery-training. Additionally, she suggested that OEMs should think about offering stall-spin accident prevention training–something that all the VLJ developers said they are not planning to do.

However, there are insurers, brokers and other experts who question Eclipse’s training program, such as an AIG underwriter who said, “If you look closely, their training is smoke and mirrors.” “The L-39 has nothing to do with making the Eclipse 500 insurable: the L-39 is a low-wing [and centerline-thrust] aircraft, which would be great to practice loops in for an aerobatic pilot, but it has nothing to do with how twinjets feel and [behave] in upset recovery,” said a senior underwriter, who asked not to be identified. “Additionally, Eclipse doesn’t specify that pilots must be ‘proficient’ in IFR or multiengine flying; it requires only that pilots have the ratings. FAA-approved jet flight schools such as FlightSafety, SimuFlite and SimCom recommend that pilots take refresher courses before attending serious training.”

De Spain agreed with AIG but added that UND has been great for Cirrus and other aircraft. “Additionally, it’s fine with us, but Eclipse’s altitude-chamber session isn’t going to make the 500 more insurable either,” he said.

Rich Stowell, an FAA safety counselor, master/CFI-A and president and CEO of the Aviation Learning Center at Santa Paula Airport, Calif., suggested that Eclipse should offer “serious” upset recovery training and that a good choice would be the FAA-approved Flight Research Training Center, a General Dynamics-owned corporation.

“This would provide a stark contrast between a legitimate approach to upset recovery training (a two-day intensive course including three hours with an in-flight-modified Learjet) versus Eclipse’s two 20-minute amusement rides in an L-39,” he said. “The irony is that Eclipse and this joint government-industry-initiative program, developed with NASA, are both located in New Mexico. I believe it’s a disservice to mask their upset training program as being anywhere near comprehensive or good enough.”

Stowell, who developed the three-phase, FAA-approved EMT program, including unusual-attitude spin recoveries, inverted/upright and upright/inverted transitions, has successfully taught 24,800 stall-spins to students worldwide. “I’m not trying to pick on Eclipse, but this is very serious–do it right or don’t do it at all.”

Former FAA Administrator Jane Garvey highly recommended Stowell’s program and expertise in an article she authored titled Surviving the Worst. “Not only has [Stowell] authored a comprehensive book and a video on the subject, but this was also the only course we found that included specific training on dealing with control-surface failures and off-airport landings, just the sort of things GA pilots are likely to encounter,” she wrote.

Johnson said he believes numerous owner-operators are going to be upset when they realize they will not be able to fly the Eclipse 500 alone for a very long time without a captain sitting in the seat next to them. “What’s going to happen is that these new jet-rated pilots will have to pay for a second person to attend Eclipse’s program so they can fly with a captain-in-command,” he said.

“Raburn has professed that the five-place jet will be used for the air-taxi business; however, his training program and the design of his airplane, and the fact that numerous owner-pilots have put deposits down, is incongruous. If he actually refunds pilots who cannot cut the mustard as he’s promised, he’ll be the first person in history to do that. Nevertheless, I do believe that the Eclipse is a well designed aircraft.”

Raburn said that he has warned pilots that having a commercial license would be beneficial and it would improve their chances of insurability.

Betting on a Touchdown

Hearing this makes any Part 121 pilot salivate, and Bill Strait is no exception. Strait, who has put in a 30-year stint as an airline transport pilot, also decided to enter the very light jet race, but as the founder of Palm Beach Airlines, a mentor-pilot-for-hire company. He said that hundreds of ATPs are available now to mentor the hundreds of low-hour pilots who expect to fly as captain-in-command in the VLJ.

“We believe that with all the VLJs coming to market within the next couple of years, the drones of the turboprop twins will be pushed out, and pilots moving up into the VLJs know they need guys like us,” he said. “We know from the experience of flying jets every day that mentoring programs are the best way to teach inexperienced pilots what they can really expect when flying a small jet.”

Strait isn’t the only opportunist eying the imminent era of VLJs. Virtual unknowns in the name of charter are spreading their wings with a sense of urgency to get one up on competitors and racing to gain name recognition and to build customer confidence. In one case, Caravans will do until the real thing is available.

Massachusetts-based Linear Air, for example, existed only a few months ago under a different name, and from a different world, but the “born-again LLC,” has joined the ranks of faceless, nameless stakeholders in the virtual-VLJ market, which have carefully orchestrated their plans, simply by using strategy that’s allowed them to operate in the nascent jet-air-taxi industry.

The new game, so as not to break FAR Part 135 rules governing nonscheduled flights, is to offer “proposed” times of departure. Charter operators say it’s not illegal, but brilliant. RSVPair.com, a free provider network that tracks Part 135 operations and trends, from Web-based brokers to significant charter/management providers, polled operators in a survey asking them which VLJ they thought would best fit the needs of their clientele. As of August 5, 40 charter members had voted, with 19 votes (47.5 percent) for the Mustang, 16 votes (40 percent) for the Eclipse 500, three votes (7.5 percent) for the Safire Jet and just two votes (5 percent) for the Adam A700.

Single-engine Jets

It seems that several OEMs are interested in producing a single-engine VLJ, and some of the manufacturers believe such airplanes will be easier to operate because they will fly only up to FL250, versus the twinjets’ FL410. They also believe that the single-engine jet will be more insurable, less expensive to acquire and more cost effective to maintain.

Peter Maurer, North American president of Diamond Jet Aircraft Industries, headquartered in Austria, believes the unusual design of the five-place, single-engine D-Jet will turn some heads, because it’s different. He said there have been no delays with the project; first flight is scheduled before April 5 next year, with certification to follow at the end of 2006.

“Reports that we are considering the use of a [ballistic recovery] parachute for the jet are false,” he said. “Because of the speeds involved we haven’t been able to find a suitable parachute system. Certainly, if we could find one, we’d use it. After spending 10 years at Diamond as chief engineer, there isn’t anything I’d like to see more for safety purposes. I commend Cirrus for using a chute even though the company has received a lot of bashing.”

He said Diamond has taken deposits on the D-Jet, but he declined to confirm for how many aircraft or for what amount of money. He added that the price for the D-Jet would come in at around $1 million or less, and that the company has not advertised the jet yet.

“The D-Jet’s maximum ceiling is FL250 for a very good reason, too,” he said. “Everyone else is talking about going up to FL410, but we know that most pilots won’t reach FL410; it takes too long to climb or descend, which wastes a lot of time if it’s not really that important to fly at FL410. Most of the VLJs at FL410 will have ATC conflict because they can’t go as fast as the jetliners and will be in their way. At 315 knots, our jet isn’t designed to be the highest and fastest, but it appeals to the broadest number of pilots. We’re not designing this for Part 135 operations either. Pilots know our jet is slower than the Eclipse or the Mustang, but it’s still pretty fast.” He added that the D-Jet would have sophisticated avionics, including weather-uplink systems and traffic avoidance.

Bob Bornhofen, president of Colorado-based Excel-Jet, is convinced that his new single-engine, four-place Sport-Jet will make the cut. He vows the airplane will fly by the end of December. Bornhofen is no stranger to the challenges of designing a VLJ: he created the five-place Maverick Leader, which he sold to McCotter several years ago. He said the Sport-Jet will sell for less than $1 million.

“I do think pilot training is important, and I plan to provide in-flight training using the Sport-Jet,” he said. “I haven’t gotten to the point where I can give more details about a circular-based training program except to say we will have one. My goal is to build an efficient, safe and affordable jet, which I believe will be easier to insure than a twinjet.”

However, insurance underwriters don’t share his view. De Spain, Thickey and other underwriters said it was a myth that single-engine jets are easier to operate and less costly to insure.

“It’s always been a myth that a single-engine jet is a better insurance risk,” Thickey said. “That’s absolutely not true; we view a twinjet as being safer, and we have statistics to prove that. It doesn’t matter if it’s a single-engine jet such as the Diamond D-Jet at FL250 or the Eclipse 500 twinjet flying to FL410; they all go fast, so they’re equally dangerous to the inexperienced. Because they do fly much faster, pilot response time has to be that much faster, and a single-engine jet can cause just as much damage.

“Once the airplane is available to the public, just like automakers, OEMs of airplanes won’t be responsible for who flies them. The FAA might certify them, but it’s the insurer who will be paying out claims, so it’s the insurer who will decide who is qualified to fly or not,” he added.

Spin Testing for Jet Singles?

Elizabeth Isham-Cory, FAA deputy of public affairs for the Great Lakes region, said that regardless of whether the airplane is a piston single or a jet single, all singles “are required to undergo spin-testing.

“The only way to get out of [the requirement for spin testing] is to meet the spin-resistance requirements or receive an ‘equivalent safety finding’ for an alternative approach,” she said. “However, we are encouraging all new single manufacturers to try the spin-resistance approach as Cirrus and Lancair have done under FAR Part 23. Spin resistance can be accomplished only by actual testing–not on paper. Multi-engine aircraft are not required to [be able to recover from a] spin unless [their manufacturers] want approval in an acrobatic category.”

This doesn’t sit well with single-engine jet developers, who claim that while a piston-powered airplane can survive spin tests, a jet-powered airplane might not.

“I don’t think the FAA ever thought anyone would manufacture a single-engine jet, so now it has this rule, but it’s dangerous,” said Bornhofen. “Turbofan-powered aircraft tend to go off line in a spin. In other words, the engine can stop. If the FAA thinks a pilot has time then to try to restart the engine for its FAR Part 23 rule, it needs to go back and study this.”

Later, when asked if there was any bending this rule, Isham-Cory said that since the agency still has some time before any single-engine jet would be certified, it would have to think about this. “We just don’t have any answers on this,” she concluded.

Share this...

Please Register

In order to leave comments you will now need to be a registered user. This change in policy is to protect our site from an increased number of spam comments. Additionally, in the near future you will be able to better manage your AIN subscriptions via this registration system. If you already have an account, click here to log in. Otherwise, click here to register.

 
X