:: December 2002 Newsletter ::
As an aviation enthusiast, it’s hard to not be amused by the plot of Die Hard II. Dulles Airport has been taken over by an all-star team of international terrorists. Unless our demands are met, we will force your helpless jetliners to circle overhead until they crash, because lord knows anyone who relies on that guy who plays Sipowicz on NYPD Blue for security is way too stupid to have heard of nearby alternate airports such as BWI, National, or Richmond.
Okay, maybe movies aren’t the best place to learn about aviation, and Die Hard II is no exception. But for my money the dopiest movie lesson about aviation comes from Tucker: The Man And His Dream, a 1988 Coppola film that is not about aviation at all. In this entertaining movie, Tucker triumphs against the odds and succeeds with his path-breaking eponymous automobile. In the end a smiling Tucker watches as his dream cars roll off the production line, the future looking bright. Trouble is, in real life Tucker was crushed into dust, leaving the world safe for Corvairs, Pacers, and omnipotent Japanese imports.
In the aviation industry, real world endings aren’t like movie endings either. And the current “difficulties” at private jet firm Eclipse provide an echo of that Tucker experience. Like Tucker’s Tuckermobile, Vern Raburn’s Eclipse is a revolutionary product (I believe the term used is “disruptive technology,” which sounds like the noisemaker a friend of mine smuggled into our fifth grade classroom). But a few weeks back, Eclipse revealed some rather bad news: Williams’ EJ22 engine has been dropped as the powerplant. This “will be a field day for our critics,” Raburn accurately commented (“but knowing it is half the battle!” Fred Flintstone might respond). He also pointed out that Eclipse was in negotiations with several other large engine suppliers for alternative engines.
Trouble is, these negotiations might not go anywhere. While I hear conflicting stories about why Williams lost the contract, I have no doubt that if the market was there (i.e., if the money was there) Williams would be able to make the right engine happen. And market uncertainties are likely to deter the other engine guys from investing the non-recurring cash associated with a new product development. This is particularly true because no one else was as far along in this thrust class as Williams, so any new product from someone else would cost even more.
What the hell happened? Why has this grand new microjet concept stalled while the business jet market boomed? This is the part of the letter where I write boring social commentary, so feel free to read something else. Basically, the business jet market grew by 350% in the second half of the ‘90s because the high end of the economy grew at a disproportionately fast pace. Corporate profits did great. The extreme top end of the population enjoyed similarly explosive income growth, and the availability of fractional ownership made it easier for them to move from scheduled to private air service. While economic growth also helped other segments of the population, the boom was weighted towards the top. And the gap between the rich and everybody else grew, corresponding to what economists call the “hourglass” model of the economy.
So the top 1% did great, but the middle and upper middle classes stayed just as cost-sensitive as ever. And unless you were top management, your travel budget remained as constricted as ever. I should know—this upper middle segment of society is basically me and most of the people I deal with. Trust me. My socioeconomic peer group isn’t moving away from scheduled air service to private aviation—even Eclipse’s modest-sounding air taxi service—anytime soon.
Without this revolutionary air taxi service (like the defunct one using Eclipses proposed by the Nimbus Group), Eclipse depends on owner-operators. And very few of those can find the cash for a jet. The $800,000-$2 million segment is historically a no-man’s land—people either need a real business jet (starting at around $4 million) or they are hobbyists, who own part shares of $180,000 Skyhawks. The stuff in the middle is quite modest—every year sees deliveries of a few hundred PC-12s, TBM 700s, Caravans, and whatever else, and many go to cargo and airline markets where the Eclipse would not be wanted.
Meanwhile, bear in mind my favorite scary aviation industry fact: since 1960, only one all-new company, Embraer, has been created and succeeded in delivering more than one jet per month. So what can Eclipse do? They can do either of two things. One, they can look for a new air taxi service partner (like Nimbus). This is a difficult prospect, considering that any such service would need to start with hundreds of planes and scores of bases to avoid flying money-losing deadhead flights. The alternative option is for Eclipse to re-gear their cost assumptions to cater to the more modest owner-operator market. But if they do that, they might find that their advertised price (currently $840,000, but this assumes production of over 1,000 planes per year) is unachievable at typical business aircraft production rates (40-100 per year).
It is impossible to assign odds to Eclipse’s chances. Emily Dickinson was wrong. Hope is not “the thing with feathers.” Hope, as it turns out, is the thing with 900 lbst turbofan engines. And for now, it remains just hope.
Updates in this supplement: AH-64, F/A-18, F-14, Falcon Series, Tucano, E-3 AWACS, A.109, Su-27/30, and a few others. In January, we’ll update the World Aircraft Overview, both the Canadian and Brazilian RJs, and a few others. Please note that I’ll be on vacation from January 1-20. If you need anything logistical during that time, get in touch with Tim Storey at email@example.com. If you need any industry stuff, try Phil Finnegan at firstname.lastname@example.org. Meantime, have an excellent holiday and a great New Year.
Yours, ‘Til Hollywood Reality Prevails,
(703) 385-1992 ext. 103 (office)
© Richard Aboulafia 1997-2006, All rights reserved.