Elusive Funding Unravels Expansive Ambitions at Aerion

 - May 28, 2021, 9:21 AM

Aerion Corporation shocked the aviation world when on the evening of May 21 the company confirmed it had ceased operations.  

Aerion had appeared to be on the precipice of realizing its 18-year dream of building what many anticipated would be the first purpose-built supersonic business jet, the AS2. The company had decided on a final design that had been proved out in wind tunnel tests, and dozens of patents had been secured.

Aerion had sought to de-risk development with well-established suppliers. Many of the industry’s giants had signed on to the program, including Boeing, GE Aviation, Spirit AeroSystems, Honeywell, and Collins Aerospace.

The company had held a groundbreaking ceremony in December for a $300 million, two-million-sq-ft headquarters complex at Florida’s Orlando Melbourne International Airport (MLB) that was to have housed facilities for research, design, production, and interior completions of the AS2 supersonic and future aircraft.

As the progress was being made, the AS2 had generated enthusiasm regarding the possibilities for the market, with established operators such as Flexjet and NetJets publicly coming on board. In fact, Aerion claimed its order backlog had ballooned to $11.2 billion.

Meanwhile, the company had already teased its next product, a near hypersonic AS3 airliner that was to incorporate technologies developed through a joint research product with NASA.

And importantly, Aerion had helped convince regulators and lawmakers that the time was ripe to consider a fresh approach to certifying and accepting new-generation, more environmentally friendly supersonic aircraft.

Dramatically Ramped-up Spending

But while Aerion appeared to be moving forward with much momentum, it was also on the precipice of a dramatically ramped-up spend rate as it transitioned from being a design firm to an aircraft developer. At that critical juncture, the company's investors decided that was too much for them to bear without significant outside support.

Aerion knew from the beginning that its venture would be expensive, figuring it would take upwards of $5 billion to bring its supersonic business jet to market. Fort Worth financier Robert Bass—the key investor who backed the project, enabling it to launch in 2003—had early on set a limit on what he would spend, according to officials close to the company.

Aerion knew it would have to line up other partners. It was able to attract the likes of Airbus, Lockheed Martin, and ultimately Boeing. Airbus was not the right fit, however, because while interested in the technology, sources say, it was not as interested in building a business jet. The relationship proved fruitful while it lasted but ultimately was not going to get the AS2 to the finish line. Similarly, Lockheed Martin had different priorities.

After two wrong fits, Boeing appeared to be the right match. But the timing proved wrong. Aerion announced its partnership with Boeing in February 2019, just a month before the second of two Boeing 737 Max airliner crashes set off a global grounding of the manufacturer’s cornerstone new program. That grounding lasted more than a year, until December 2020.

In the interim, the pandemic set in, causing airlines to cancel numerous aircraft orders; in 2020 Boeing logged one of its worst years, posting a nearly $12 billion loss. Slogging through a double-whammy, Boeing in late 2020 shuttered its NeXt innovation division, which had focused on emerging technologies.

Even so, Boeing had ostensibly continued its involvement in the Aerion program. It had reportedly already invested several hundred million dollars for a 40 percent stake in the company and was appointed to two of the five positions on the Aerion board. However, its ability to continue at that level of investment was in question.

A Search for Investors

Meanwhile, the search for outside investment continued. Aerion reportedly was in talks earlier this year to go public through a special purpose acquisition company (SPAC), Altitude Acquisition Corp. But as the SPAC market seemed white-hot this year, the Securities and Exchange Commission has given notice that it is stepping up oversight in this arena.

Aerion was said to have been “agonizingly close” to arranging for outside capital that would have provided the necessary push into production, said another source close to the company. However, during a pandemic that had already taken a heavy toll on one of Aerion’s key partners, Boeing, and on major suppliers such as GE Aviation, that outside capital proved elusive.

“Investors are fickle,” said one observer, noting that the eVTOL sector has been attracting heavy investments, particularly from the risk-takers in Silicon Valley, while a company such as Aerion has failed to secure the same.

Joshua Ng, a director with Singapore-based Alton Aviation Consultancy, said that the investment proposition for eVTOL aircraft is significantly different from that for supersonic aircraft. “With eVTOLs there is the aim to democratize air travel, but that is not the case for supersonic business jets, which will only ever be used by the super-wealthy,” he told AIN. “So, the overall addressable market for supersonic aircraft is much smaller. The question is whether existing business aircraft owners will trade up to supersonic. I’m not sure about that, especially given the range limitations.”

With no deal in hand, Aerion executives faced the difficult decision to cease operations and informed suppliers and employees of their fate. The company held a meeting on May 21 that was described as “bleak.”

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

Fallout from the Shutdown

The fallout was swift. Its anchor supplier, GE Aviation, discontinued development work on the twin-shaft, medium-bypass Affinity engine that was to have powered the Mach 1.4 AS2. GE Aviation also confirmed to AIN it was redeploying its Affinity team to other programs.

The engine-maker had announced plans in October 2018 to move forward with the development of the Affinity specifically for the AS2 and later revealed plans for the engine to be part of a family in the 16,000- to 20,000-pound-thrust range.

While widely believed to have borrowed from the CF56 core and to have adopted features from its new Passport business jet engine, the Affinity program had lost its launch platform after a year in which GE Aviation had to lay off at least 13,000 workers.

Other suppliers were forced to quickly move on past the AS2. Spirit AeroSystems, which had been selected to design and supply the aircraft’s forward fuselage, also was notified of Aerion’s decision to cease operations on May 21, a spokeswoman for the Wichita-based supplier told AIN. Employees working on the AS2 program were moved to other roles within the company to support its defense work and growing commercial aircraft production rates, she said. “Spirit is committed to working with other companies in the future on new and innovative technologies in the aviation sector,” she added.

Boeing expressed similar sentiments: “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 groundbreaking technology.”

Meanwhile, at least in the immediate aftermath, Aerion remains a going entity. The word “bankruptcy” has not been mentioned but to all those involved, it is clear that the company is taking steps to shutter.

High-level employees gave notice of their availability for other opportunities, and Aerion chairman, president, and CEO Tom Vice was believed to have been reaching across his network to make sure his staff was taken care of to the extent possible.

The fate of the company's intellectual property and some four dozen patents remains unclear, meanwhile.

A Longtime Dream

Aerion began as a dream of keeping civil supersonic travel alive at a time when the Concorde had retired and with it most hopes for that form of flight. Dr. Richard Tracy, the noted aerodynamicists who worked for companies such as Lockheed and Douglas, formed Asset Group in 1991 to pursue his research in supersonic natural laminar flow. He teamed with Bass in the founding of Aerion in the early 2000s to use that research to form a foundation for a new supersonic aircraft.

Tracy remained with Aerion and Bass throughout its time.

Aerion slowly worked to flesh out the concept and developed a company with seasoned industry executives that brought credibility and interest to the possibilities of supersonic.

These included, over the years, former Learjet president Brian Barents, who retired from Aerion in 2018 as executive chairman, and former Gulfstream president Bryan Moss, who joined the Aerion board in 2018. As Barents retired, Vice, a former Northrop Grumman executive, took the helm of Aerion and brought with him an expansive view of a transportation network.

Under Vice’s stewardship, Aerion moved away from that original natural laminar flow design to a more traditional supersonic design that would be easier to industrialize and bring to market in a timelier fashion.

And a little over a year ago, he laid out a concept in which the AS2 would be just the beginning. Aerion would become a company that facilitated door-to-door travel through partnerships and use of novel air transportation modes such as the emerging eVTOL platforms.

Partnerships and Testing

In addition to building a supplier base, Aerion had also begun to form partnerships to go down that road, including with eSTOL developer Electra, as it had launched its “Aerion Connect ecosystem.”

Aerion also had matured its more conventional approach with wind tunnel tests late last year and appeared to be ahead of a growing pack of would-be supersonic developers, some of which were close on its heels.

Critical to moving ahead with the technology were environmental approvals. Fully cognizant that the environmental community would never permit the return of a noisy Concorde, Aerion took a more practical approach, designing an aircraft that could be efficient at high subsonic speeds over land and supersonic over the ocean. This could serve as a starting point as it worked to convince regulators of a concept of accepting a sonic boom that still occurred but didn’t reach the ground with the same impact as the Concorde. Aerion was targeting just over supersonic in the Mach 1.2 range for that “boomless cruise” mode, while top speed could be Mach 1.4.

With a growing field of supersonic developers, Congress and the international regulatory community have begun to discuss such alternative concepts, and Lockheed Martin is planning noise trials with a demonstrator over land to test a softer thud or supersonic aircraft that do not produce the same noise or emissions profile. When Aerion began, this conversation was a nonstarter at the regulatory level. It was told to demonstrate that there was sufficient interest before regulators would consider evaluating noise requirements.

Beyond tackling the conundrum surrounding noise regulations, Aerion also recognized that clean emissions were critical in gaining acceptance of a supersonic aircraft and promised its model would fly on 100 percent sustainable fuel—a promise that all of the supersonic developers have made.

As this continued, analysts clearly saw a market for supersonic, but not for all of the players.

“The market is clearly there,” said Rolland Vincent, president of Rolland Vincent Associates and JetNet IQ creator/director. “Pricing has been established. The technology does not require any leaps of faith. Capital is cheap and [I thought] generally available.”

JetNet had forecast a 10-year market for 300 supersonic business jets, which incidentally was the forecast production rate Aerion projected for its AS2.

While it is unclear how much of Aerion’s backlog was backed with significant deposits, companies such as Flexjet appeared eager to move into that sector. Flexjet was to have been a launch customer, jumping onto the program as early as 2015 with an announced order for 20. More recently NetJets placed options for 20.

“Flexjet ordered its AS2’s from Aerion Supersonic in 2015 and the company has been a supporter of the program since then," said Kenn Ricci, principal at Flexjet parent Directional Aviation. "We were particularly impressed with the recent design changes and innovations generated by Tom Vice and his current team. While we are disappointed to hear from the company that they are ceasing operations, we understand the vast investment required by such programs to bring them to fruition and the inherent risks involved.”

Interest in Supersonic Remains

Flexjet remains interested in that market segment. Gulfstream, which has long been exploring supersonic possibilities but has never felt the timing was right, has long maintained that speed is among the top attributes that its customer base seeks.

But the next company in line to reach the supersonic market, Boom, initially has set its sights on an airliner. Unlike Aerion, though, Boom has built a demonstrator that it will first fly later this year or early next.

However, analysts such as Richard Aboulafia, v-p of analysis for Teal Group, have questioned the viability of commercial supersonics because of the costs. He noted that business jets and commercial airliners operate in very different economic models and said he believes there is more hope on the business jet side than for a commercial variant. “The prospects for supersonics exist with business. They do not exist with commercial,” he said.

Like Vincent, Aboulafia believes “there was indeed a reasonable level of market demand” and feels Aerion provided reasonable guidance at a $120 million price rather than a lower price that would be dependent on unlikely production numbers. He also recognizes the seasoned aerospace professionals Aerion brought on board.

But he conceded, “I don’t see a Plan D,” for Aerion after Boeing, and unfortunately, “The closer you get to the finish line, the bigger you are, the harder the collapse.” He also wondered whether the more recent suggestion of the AS3 was a “plea for help.”

Despite the market, he questioned whether the financial market may have made its statement on supersonics. “Aerion may be a category killer,” he said, adding that supersonic business jets “were the only appealing form of civil supersonics, and Aerion was always ahead of the pack. What are the chances that anyone will eagerly acquire Spike, Boom, or any of the others?”

Vincent agreed, questioning whether others could have success in that space. Others have questioned whether an established player, such as Gulfstream, would step into that spot.

Meanwhile, as Aerion announced its end of operations, it touted its successes. “The Aerion Corporation has assembled a world-class team of employees and partners, and we are very proud of our collective efforts to realize a shared vision of revolutionizing global mobility with sustainable supersonic flight. Since our company’s formation, our team has created disruptive new innovations plus leading-edge technologies and intellectual property.“

The company further said its aircraft met “all market, technical, regulatory, and sustainability requirements” and that the market for a new supersonic segment was validated by its order base.

—Contributing to this article were Charles Alcock, Jerry Siebenmark, and Chad Trautvetter