Aerion's Supersonic Business Jet DEAD (May 2021 Letter)

Dear Fellow Forlorn Speed Fans,

A typical Washington May weekend. Took the kids to soccer and horseback riding. Had the in-laws over for dinner. Read news stories about Aerion’s demise. Swept cicada exoskeletons off the porch. It’s hot, but sunny and beautiful. A nice early summer here in DC.

Wait, what? Aerion’s dead?

For around 18 years, the premier supersonic business jet startup enjoyed a funny position in my coverage universe: Teal Group never gave Aerion’s AS2 a production forecast or its own report, but we never denigrated the idea, either. In fact, even though I always doubted the viability of commercial supersonics, I was always careful to allow for the possibility of an SSBJ. Even before Aerion, we did SSBJ assessments and concluded that there was indeed a reasonable level of market demand. Now that the plug has been pulled, here’s my quick take on what it all means:

We gave this idea a lot of patience, largely for good reasons. The idea of an 18-year-old startup is strange, kind of a boomerang basement child of the industry. My colleagues and I, like a lot of the industry’s pundit corps, simply had a lot of respect for the engineering and the leadership behind the company, and for its honesty: Aerion provided very reasonable guidance. They priced their plane at $120 million (in 2015), rather than giving it a much lower price that depended on absurd production numbers. Their leadership and engineers were seasoned aerospace professionals, not the grifters, Silicon Valley blowhards and bubble-inflators you often find in the air taxi and Urban Air Mobility (UAM) space. Aerion’s forecasts were quite reasonable too. Finally, in many ways, Aerion was always far ahead of its competitors.

Having said that, Aerion might have gone off the rails in recent months. Their goofball near-hypersonic AS3 jetliner announcement, in March, is best remembered perhaps as a plea for help.

Integrated airframe-engine combinations are hard. Aerion was also honest about the need for a bespoke SSBJ engine. But that meant that if a dedicated long-range supersonic engine was built for them, it would also be available to their competitors, enabling them, too. So, Aerion solved this problem by boldly agreeing to fund the development of GE’s Affinity (a reduced bypass CFM56 derivative) in exchange for exclusive rights to that engine. This greatly increased their non-recurring bill, which probably helped kill Aerion.

To the best of my knowledge, this combined engine-airframe development effort has only been done once. By Honda. And it succeeded, because Honda.

Order books often mean exactly nothing. For years, I’ve maintained that order books, even at established airframers, mean nothing in the event of a downturn. This reality is even worse at new-start companies with limited transparency. Aerion touted its $10+ billion backlog, but it was very clear that some purported customers were placing these speculative pseudo-orders as a cost- and risk- free way of getting publicity. For NetJets, for example, placing “rights to purchase” (and I have no idea what “rights to purchase” means; technically, I could have the “rights to purchase” the Côte d’Azur, but it isn’t terribly likely) gave everyone involved a metric crap-ton of press attention. But it is very unlikely that any money changed hands.

I don’t see a Plan D. Boeing’s exit was the third exit, after Airbus and Lockheed Martin. To paraphrase Dr. Johnson, third marriages are the triumph of hope over experience. Boeing is likely pulling back for reasons unrelated to Aerion (serious market and money issues of its own) but still I’m hard pressed to think of yet another airframer with these kinds of deep pockets. Aerion CEO Tom Vice is a respected Northrop Grumman alumnus, but a pure-play defense prime wouldn’t be interested in spending this kind of cash on a civil program.

The closer you get to the finish line, the bigger you are, the harder the collapse. Aerion’s sudden death reminds me of Fairchild Dornier’s demise 19 years ago. At an earlier stage, Fairchild Dornier could survive on its own, because it hadn’t started spending heavily on facilities, research, and a workforce (let alone an engine). But by the time Fairchild’s backers pulled the plug, the cash burn was too enormous to avert disaster.

That’s likely the case here. For years, Aerion was funded by Robert Bass (to his credit, in my view). Yet it is unlikely that he will put them back on life support now that their cash requirements have grown exponentially. In this case, as with Fairchild Dornier, perhaps the phrase should be “big enough for catastrophic failure.”

Aerion may be a category killer…literally. Per above, SSBJs were the only appealing form of civil supersonics, and Aerion was always ahead of the pack. What are the chances that anyone will eagerly acquire Spike, Boom, or any of the others? Will their suppliers sign risk-sharing partnerships? Will Rolls-Royce continue spending on a new engine for Boom? This weekend might be remembered as a kind of Supersonics Big Chill.

We’re going to have to see about this SPAC thing. Special Purpose Acquisition Companies are proliferating, reflecting record levels of cash sloshing around in developed world economies. They’re starting to have a big impact on the UAM space. But SPACs are ultra-hot money seeking fast-track reverse mergers. Is that any way to create a sustainable long-term business that won’t see returns for a decade or longer? If a SPAC rides to Aerion’s rescue, we’ll know that there are big consequences from this funding mechanism for our industry. But if one doesn’t, that will be telling too.

The big business jet legacy guys are all breathing a sigh of relief. The only big risk to the large cabin bizjet primes – Gulfstream, Bombardier, Dassault – has been SSBJs. That risk seems to have ended. Intriguingly, two of them have toyed around with the idea of an SSBJ (Gulfstream in 1989, Dassault around 1997); this development will either confirm that they were right to walk away, or that they can and should do it themselves. Either way, the new-start SSBJ threat is gone.

Yours, ‘Til A SPAC Buys My Website For $2.6 Billion,

Richard Aboulafia