In The Works Analysis: January 2006

 - September 26, 2006, 2:39 PM

While business aircraft are one of the most important tools of investment bankers and venture capitalists, investing in new aircraft designs doesn’t appear to be on their radar this year. According to a report issued last month by the National Venture Capital Association (NVCA), investors plan to increase their funding pools by about 10 percent over last year. However, the report said most investment money will likely go to companies involved in information technology and life sciences; wireless telecom and computing; and media and Internet–all areas where high returns are expected.

“The venture capital industry has reached an echelon of maturity that brings with it a universal sense of prudence and discipline that will begin to affect decision making in 2006,” noted NVCA president Mark Heesen. “The coming year will be characterized by less risk, less hype and more intricacies within investment sectors.” This is not spectacular news for start-up business aircraft manufacturers–typically deemed high-risk–seeking funding this year.

Fortunately, the economy continues to build strength and the business aviation industry is booming, with no apparent end in sight. In fact, forecasts recently released by Honeywell and Rolls-Royce predict the delivery of nearly 10,000 business aircraft over the next 10 years–not including the very light jets (VLJs), which could bump the total to more than 15,000. This could provide enough incentive for some to invest in this potentially lucrative but high-risk segment–especially given the hype surrounding the VLJs–though any investment would need to be long-term.

Other emerging funding avenues for start-up manufacturers include backing by communities seeking manufacturing jobs and joint ventures with foreign companies that want a slice of the business aviation pie. This was borne out by Excel-Jet’s announcement last month that Guthrie, Okla., is providing backing for the company’s Sport-Jet in exchange for basing manufacturing in the town, and Epic Aircraft parent Aircraft Investment Resources’ partnering last summer with Tbilisi Aircraft to coproduce the Tam-Air Epic Jet.

Peering into the Crystal Ball

Once a year, the editors of AIN try to predict the outcome of the current programs for entry-level business jets and turboprop business/utility airplanes. This year we’ve also added the two competing supersonic business jet (SSBJ) designs. We look at the progress of the program versus the promises made, the aircraft design and projected performance and the financial status of the company before we make an unbiased “guesstimate.” Obviously, we allow some leeway for technical or financial troubles, as well as other outside forces that could affect a program.

It should be noted that these predictions equate to taking a snapshot of the current situation, since a change in program funding or progress would certainly alter the outlook. Therefore, we strongly discourage potential investors from using this best-guess forecast to decide whether to invest in any of the companies listed.

New to the listing this year are nine aircraft, mirroring the health of the industry. The additions include the Aerion SSBJ; Embraer Phenom 100 and 300; Evektor EV-55; Grob G180 SPn Utility Jet; National Aerospace Labs Saras; Quest Kodiak; Spectrum 33; and the Supersonic Aerospace International Quiet Small Supersonic Transport. We’re fairly bullish on the Embraer, Grob, Quest and Spectrum aircraft; neutral on the two SSBJs and the NAL design; and slightly negative on the Evektor EV-55, given the history of business aircraft unsuccessfully developed by other Czech Republic companies.

Two aircraft have changed their designations from last year. The former Eviation Vantage, derived from the VisionAire VA-10 Vantage, is now the EV-20 Vantage twinjet. Meanwhile, Farnborough Aircraft formed a manufacturing partnership with United Arab Emirates-based Gamco to develop the Gulf Aircraft Partnership Kestrel JP100 (née Farnborough F1) turboprop single. We maintain our neutral stance on the EV-20, and we raised the rating on the Kestrel, though we’re still wary of the turboprop’s long-term prospects.

The Explorer 500T/750T, Gippsland Turbine Airvan and Safire Jet have been removed from AIN’s “In The Works” roster and added to the “On The Shelf” list. Putting an aircraft “on the shelf” means only that the company is not currently working on the design. If the company resumes work on the design, the aircraft will return to the “In The Works” line-up.

Several of the ratings have changed since last year, with slightly more than half trending downward (rating upgrades or downgrades are depicted on the chart with an up or down arrow, respectively). The most notable changes are for the Avocet ProJet and Ibis Ae270, both of which were downgraded to a less-than-25-percent chance of success.

According to Israel Aircraft Industries (IAI), which has partnered with Avocet Aircraft on the ProJet, the twinjet program “is in stagnation.” Further, a third-party OEM has yet to sign on to provide sales and product support, which is stalling the program go-ahead. We did not downgrade the ProJet last year, but given the Israeli company’s recent comments (as well as its partnering with Aviation Technology on the Javelin), we now believe the program has less than a 25-percent chance of even making it to first flight.

There’s good news and really bad news for the Ae270 Spirit. First the good: the aircraft has recieved EASA approval. Now for the bad: according to Ibis, the turboprop single won’t be produced because it failed to meet its performance guarantees. Ibis plans to develop a follow-on Ae270B with improved performance, but it has yet to secure funding to do so. Therefore, there’s virtually no chance of the Ae270 being produced in its current form, and the prospects of a reworked Ae270B appear dim as well.

The Grob G140TP and Vulcanair VF600W were downgraded because other projects at their respective companies are taking priority, causing work on the G140TP and VF600W to be put on hold. Both companies claim they will eventually again direct their resources toward these wayward models, but we’re not yet fully convinced.

On the positive side, we’re growing more confident about the success of Aviation Technology Group’s Javelin, but not for the Javelin Executive that is being marketed as a business jet. Instead, ATG’s partnership with IAI last year to market the aircraft as a military trainer prompted us to raise its rating to a better than 50-percent chance.

We’re also warming up to the Adam A700 due to its order book for more than 250 aircraft and rollout of a production-conforming copy of the twinjet, which was expected to fly by press time. Given this information, we have upgraded the A700’s long-term prospects to a better than 50-percent chance.

Also upgraded is the Epic LT turboprop single, which remains on schedule for certification next year. As such, we’ve given the aircraft a better-than-50-percent chance of certification and production. However, we’re still not sure what to make of the LT’s long-term prospects given the yet-unknown VLJ factor. Likewise, we’re unsure of the Extra EA-500’s (also a turboprop single) long-term future for the same reason.

It should be no surprise that the only aircraft on the chart we judge to have a 75-percent chance or better across the board are the Cessna Citation Mustang and Eclipse 500 very light jets. Both companies get high marks for keeping their respective VLJ programs on track. Cessna has consistently met the Mustang’s milestones earlier than announced, which bodes well for fall approval by the FAA. And although Eclipse suffered a setback in September when one of its test aircraft accidentally landed gear up, it quickly recovered and appears fairly certain to make its March certification target, or close to it.