- Aerospace Mega Merger
Recently, industrial conglomerate United Technologies Corporation (UTC) announced its acquisition of avionics supplier Rockwell Collins in a deal worth $30 billion. The deal merges the engine manufacturing capabilities of UTC’s Pratt and Whitney brand with the avionics portfolio of Rockwell. As suppliers to both Airbus and Boeing, Rockwell and UTC play an integral role in the production of the majority of the world’s commercial aircraft.
Unsurprisingly, Boeing and Airbus have reacted negatively to the deal (Boeing said they will lobby regulators to axe the deal). There are two main reasons for the increasing hostility between aircraft manufacturers and suppliers:
- High costs:
There is a significant difference between the margins of large aircraft manufacturers and their suppliers. Last year, UTC’s margin was 17% compared to Boeing’s 9%. Through the entire aircraft production life-cycle Boeing assumes much more risk than UTC and, it feels, doesn’t receive its rightful compensation compared to the suppliers. Boeing is closing the gap by putting pressure on suppliers to cut costs. Additionally, Boeing is bringing the production of avionics and other aircraft components back in-house. One of the main reasons for the financial success of the suppliers is that they control after-market services for the various aircraft parts and systems they manufacture. With the establishment of Boeing Global Services in 2016, Boeing will go toe-to-toe with its suppliers for a piece of the services pie.
- Supplier performance:
Behind the plethora of delays to the 787, A320neo, and A350 programs is one commonality: supply-chain failure. From seat-maker Zodiac’s A350 failure to the havoc the Pratt and Whitney PW1100G is wreaking on the A320neo, aircraft manufacturers have little patience for suppliers. Combine high costs with poor performance and it is easy to see why aircraft manufacturers are not happy with suppliers.
What’s ironic about the current hostilities between the aircraft manufacturers and the suppliers is that it is kind of the fault of the aircraft manufacturers. One of Boeing’s previous cost cutting programs was to outsource as much of the production process as possible. Then came the lengthy delays to the 787 program, which was the most outsourced aircraft in Boeing’s history. Now we see Boeing racing to get back into the avionics business. The UTC and Rockwell Collins merger shows us that the major aerospace suppliers feel threatened by this move and are bulking up in anticipation for a showdown.
- Patriots buy their own plane:
Well the New England Patriots bought two 767-300ERs over the summer:
“Sources tell ESPN that the reigning Super Bowl champions bought two 767 Boeing wide-body jets in the offseason and retrofitted them with all first-class seats, some of which recline completely. On the outside of at least one of the planes is the team logo and five Lombardi trophies on the tail.”
The Patriots (so far) are the only NFL team to have bought their own aircraft. Usually professional sports teams hire specially outfitted charter aircraft for their transportation needs. The cost of charters has risen considerably due to a dearth of aircraft and operators. American Airlines recently stopped flying six NFL teams leaving charter airlines such as Miami Air as the only option for pro sports teams.
The Patriots, who apparently bought the two aircraft for a total of $10 million, believe that they are better off financially owning their own aircraft. However, there are still some unanswered questions. Namely: Who will operate the aircraft? How much will fuel, maintenance, and other aspects of owning and operating multiple aircraft cost the team each year?
While the costs of owning their own aircraft might be much higher than purchasing charter flights, the Patriots may have a secret plan to jumpstart a new airline business model: the pro sports charter. According to ESPN, the Patriots plan on selling charter flights on their two aircraft during the offseason. Unlike other charters, a flight on a Patriots aircraft isn’t just a mode of transportation but an experience in its own right. You get to sit in the same seat that Tom Brady did after winning the super bowl! The marketing possibilities are endless.
Anyways, the important thing is that the team is better able to control the passenger experience and recovery of its athletes on its own aircraft than on a charter. Who knows what devices and systems the Patriots will have installed on the aircraft. The team is always looking for an edge.
But let’s be honest. The real question is why the Patriots didn’t buy the Sportjet version of the Sukhoi Superjet. It even comes with a “smart” toilet that measures the hydration levels of athletes…
- Smallsat Launchers
As I discussed in the last edition of the countdown, smallsat launchers promise quick and cheap access to space optimized for smallsats. Along with competition between other smallsat launchers, small rocket startups also have to compete with large launchers such as the Falcon 9 and the Atlas V, which sometimes carry smallsats as secondary payloads. Now NASA’s behemoth Space Launch System will carry smallsats as secondary payloads as well:
“NASA plans to fly 13 cubesats to gather data on the sun, moon, asteroids and Earth on the first SLS test flight slated for 2019. For the following SLS mission, a test flight of SLS with the Orion crew capsule known as Exploration Mission-2 scheduled to launch in 2022, NASA is redesigning the second stage to loft 105 metric tons into orbit. That redesigned SLS, known as Block 1B, will include a secondary payload adapter which could house small satellites, ranging from 6u to 27u cubesats.
The 2022 SLS flight might also be able to accommodate ESPA-class payloads, Robinson said, referring to the EELV secondary payload adapter the Air Force designed to fly on United Launch Alliance’s Atlas 5 and Delta 4 rockets. Robinson also asked small satellite developers to describe the type of spacecraft they would like to fly on the SLS Europa Clipper mission so her office can make the case to include secondary payloads on the flight. “As we get your input, we can advocate for that mass allocation in the future,” Robinson said.”
For smallsat companies, secondary payloads pose two major issues: a lack of orbital optimization and low launch frequency. However, as the Falcon 9 and others ratchet up launch frequencies (Musk has said he wants to get up to 50 a year), pressure will be placed on exclusively smallsat launchers to cut costs and increase frequency.
In other news, a new company has entered the crowded smallsat launcher startup scene. Per SpaceNews:
“CloudIX, a startup based in Hayward, California, plans to conduct its first test flight in December of a prototype balloon-launched rocket designed to send cubesats into low Earth orbit…
CloudIX has applied to the U.S. Federal Aviation Administration for a license to operate its trailer-based mobile deployment and launch operations center on the U.S. East Coast to send high-altitude balloons with attached rocket-launching platforms over the Atlantic Ocean. Once the balloons reach an altitude of 41 kilometers, the rockets will fire to send satellites to orbits of around 350 kilometers.
In the future, CloudIX intends to seek permission to perform similar operations from Mexico and South America to give customers access to a wide variety of orbital planes. To keep costs low, CloudIX relies on 3D printing to produce rocket segments using a polymer composite that can withstand high temperatures while being ablative enough to disintegrate on reentry. “The advantage of this method is rapid production, light weight, size scalability and most importantly low cost,” he added. To date, Mairs and his CloudIX co-founders have provided funding for the venture. “We are boot-strapping our way along,” Mairs said.
From the outset the idea looks interesting: a mobile launch platform, cheap launches, and rapid production. As with any startup with big ambitions there are most certainly some concerns. CloudIX is not the first launch company to develop a rocket that launches from a high altitude balloon. Zero2Infinity is a Spanish company that is working on the Bloostar, a small rocket that can launch a variety of smallsats, not just cubesats. This past spring Zero2Infinity conducted the first test flight of the Bloostar.
Interestingly, from a photo on founder Brandon Mairs’ LinkedIn, the CloudIX is a small, skinny, conventional rocket. It will be interesting to see CloudIX’s system in action this winter.
And then there is the case of the founder of CloudIX, Brandon Mairs. Before CloudIX, Mairs founded Arubixs, a startup that is attempting to build an awkward smartphone/smartwatch hybrid thing with a flexible screen. To put it bluntly Arubixs has yet to deliver on its product promise.
While I won’t discredit CloudIX based on the performance of Arubixs, I maintain a healthy amount of skepticism for Mairs latest “worldchanging” idea.
- This week in Senators that choose to ignore basic economics
For some reason when it comes to the airline industry, certain United States Senators disregard basic free market concepts such as supply and demand. While Chuck Schumer is the most egregious offender, Sens. Richard Blumenthal (D-Conn.) and Ed Markey (D-Mass.) gave him a run for his money this past week by alleging that airlines were price gouging customers in the runup to Hurricane Irma.
As Irma aimed its sights on Florida, people were desperate to leave the state. Flights filled up very quickly leaving only the most expensive fare buckets available for purchase. That’s when the eye-popping $3,000 fares appeared. What Blumenthal and Markey fail to recognize was that the high fares were a result of the huge demand to leave Florida, not the airlines artificially raising prices. In fact many airlines did the right thing and capped fare prices for flights leaving Florida while adding extra capacity. While the letter will not lead to any action taken against the airlines, it is frustrating to see elected representatives eschew basic supply and demand dynamics for easy political points.
- This week in crazy airline stories:
A new latin american LCC is making money…in Venezuela:
“Newbie airline Latin American Wings is going where others fear to tread: crisis-ridden Caracas. Even more remarkable, it’s making money.
The Santiago-based carrier has been turning a profit by flying immigrants to Chile from Venezuela and Haiti since it started operating early last year, Chief Executive Officer Andres Dulcinelli said. Flights arrive in Santiago full and leave half empty as immigration to South America’s wealthiest nation soars.
While companies such as Delta Air Lines Inc., Latam Airlines SA and Avianca Holdings SA have nixed flights to Caracas on security issues and the near impossibility of getting money out of the country, LAW, as the airline is known, has expanded. Its secret? A deal with local carrier Aerolineas Estelar Latinoamerica CA, which takes care of the hassle of converting bolivars into dollars. Now, the budget airline is planning to increase flights to Caracas and across Latin America.”
Airlines have generally steered clear of Venezuela because of this:
“The airline industry as a whole has about $3.8 billion trapped in Venezuela and says that complaints to local authorities fall on deaf ears, Peter Cerda, airline association IATA’s regional vice president for the Americas, said in July.”
But for Latin American Wings (LAW), the current environment in Venezuela is perfect for making money. Why? First off, most carriers are exiting Venezuela as fast as possible giving LAW ample room to set prices and to obtain slots. Second of all, LAW is in the business of transporting immigrant workers. With the current condition of the Venezuelan economy, many citizens are eager to leave the country for better economic prospects.
But most important of all, LAW has the business/political connections inside Venezuela that enables the airline to actually receive ticket revenues, unlike the other carriers that have pulled out of Venezuela in recent years.
With its success, LAW has created a whole new airline business model: the crisis carrier. All you need is a captive audience eager to leave a country that is falling apart, minimal competition, and political connections to grease the whole operation.
- Weed Drones
This is too bad:
“California’s Bureau of Cannabis Control says that cannabis and cannabis products may not be delivered by “aircraft, watercraft, rail, drones, human powered vehicles, or unmanned vehicles.”
The news is disappointing to some drone delivery startups who planned the service. On April 1st of this year – note the date – San Diego-based MDelivers, one of few permitted marijuana delivery services in California, claimed to have “successfully launched the nation’s first fully-licensed drone delivery service.’ “
In the commercial drone industry, drone delivery is the most hyped sector. However, there has been little actual progress on the commercial front, save for a small drone delivery system in Iceland and some Youtube videos put out by Amazon.
While there are still many questions over the feasibility of drone delivery, FAA regulation banning flights beyond visual line of sight (BVLOS) currently makes it impossible to set up a drone delivery system in the U.S.
However, this is MDelivers CEO Chris Boudreau’s take on FAA regulations:
“After navigating the complexities of medical marijuana permitting, the state and FAA licensing process was actually pretty simple. Nobody can jump in at the 11th hour and rewrite the laws of aerodynamics.”
I guess he has a point because technically the California Cannabis Control prohibited MDelivers from delivering marijuana with drones and not the FAA.