A Mountain Too High

The axe fell twice this year at Colorado's Centennial airport, rewriting the future for two innovative start-up jet makers based there: Adam Aircraft, manufacturer of the all-composite twin-boom A700 very light jet and A500 push-pull piston twin , and Aviation Technology Group (ATG), builder of the fighter-like Javelin two-seat personal jet.

A post-mortem on the projects reveals more similarities than differences, highlighting the risks involved in attempting to build a highly reproducible Federal Aviation Administration-certificated product in a shaky economic climate, despite having a prototype in the air. The new-jet quandary has played out numerous times in the recent past, mothballing the jet offerings of companies such as Avocet, Century, Safire, Sino Swearingen and VisionAire.

"It's quite one matter to build a prototype and another to build a conforming certificated aircraft and to have all the tools and requirements line up for that," says George Bye, founder and former president of ATG. "Perhaps the biggest milestone that sets a challenge for many is the production certificate - that's the last big barrier."

Bye left ATG in autumn 2007 shortly before the company's December suspension of Javelin work - almost seven years after launching the jet - after failing to come up with adequate funding. ATG had been attempting to raise more than $200 million for the certification effort with the help of Citigroup. The company reported 157 orders.

Late First Flight

First flight took place in late 2005, three years later than originally planned, and efforts were under way to build and certificate a conforming version of the $3 million twinjet with production tooling sometime in 2009, six years beyond original estimates.

© Mark Wagner-Aviation Images/Tim Bicheno-Brown

Currently the company is said to be negotiating a possible sale or majority buy-out with unnamed buyers. Israel Aerospace Industries had been co-developing several versions of the aircraft with ATG since it partnered on the project in 2004. Included were the $3 million Mk10 VLJ that was to be built in the USA by ATG. A similar version with ejection seats and military avionics, the $6 million Mk20, was to be built in Israel, in part to replace ageing Israeli air force training aircraft.

"Clearly, we all have a fascination, a love of aviation," Bye says. "It's a spectacular grand adventure it's a leading technology driver, perhaps unlike any other industry." Bye, a civil engineer in college and Northrop T-38 Talon pilot in the military, counts himself among the aviation enthusiasts and his affection for the T-38 is apparent in the design of the Javelin. "Aviation's in my blood," he says.

However, inherent with aviation's opportunities are "unbelievable challenges" for a new business. "Many aviation enthusiasts don't understand that it's not just an airplane, but a process that is certified all the tools are certified and every supplier is certified," Bye says.

Shallow Pockets

Difficulties are compounded for companies with shallow pockets. "The FAA certification process and the time to market to get through that process can give potential investors pause," he says. "Large-industry people have deep pockets to draw from. Lighter, younger companies that don't have that depth have to depend on Wall Street, which may or may not be there for you."

Bye says that baseline engineering research and development, including windtunnel tests and computational fluid dynamic analyses, represented about half the cost of building the new aircraft.

The remainder was to be spent putting in place production tooling and the ramping up production. "The other half is, literally, a huge spike, a mountain of production tooling and ramp-up costs," he says. "That is the last major hurdle. If market conditions aren't just right, it can be a mountain you can't get over."

For the cash-strapped Adam Aircraft, which had 800 employees when it filed for liquidation in February, time ran out before a "Wall Street" could come to the rescue.

© Adam Aircraft

"The direction of our company was proper, we were moving aggressively toward the certification process [for the A700], in conjunction with getting the production line squared away for the A500," says Jan D'Angelo, former director of international and fleet sales for Adam Aircraft. "We ran out of time. When we shut down, we had a number of leads on new funding, but it was going to take more time than we had anticipated." D'Angelo spent 22 years in the corporate insurance industry before coming to Adam six years ago. He has been a private pilot flying single-engined aircraft since 1974.

Deliveries Slowed

The company had intended to earn revenue during the A700 project by producing its A500, for which it had already obtained the type certificate and production certificate. Extensive labour hours to build the A500 and other issues, however, had caused the company to launch a redesign of the production process, slowing A500 deliveries to a crawl in the midst of costly preparation work for the A700 certification effort.

Adam in January had been seeking $100 million in new financing, adding to about $200 million in funds it had secured earlier, in part to pay for A500 production enhancements. "We have to get production right," said then company president Duncan Koerbel. "What we won't do is build 100 aircraft and then have to rework them."

In the end, Adam delivered 12 A500s, the last of which went to its new owner just 30 days before the company shut its doors. The company had three A700s flying, accumulating more than 400h in flight tests, says D'Angelo. In April a bankruptcy court approved the sale of Adam's assets to AAI Acquisition, a corporation that includes former Adam executives and a Russian private equity firm, for $10 million. D'Angelo, who is now working for AAI Acquisition, says the company will reveal more about the new company and its plans in late May.

Some are sceptical whether the infusion of cash from Russian investors will make any difference. "They'll find out what a lot of other people already found out," Teal Group analyst Richard Aboulafia tells Flight International. "For $100 million you can dig yourself a hole. For $300 million, you can dig yourself a deeper hole."

Tip Of The Iceberg

The issue with the A700, in Aboulafia's opinion, was that "a lot of people weren't convinced of the design". The chances of success are slim for a newcomer even when the design is well-liked, as proven by the demise of the Dornier 728Jet in 2002, says Aboulafia. "Investors backed out when they saw, after going through the better part of $1 billion, that it was just the tip of the iceberg." He notes that only two new jet manufacturers have emerged since 1960 - Embraer in 1969 and Eclipse Aviation, which earned its production certificate last April - and the top nine jet manufacturers have an 85% market share.

As for ATG, Aboulafia says the company had an "overambitious" business case. "It was a lot more diverse [than Adam's], yet the odds were stacked against them because they were newcomers in search of cash, and very thinly capitalised."

Proof that struggles do not end with the granting of a production certificate is plainly evident with the continued cash machinations at Eclipse. To keep its operation going, the company in December offered backlogged order holders substantial price reductions in return for more deposit money up front, and it accepted more than $100 million from the European Technology and Investment Research Centre (Etirc).

The cash infusion made Etirc the largest single shareholder in the company and paved the way for parallel production of the aircraft in Albuquerque and at a new plant in Russia by 2009. Although Eclipse 500s were being delivered, the build rate, though substantial at nearly one aircraft a day, was less than half of what was needed for profitability.

"Our biggest challenge and issue is getting the parts from all the vendors at the same time," says Vern Raburn, president of Eclipse, of his outsourced supply chain.

Raburn says "getting that rhythm and balance of parts coming in is phenomenally difficult," largely because the aviation industry historically has not been a "push" industry. "We were trying to be like the automobile industry, the computer business, the appliance business, any business in the world today, except for aviation. The supplier base simply doesn't get it."

Pratt & Whitney Canada, maker of the VLJ's PW610F turbofan engines, has "gotten it better than anyone else", says Raburn. "We wanted engines on a 'just-in-time' basis. They did that for our engine, and are now pushing the process into other projects."

Raburn says the "vast majority" of the company's vendors are "doing great now".

The company in late January settled a lawsuit with Hampson Aerospace, maker of the tail assemblies for the aircraft. In November, Hampson had filed a legal complaint alleging Eclipse had "overreached" its production estimates and had failed to make certain payments called for in the contract between the two. Eclipse had countered that the contract itself was non-binding because of quality issues with Hampson's empennage assemblies. Terms of the settlement were not disclosed.

Supply Chain Balance

"We think we solved most of the problems once we get supply chain balance," says Raburn, adding that the company will "hit its stride" next year in parallel with the new plant opening in Russia. Raburn says Eclipse built 98 aircraft in 2007 and by late April was past serial number 175. As for the future, Raburn says: "We can easily get to 100 Eclipse 500s a month on a worldwide basis."

Aboulafia, a long-time critic of Eclipse VLJ market projections argues that Eclipse needs three ingredients to survive: new management, a new business strategy and a "realistic" price. The aircraft is priced at about $1.5 million, beating the nearest competitors - Cessna with the Mustang and Embraer with the Phenom 100 - by at least $1 million.

"If they really have a backlog of 2,000 planes at the old prices and can't convert them [to a higher price], they're going to burn cash at an even faster rate," cautions Aboulafia, adding that anyone buying the company would face an "enormous" investment. "The problem is, if you raise the price substantially, buyers are going to look at the tremendous value of the Mustang or Phenom. Why not pay a little more and get great product support and a great jet?"

Aboulafia's sentiment again highlights the difficulties any company will face in tyring to break in to the big league of Jet.

Why do some companies continue to tempt fate for such a miniscule chance at glory?

"You come back to part A," says ATG founder bye, "your love for aviation."

Source: Flight International