In The Works Analysis: Startup OEMs scratch for financing
This year and last were not kind to the startup airplane manufacturers, those OEM wannabes that are–or in some cases were–attempting to grab the brass ring of success by riding on the wings of their first turbine-powered airplanes. It takes hundreds of millions of dollars to run the new-aircraft triathlon of development, certification and production. Financing opportunities for such programs, never a top draw in even the best of economic conditions, have been well-nigh nonexistent for the last 18 months or so.
Private and institutional investors, burned severely in the dot-com nosedive in spring 2000 and scared again by the general recession and unstable stock market after 9/11, have left the venture-capital market in droves. Continuing a two-year trend, third-quarter venture-capital investment in the U.S., according to the National Venture Capital Association, dropped to $4.5 billion, a 26-percent decrease from the second quarter ($6 billion) and a 48-percent decrease compared with the third quarter of last year.
Total venture-capital investment last year was $41.8 billion, down from $107.3 billion in 2000 (admittedly a banner year). In the first three quarters of this year venture-capital investment has totaled only $16.9 billion. Totals for 1998 and 1999 were $21.6 billion and $55.5 billion respectively.
Three More on the Shelf
Since AIN’s previous analysis of the OEM startup companies (October 2001, page 57), two business aircraft programs have been canceled and their companies either dissolved or completely transformed, and a third we have relegated to “on the shelf” status for long-time lack of progress and its increasingly dubious market niche.
The first program to succumb to money problems since our last analysis was the Phoenix Fanjet, a project of Alberta Aerospace of Canada. Primary investor Don Jewitt shut down the company and the project on November 16 last year after “a couple of million spent spinning my wheels,” as he put it. Despite efforts by other former board members to rejuvenate the single-turbine two-seater, the Phoenix has yet to rise from its ashes.
AASI’s single-turboprop-pusher Jetcruzer 500 met a similar fate in May this year. In January, the AASI board of directors replaced Dr. Carl Chen, chairman, president and CEO for 12 years, with retired industry executive Roy Norris, who had previously held posts with Raytheon Aircraft, Cessna and Gulfstream. After orchestrating the acquisition of bankrupt Mooney Aircraft in April and completing a technical review of the Jetcruzer, the new management of the new Mooney Aerospace Group decided to suspend the problem-plagued Jetcruzer 500 indefinitely. Norris subsequently left MAG and Chen resurfaced in September as president and CEO of Sino Swearingen, developer of the SJ30-2, another project that is taking a long time to come to fruition. Meanwhile, MAG stock is not doing well, trading last month below five cents a share after reaching a high of 35 cents per share shortly before the merger of AASI and Mooney was completed.
A side note to the MAG story is the Century Jet, which AIN listed as on the shelf in last year’s analysis. Norris and former Century Aerospace owner Bill Northrup both said earlier this year that they were negotiating the possibility of adding the CA-100 very light twinjet to the MAG line-up of Mooney piston singles, but so far there has been no reported progress. Northrup still maintains he’ll build his business jet, but we won’t consider it off the shelf until we learn something more definite.
The twin-engine/single-prop Soloy Pathfinder is now on the shelf for three reasons. First, there has been no progress in the program for more than two years; second, with the change in FARs permitting commercial single-engine IFR operation in the U.S., the market for the Pathfinder is diminished; and third, we’ve changed the criteria for this analysis to eliminate engine-upgrade programs for previously manufactured airplanes, unless the startup OEM plans to build new (albeit already certified) airframes and not just modify old ones with a new engine model.
Interestingly, the aircraft programs added to the analysis this year are all attempting to run the new aircraft triathlon in innovative ways.
At first glance, the Adam 700, as a turbofan derivative of the A500 piston twin, would appear to contradict the engine-upgrade exclusion of this analysis. However, the A500 itself is a new airplane, not yet certified nor ever before in production. The Colorado company is therefore running concurrent development programs of both models, and claims to have enough funds to do it. Sales of the $935,000 piston twin, with certification expected in the second quarter of next year, will add revenue to help the company complete the certification of the $1.995 million A700, which is planned for late 2004.
Aviation Technology, also of Colorado, is seeking to excite both civil and military markets with its single-turbofan Javelin, a tandem two-seater. The company has signed a memorandum of understanding with Luscombe Aircraft for production of the fighter-like airplane, but has not revealed financing beyond what it needs for “the current engineering work.” Certification estimate is sometime in 2005.
MaverickJets in Texas hopes to build funds by selling its Maverick twinjet kitplane (certified under FAR 21.191), while it develops another twinjet, which it plans to certify under Part 23 normal category and put into factory production. Details about this airplane, even its designation, are unavailable. “We don’t need investors so we have no need to release pre-sales or marketing information,” president and CEO Jim McCotter told AIN.
Mustang Makes It Tougher
Other very light jets, all analyzed last year, seem to be on shakier ground this year, particularly after Cessna announced at the NBAA Convention in September that it is developing the six-seat Mustang twinjet. Putting an optimistic spin on the situation, some startup OEMs have expressed the view that the $2.295 million Mustang, rather than representing the mother of all competition, “confirms and validates” the very light jet market for them.
Three jet programs appear to be particularly tenuous. VisionAire in Missouri, developer of the single-jet Vantage, has been operating in bankruptcy since August and is trying to find funding from European investors; Archedyne (NauticAir 400/450) of Florida is still embroiled in a lawsuit against Lake Aircraft; and England’s Chichester-Miles Consultants has yet to raise funds for its Leopard Six–perhaps from the same investors considering the Vantage.
In Idaho, Aerostar Aircraft, which owner Jim Christy says needs only $50 million to certify FJ33 turbofans on the former Aerostar 600 piston twin (for which it holds the type certificate) and thereby create the FJ-100 twinjet, can’t raise even this relatively modest amount. Potential investors, he told AIN, balk at backing the FJ-100, with its $2 million projected price, because of perceived potential competition from the $837,500 Eclipse and $919,000 Safire S-26. “They can’t see a market for a $2 million jet or understand why we need only $50 million, even when I explain that we already have a certified airframe and all the tooling and manuals needed for production,” he said.
Florida’s Safire Aircraft, after deciding the under-development Agilis engine would not meet its requirements, reported last month that it has secured enough funding to take its S-26 through first flight, now scheduled for February 2004 (previously planned in 2003). And Eclipse in New Mexico, although it managed to fly its Eclipse 500 in August (only one month behind the revised schedule announced in July last year, which had added one month to the first-flight date and six months to certification), had yet to make a second flight as of the middle of last month because of problems with the Williams EJ22 engines. The company reports it has funds to take the twinjet to certification, but the engine difficulties will likely add both cost and time to the program.
Both companies claim order numbers that make investors swoon (Safire 900, and Eclipse 1,357 with options for 715), but are tight-lipped about how firm these numbers really are. Industry observers, skeptics and competitors (who obviously have their own agendas) express doubts that either company will ultimately sell many–or even any–of their jets for their current less-than-a-million-dollar sticker prices.
On the turboprop side, Britain’s Farnborough Aircraft.com has restructured under a new name, Farnborough Aircraft, and with its primary investor as its new CEO, but the company’s plans for raising additional funds have yet to gel. In the U.S., Explorer Aircraft has erected part of its planned assembly facility in Jasper, Texas, but it too needs money. As a consequence, development of the airplane has taken a backseat to fundraising. Construction of a new facility, as companies like AASI, Israviation, VisionAire and others have demonstrated in the past, is no guarantee of the success of a budding aircraft program.
Also on tenuous ground is American Utilicraft, which went public in May last year starting at $6 per share and was trading at about 80 cents per share last month, down from a 2002 high of about $2.10 in March. Despite a couple of announced memorandums of understanding regarding sales of its twin-turboprop FF-1080-200 Freight Feeder and other deals, the Georgia company is still struggling to raise funds to take its project beyond the mockup stage.
Certification Delayed, but Likely
Moving slowly–if not always steadily–toward certification are the Czech Republic’s Ibis Aerospace Ae270 turboprop single and Sino Swearingen SJ30-2 light twinjet. As reported in AIN last month, Ibis shifted gears this year and decided to certify its more powerful Ae270HP model first, and perhaps in lieu of the Ae270P model, a move that delays certification of the type by a few months, to September next year. Sino Swearingen in Texas, according to new CEO Chen, has “new funding commitments in place” from its existing stockholders. Early this year Sino Swearingen announced planned certification of the SJ30-2 had slid to the right by 12 months, to the fourth quarter of next year. Both of these airplanes, AIN believes, will likely achieve certification, but their long-term success will no doubt have as much to do with market conditions and competition as it does with the ultimate quality of their products.