Alasdair Whyte

Exclusive: Why Aerion shut down

Aerion Supersonic was always a bold venture. Building, certificating, selling and supporting a $120m supersonic aircraft would be a huge challenge for an established aircraft manufacturer. It was an even bigger one for a start-up. But in the end it was not stopped by technological or regulatory challenges. It ran out of money.

“In the current financial environment, it has proven hugely challenging to close on the scheduled and necessary large new capital requirements to finalise the transition of the AS2 into production,” said Aerion in a statement. “Given these conditions the Aerion Corporation is now taking the appropriate steps in consideration of this ongoing financial environment.”

On the outside – and for many of the almost 200 employees – things appeared to be going well. In 2021 the manufacturer had picked a builder for its new 110 acre site in Melbourne, Florida;  announced more suppliers; hired Sean McGeough from Wheels Up as vice president of sales; and then announced an agreement with NetJets. The NetJets news was also encouraging other customers to sign, bringing Aerion’s total backlog to $11.2bn.

It even announced a rough plan for the AS3 a Mach 4 commercial supersonic aircraft for airlines. Aerion promised to reveal more details of the AS3 during the year.

But time was running out for its investors: Robert Bass, a billionaire financier, who had launched and backed the company in 2003; and Boeing which had taken 33% of the company in 2019. There were also a lot of payments coming up. As well as the $110m headquarters it also had commitments to fund GE’s development of its Affinity engine. Aerion was prepared to invest in the supersonic engine in return for exclusivity. Aerion urgently needed more capital.

At the start of last week, the manufacturer though it had solved this. It was still optimistic about reaching a deal with Saudi Arabia’s $400bn Public Investment Fund (PIF). PIF, one of the world’s largest sovereign wealth funds, was prepared to invest $500m according to people close to the transaction. (PIF has not yet replied to questions.) But it was not looking to invest alone. PIF wanted Boeing, in particular, to commit more cash to the project as well.

This was difficult for Boeing. Hit hard by Covid and the MAX groundings, it made a $8.3bn loss in 2020. Dave Calhoun, Boeing’s CEO, is focused on cutting costs and not looking for long-term speculative projects. Calhoun was also not emotionally connected with Aerion. The decision to invest in February 2019 had been made by Dennis Muilenburg who stepped down in December 2019 and was committed to supersonic flight. The AS4 commercial airliner was not expected to fly for at least 10 years.

“Boeing made a strategic investment in Aerion Partners, focused on research and development of the next generation of supersonic flight,” said a Boeing spokesman. “While we are disappointed Aerion could not secure additional funding to continue their work, we remain committed to working with innovative and creative partners who, like Aerion, continue to push limits on ground-breaking technology.”

Even the billionaire Bass could not afford to go alone – even if he still had the appetite after 18 years. He was in his mid-fifties when he first invested and is now in his early seventies. Some of his family were known to be less convinced by Aerion which may have influenced him.

Last year and up to four months ago – Aerion would have looked like the perfect target for a Special Purpose Acquisition Company (SPAC).  It did hire an investment bank to shop it around with several expressing interest. However, the fact that Aerion could need $5bn to reach launch put off most buyers. Although its backlog was impressive it was not also not fixed. It included speculative buyers and deposits were fully returnable until production began.

It is too late for a SPAC now. The market has also cooled considerably in the last few months and there has been a switch of focus from companies that are not making profits (or generating revenue) to real businesses. This is partly because there is a shortage of private equity firms looking to support SPAC mergers with private investment in public equity deals.

Wheels Up and Blade look to have timed the market perfectly.

Investment bankers say that Virgin Galactic, a space tourism business, which went public through a SPAC in 2019 (with Boeing’s venture capital company an investor) would not be successful now. Virgin Galactic was also further along the path to certification than Aerion. Its rocket plane flew for the third time this week.

With the commercial aerospace market still suffering, there were no obvious companies to replace Boeing. Boeing was also already Aerion’s third partner after Airbus’ Defence and Space Group in 2014, Lockheed Martin in 2017.

So sadly, the decision was taken to stop. It looks unlikely to be bought by anyone looking to restart the project. GE has stopped its work on the engine and Aerion’s senior management team have spent the last week calling manufacturers recommending that former employees.

Interest in this talent has been strong. Manufacturers may also want to buy Aerion’s former intellectual property (the company has more than 40 patents). This is not the end of supersonic commercial aviation, but Aerion’s demise has removed the pressure on other manufacturers to focus on speed for now.

Aerion did a lot of things right. The company had strong management, fantastic engineers and an exciting concept. Since launch it always had a very strong sales team and signed customers. Its forecasts were reasonable. Aerion had agreements with Tier 1 suppliers and recognised the importance of having an environmental strategy – particularly focusing on sustainable aviation fuel. But in the end, like many other innovative aerospace companies, it ran out of time. If Covid-19 had not hit airlines so hard, the headquarters would be halfway built.

There is an old joke, that the accompanying paperwork has to equal the weight of an actual aircraft before it can be certificated. You typically must burn the same weight of money to get there as well.

Aerion did many things right. But in the end, like many innovative aerospace companies, it ran out of time.

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