Pay to Play: The Cost of ADS-B and Where to Find Financial Assistance
Now that general aviation aircraft operators realize ADS-B is a necessary component of NextGen, they’re beginning to look to funding the acquisition and installation of related avionics in order to comply with the new rule.
When FAA published the final Automatic Dependent Surveillance-Broadcast (ADS-B) rule in May 2010 mandating that aircraft flying in certain controlled airspace be equipped with ADS-B Out by January 1, 2020, there was the predictable howl from the General Aviation (GA) sector. GA operators protested that this component of the FAA’s Next Generation Air Transportation System (NextGen) would cost too much and offer too little in return.
The opposition to complying with the mandate loosened slowly in the last few years after a series of actions. Numerous meetings between the FAA, the avionics industry and GA lobbyists, alongside the decreasing cost of required avionics helped convince owners of less-expensive GA aircraft that complying with the new rule would not be cost prohibitive. The availability of affordable financing also helped.
The largest of these funding sources, until recently, was the U.S. government-supported NextGen GA Fund, which was partially owned by Nexa Capital Partners. The government created the fund to help aircraft owners defray the costs of all avionics upgrades through funding and low-interest loans, including avionics outside of ADS-B Out or the more-capable ADS-B In, which provides traffic and weather information to pilots in the cockpit.
The fund, before being dismantled, would have eventually provided $1 billion in direct financial assistance to aircraft owners and its loss will be felt throughout the avionics sector.
The NextGen fund was created long before the FAA’s recently announced $500 rebate program, which aims to defray costs of complying with the ADS-B Out mandate. The fund also would have been far more beneficial, according to Nexa.
In 2012, Nexa Capital Partners, at the urging of several avionics manufacturers, decided to form a specialized lending business for general and business aircraft owners.
Nexa obtained loan guarantee authorization from the U.S. Congress, as part of the 2012 FAA Reauthorization Act, which enabled the fund to provide low-interest loans to pay for various avionics upgrades.
Nexa’s goal was to establish a Special Purpose Company (SPC) to process the loan. Congress granted the Department of Transportation (DoT) authority to set up the loan program, which delegated the task to FAA, as U.S. law requires that a federal agency be involved when creating a federal loan guarantee program.
“Unfortunately, the FAA decided that it was too inconvenient to take responsibility for issuing the loan guarantee,” said Michael J. Dyment, founder and managing partner of Nexa Capital Partners. “And they came up with a variety of excuses on why they couldn’t do it.”
The FAA’s recollection of what happened differs from Nexa’s, however. “FAA was never granted the appropriations authority from Congress that would have been required to establish a loan guarantee program,” an FAA spokesperson told Avionics Magazine when questioned about the demise of the fund. “FAA reviewed the NextGen GA application to evaluate financial risk to taxpayers and benefit to general aviation users. FAA engaged in extensive discussions with the applicant.”
But nothing came of those talks.
Among FAA’s objections, says Dyment, was that the interest rates the fund would charge were higher than what the aircraft owners could get independently.
Not true, claims Dyment. “In fact, our loan rates would have been 1.5 percent lower than rates of a bank,” he says
In addition, the Nexa-led fund would have lent aircraft operators’ money based solely on their credit ratings, added Dyment. Borrowers would not have been required to use their aircraft as collateral or provide security guarantees, as is the case in some conventional bank loans.
The authority for issuing the loan guarantees expires in February 2017 and it is unlikely Congress can force the agency to be the overseer of the loan guarantee program. Nexa also didn’t get much follow-up help from the Aircraft Owners and Operators Association (AOPA), whose members could have been primary beneficiaries of the NextGen fund, according to Dyment.
“Nexa and AOPA Finance had numerous discussions about working together. Had Nexa been able to provide a significantly more cost effective option than currently exists, AOPA Finance indicated it would gladly welcome the opportunity to send business that way. The reality is very few of our members have requested financing for just ADS-B equipage,” said Adam Meredith, president of AOPA Aircraft Financing.
With the cards stacked against it, Nexa exited the fund in early 2016 and sold off its loans.
“While it is disappointing to learn the NextGen GA Fund is no longer a financing option for aircraft owners to upgrade and equip their airplanes, I believe the FAA’s rebate program still provides some relief,” says John Uczekaj, president and CEO of Aspen Avionics. “It now becomes the responsibility of avionics manufacturers and installers to continue to help owners understand the value of the NextGen mandate and the long-term safety benefits it provides.”
Uczekaj believes that part of the problem with encouraging ADS-B equippage is a lack of understanding by the GA community on the technology’s value. “As an industry, we haven’t done a good enough job of telling that story [about benefits of ADS-B] beyond providing discounted solutions,” added Uczekaj.
As an alternative-funding source to meet the mandate, the FAA recently launched its $500 rebate program to help owners of less-costly GA aircraft purchase and install avionics to become compliant with the ADS-B Out mandate. It is unclear whether the ADS-B Out rebate was launched as a direct result of the demise of the NextGen GA fund.
The $500 rebate is available only to owners of fixed-wing, single-engine piston aircraft that were registered in the U.S. before January 1, 2016. FAA is not providing rebates for software upgrades on aircraft already equipped with rule compliant ADS-B.
Under the rule, ADS-B Out will be required for aircraft operating in Class, A, B and C airspace, certain E class airspace at or above 10,000, and around busy airports identified in 14 CFR part 91, Appendix D. The agency estimates that 160,000 aircraft will require ADS-B Out, which transmits information about an aircraft’s speed, altitude and location to nearby aircraft and aircraft controllers.
The program runs for one year from September 19, 2016 or until all 20,000 rebates have been claimed. If all the rebates are claimed, the cost to FAA would be $10 million.
AOPA also has its own members-only loan options: the Flexible Aviation Loans (FAL) and Aircraft Finance Loans programs. Operators can use the money for avionics upgrades, including ADS-B Out. How the loan is used matters when it comes to choosing the best funding option: lump sum versus pay-as-you-go. Terms range from 24 to 84 months and rates vary accordingly, says AOPA, from the high-9 percent to mid-12 percentage points for the loan, depending on term and credit quality.”
Avionics manufacturers, such as Aspen Avionics and L-3 Avionics, provide rebates on certain ADS-B-related products, but they are typically offered as part of a larger marketing and sales campaign and not a full time, ongoing effort.
Based on conversations with avionics manufacturers and Maintenance, Repair and Overhaul companies (MROs) Aspen Avionics, Duncan Aviation, Southwest Aerospace and others, it is unlikely that AOPA members, particularly those that fly Part 23 aircraft, will see a $2,000 combined acquisition and installation price for ADS-B Out anytime soon.
The loss of the NextGen GA fund limits options for those GA aircraft operators that need financial help and could impact the bottom line for avionics manufacturers.
“It’s a sad ending to what the aerospace industry thought would be a solution to equipage,” says Dyment. “Our program would not have cost the government anything.”
The Cost of Complying
Some GA aircraft operators are weighing the combined cost of acquisition and installation of avionics to meet the ADS-B Out mandate deadline in January 2020.
The costs of equipage vary widely from aircraft to aircraft, particularly on installation costs, according to avionics manufacturers, installers and industry experts interviewed for this article.
Early on, the avionics required to comply with the mandate varied from $10,000 to $20,000, says Joe Braddock, vice president of Southeast Aerospace, a distributor and modification center, but the costs for ADS-B Out systems now sell for less than $5,000 on average and don’t include trade-in options equipment such as a transponder.
“We are not completely satisfied on the availability and pricing of ADS-B avionics,” says Rune Duke, AOPA director of government affairs, airspace and air traffic.
In a survey of 5,000 AOPA members conducted with Embry-Riddle Aeronautical University, respondents stated that $2,000 is the ideal price point for acquisition and installation of ADS-B Out equipment; with installation, the cost “can bring you above that amount,” according to Duke.
More than 50 percent of the respondents say they didn’t want to pay more than $2,000 to meet the mandate.
Avionics was able to obtain approximate equipment acquisition and installation cost estimates from some avionics makers and installers.
Aspen Avionics produces ADS-B In and Out transceivers — all Aspen ADS-B products are In and Out. The company’s ATX100 single-band ADS-B sells for $1,995 and its ATX100G with GPS sells for $2,995.
Aspen also sells other manufacturers’ equipment, including L-3’s Lynx NGT-9000 MultiLInk Surveillance system, which are compatible with Aspen displays. The NGT-9000 with full installation kit sells for $5,490.
Aspen received FAA certification for its most recent software upgrade, which includes METARS basic weather information displayed on the display and expanded capabilities for ADS-B In.
FreeFlight Systems now offers rule-compliant ADS-B Out equipment for less than $2,000 for the light general aviation aircraft. FreeFlight’s FDL-978 lists for $1,995 and includes antennas and installation kit.
While costs for ADS-B Out and the combined ADS-B Out/In package are comparable among avionics manufacturers, specific installation costs are hard to determine and vary for each aircraft, although costs can be relatively high.
Ryan King, marketing director for Sarasota Avionics, an avionics dealer and installer with five locations, noticed “an uptick” in business when FAA announced its $500 rebate program. “But I wouldn’t say that we are inundated with ADS-B installations,” says King.
The cost to install the standard ADS-B Out 978 transceiver, which is the lowest-priced option that meets the mandate, ranges from $1,500 to $2,200 at Sarasota Avionics. The cost to install the ADS-B Out 1090 transponder with extended squitter is priced from $2,000 to $2,400, assuming the aircraft has a Wide Area Augmentation System (WAAS) GPS source.
ADS-B Out/In packages, or one-box installations, at Sarasota Avionics costs between $2,000 and $2,500, although cost also depends on what related equipment is installed in the aircraft. Installation of this package takes about 26 hours.
“Most people are leaning toward the full solution (ADS-B Out/In),” says King.
ADS-B installation costs depends largely on whether the operator has kept pace with avionics requirement upgrades over the years, according to Mark Francetic, regional avionics sales manager for Duncan Aviation, an aircraft MRO and completion house with locations throughout the U.S.
Duncan Aviation would not provide specific installation prices for proprietary reasons and because each upgrade differs from aircraft to aircraft, but it did provide rough installation costs. For installation and parts on Part 23 aircraft, a basic ADS-B Out system, Duncan can install a standalone system for between $6,000 and $8,000, typically, says Francetic.
ADS-B Out parts and installation costs for Part 25 aircraft can vary widely, from $25,000 to $200,000, depending on the platform.
Why do the costs go so high?
“This range is significant due to the variances on the baseline avionics currently installed in the Part 25 aircraft and depending upon whether the aircraft operator stays in the manufacturer’s program,” says Francetic.
In addition, Francetic says it costs less to add ADS-B to an older business aircraft, such as a Falcon 20, than a newer aircraft with integrated cockpit systems, which could require an upgrade to the aircraft software package.
Some Part 25 aircraft operators told Francetic they would rather buy a newer airplane than upgrade an older one, thinking it was a cost-effective alternative, and then were shocked to learn that it would cost them “sometimes two-to-three-times more to upgrade the newer airplane with ADS-B than the older aircraft,” he says.
Most of the GA sector now believes that acquiring and installing ADS-B Out is possible. Yet, there remain holdouts to comply with the mandate. “[Aircraft Electronics Association] AEA expects at least 20 percent of the light GA community will not meet the mandate until 2021 or 2022,” says Ric Peri, vice president of government and industry affairs for AEA.
Some GA aircraft operators and their lobbyists in Washington, D.C., believe that if they hold out long enough the FAA will pushback the deadline, according to Peri. They also believe that the price for acquisition and installation of ADS-B Out would drop further.
Avionics could find no one in the avionics community or analysts that follow the industry who believe that a delay of the mandate was even remotely possible. Nor did they believe that the price of acquisition and installation of ADS-B avionics would further drop. In fact, most industry experts say the price would go up in the next year, in part because of how difficult it will be for an aircraft operator to secure an available slot at an MRO for the ADS-B Out upgrade.
AOPA’s Collins says numerous MROs throughout the U.S. are selling slot reservations for ADS-B installation in advance of the mandate. Shops are taking deposits, which they are then crediting toward the installation costs. And there’s one more factor for aircraft operators to consider: aircraft not equipped with ADS-B Out or the combined ADS-B Out/In package could be hard to sell after the mandate deadline. AVS