On The Radar
I thought I was a professional curmudgeon and pessimist until I became reacquainted with the highly entertaining and constructively contrarian analysis of aerospace expert Richard Aboulafia. In his July letter, the Teal Group’s v-p of analysis turns his attention to advanced air mobility (AAM) and how, in his view, it could prove to be every bit as big a wash-out as the damp-squib very light jet (VLJ) air taxi revolution of the 2000s.
“With a sense of futility,” Aboulafia offers the AAM trailblazers some unsolicited advice. Let’s just say it probably won’t be well received by the evangelical game-changing cults in Silicon Valley and Bavaria.
Here is a taste of the key points:
- Focus on capital costs. Aboulafia says AAM investors are wrong to focus on the promised low operating costs and ignore the highly problematic capital costs. He argues that overly facile comparisons with the Uber business model fall apart on this point on the basis that, “most cars serving as Ubers have an economic value of, maybe, $10,000. And Uber drivers can own their own cars; AAM pilots won’t.”
- Don’t forget the Unsustainable Life Spirals (ULS) syndrome. This, the Teal Group veteran argues happens when “you try to scale the unscalable.” Aboulafia argues that like the VLJ ghosts (e.g. Eclipse), eVTOL aircraft manufacturers will come to grief when they find that the gap between manufacturing costs and sales prices for vehicles can be ruinous. “Investors, or regulators, will notice the losses resulting from the gap between revenue and costs,” he warns. “AAM touts will simply promise much higher production or utilization rates to make it all right. This never happens, of course, and everyone loses millions or billions, depending on how long they throw piles of cash into the ULS bonfire.”
- Don’t fall for future hype. Aboulafia essentially argues that the AAM innovators have a self-serving agenda to completely discount the role existing vehicles, like light helicopters, could play in more modern “Uber-like” scheduling platforms. “Obliterating the past isn’t easy,” he maintains. “Consider the U.S. Air Force’s impossibly goofy Agility Prime initiative, promising that one day there will be a vehicle with 3-8 passengers, traveling at least 100 miles at speeds greater than 100 mph. Well imagine that. Putting aside the fact that this is not an Air Force mission, the idea that USAF personnel are trying to reinvent a mediocre helicopter is simply bizarre.”
- Engineering matters. Aboulafia sees yet more parallels between eVTOLs and VLJs, which he labels “concept heavy and executive lite,” urging readers to, “scratch into these AAM concepts and you may or may not find much serious engineering.”
Aboulafia closes his reflections with a classic “glass-half-full; glass-half-empty” juxtaposition. On the one hand, he concedes that this time it may be different from the VLJ anti-climax, in part because of the oceans of cash crashing onto the sun-kissed shores of AAM world. VLJ start-ups, he notes, didn’t have the option of turning to special purpose acquisition company sugar daddies. “Some of this SPAC cash is an illusion, but many AAM companies will last longer than those VLJ failures,” he predicted.
On the flip side, Aboulafia’s sermon closes with the thought that, “this time may be worse.” He concedes that back in the day, he felt that some VLJ air taxi models could have been successful, and admits that this faith proved to be unfounded. “AAMs may be able to access much more cash than the VLJ/Air Taxi people,” he concluded. “But pumping cash into a flawed idea still ends badly. And the bigger the bubble, the bigger the collapse.
Have a nice day, prophet of doom.