A reader has contacted me several times worrying about the possibility that an airplane kit company may default on an order he places. He thinks I should warn people that it could happen, and should do something about the possibility.
Well, consider yourself warned. There have been a number of airplane kit makers that took deposits, or even full payment, and then folded financially before delivering complete kits.
The most notorious default was probably the BD-5 fiasco in the 1970s. The company accepted fully paid orders for hundreds, maybe even thousands, of kits to build the tiny single-seat pusher. To my knowledge nobody received a complete kit for the BD-5. The most fundamental missing component was an engine and drive system.
Other kit makers also failed financially and left builders stranded with incomplete kits, or perhaps no hardware at all. Some of those companies even reorganized and continue in a restructured form, though a bankruptcy almost always leaves order holders from the original company in the lurch.
I hope none of this is news to somebody considering ordering an airplane kit. Even the largest kit maker is still a small company, and small companies have smaller capital cushions than large ones so risk of default is always at least a little greater.
But what really bothers this fellow is the policy of requiring a significant deposit, or even complete payment, with a kit order. He believes those policies should be somehow stopped, and that EAA should take the lead in abolishing the prepayment practices.
First of all, airplane kit manufacturers are small. They don’t have the resources to buy the materials, pay staff to fabricate a kit, and then put that kit in inventory and carry the cost until an order arrives. Unsold finished goods have brought down very large companies–particularly aviation companies–and would be the death knell for a kit maker.
Secondly, an airplane kit is actually a custom made product. Even the most popular kits offer options and having choices are a huge reason somebody builds their own airplane. As with any custom made product, you pay upfront. Go order a new sofa and the maker is going to want all or most of the money before he starts to build and upholster the couch to your personal and exact specifications. Paying upon order is the only way creators of truly custom products can survive financially.
But there are steps any prospective kit builder can take to minimize the chances that his kit investment will be lost.
As they say in the financial business, past performance is no guarantee of future returns, but it is the best guidance available most of the time. If a kit company is established and has delivered a large number of kits that’s a good indication you will get your order filled as promised. Given the instant response time of the web any default or failure to deliver as promised by a kit company will be news on the day it happens. There is no place to hide for a company that is stiffing its customers.
Another layer of protection is to pay by credit card if the kit maker offers that option. Major credits cards will usually protect the cardholder if a merchant fails to deliver as promised.
Of course you may be able to take the good old FOB delivery. Go to the kit maker’s loading dock, hand over cash or an equivalent, and drive away with your kit. The larger, more established kit makers are most likely to offer the FOB option.
If you are a pioneer and want to be one of the first in line for a new design from a newly formed company your risks are highest in every respect. The company’s financial status is unproven and there is no track record of satisfied customers to confirm its performance. You could try to construct an escrow payment but that can be legally complex, will involve lawyers in order to have confidence, and will generate costs that somebody has to cover.
Default by an airplane kit maker is not a trivial issue. But it is not one that has a concrete solution. The largest kit makers will always be small businesses, and a startup company, no matter what the business, will always have considerable risk.
As with any investment the best you can do is research the kit company as thoroughly as possible and decide for yourself the level of risk. After all, when and if you finish a kit airplane a placard will say in large letters for all to see that this airplane is an experiment. The experiment is not only the flying of the finished airplane. The kit maker is a big part of the experiment, along with your building techniques and maintenance after the airplane is flying. Experimental aircraft cannot offer a guarantee of any sort and still exist, so there are no guarantees available for that very first step of making an order.