Last year was not friendly to startup companies dreaming of producing airplanes, but there are glimmerings of hope for some. Financial issues, however, continue to dominate the agendas of companies like AASI, American Utilicraft, Phoenix Fanjet (Alberta Aerospace), VisionAire and others, while development of their respective aircraft takes a backseat.
Wall Street views aviation in two primary colors–airlines and military–and it has never shown much interest in funding unproven companies with plans to build their first aircraft. “The risks are binary,” one investment analyst, who wished to remain anonymous, told AIN. “If the proposed airplane can’t be certified, there is no return for the investor. If a new engine has to be certified too, the risks are even higher.” Rendering such investments even less attractive are the relatively low probable returns and the long lead time to reach those returns. Said the analyst, “It is simply too hard for private equity guys to make money compared to other types of investments.”
But even with these factors weighing against airplane startups, there have always been the “dreamers” and the investors “with an edge” who were willing to risk their money in aviation, the analyst said. The dreamers buy into the undeniable mystique of aviation, while those with an edge use their investment in the project as leverage to gain something else, such as a tax benefit, military contract or foreign offset deal.
The dot-com boom and subsequent bust dealt airplane startups a double whammy. During the boom, investors were drawn to attractive but overvalued tech companies like flies to honey, which “sucked away money from good, solid opportunities.” After the bust, the money was gone and “the venture capital guys crawled under their desks to lick their wounds.” September 11 not only made things worse, but also changed the rules.
Private equity firms, now much more cautious with their money, are looking at companies that actually plan to produce real products. On the surface this is good news for aviation startups. But September 11 has cast a pall over the aviation industry, particularly the airlines and “the general aviation cowboys,” as the analyst put it, particularly the piston-single market.
On the other hand, business airplanes, including fractional programs and perhaps even the personal four-seat jets, have become more interesting to some investors, he suggested. Nevertheless, he said, the news is “95-percent negative with only a 5-percent ray of hope.”