Richard Aboulafia: June 2019 Letter

Dear Fellow Tarmac Zombies,

This month, I had the pleasure of attending a globally famous aviation event. It attracted many companies, industry luminaries and others, all there to discuss important topics in what the attendees consider to be one of the most important segments of the world economy.

Oh, I also attended the Paris Air Show. Comparing it with the Uber Elevate Summit (in my hometown, DC) is kind of interesting. Consider the distinctions between the two:

  1. Uber was very well-catered, with plenty of tasty snacks and meals provided free of charge. Le Bourget food is cash-and-carry for most; you need to get chalet invites for free corporate vittles (but Uber was dry, and Le Bourget chalets still feature copious wine).
  2. Uber had squadrons of scooters and electric bikes right outside for attendees to try. We could have used those at Le Bourget. Why don’t our French pals deploy them all over chalet row?
  3. Uber was attended by lots of non-aero people, including venture capital types, Silicon Valley emissaries, and get-rich-quick types hoping to cash in the latest bubble. Le Bourget, by contrast, was mostly attended by aviation professionals. If you’ve been in the business for thirtysomething years like me, you’re surrounded in Paris by old pals and associates, all trudging up Chalet Row like salmon up a river. I didn’t see anyone I knew at Uber.
  4. As a related item, at Uber many attendees wore hoodies and sneakers. Le Bourget is a parade of suits and ties, no matter how foolish that seems given Paris June weather, and how anachronistic it seems given changing business cultures (again, thank you Silicon Valley!).Oh, and I also have four other more substantive observations about UAM versus the traditional aviation industry: one vaguely positive, three certainly quite negative. Guess which come first?
  5. Le Bourget represents an industry that last year, according to Teal Group numbers, was worth over $180 billion in deliveries. If you expand this to include all aerospace, including missiles, UAVs, space, subcontractor activity and aircraft maintenance (but not the airline business), according to Teal Group/AeroDynamic Advisory numbers, 2018 was around $900 billion. Uber Elevate, by contrast, represents an aspirational industry that in its present form would simply not register on a chart involving numbers like these.It’s future form likely won’t register either. The current market for Urban Air Mobility (UAM), that is, the value of piston and light turbine helicopters used for light, short-range vertical transport, is below $1 billion per year. You’d need an awful lot of technological magic, or pixie dust, to stimulate this market to the point where it justified its own industry, or even its own vast armada of dedicated air vehicles – there are 150+ different new UAM vehicles in development.
  6. In total, the aviation industry is nicely profitable. By contrast, the businesses represented at Uber are either cost centers within larger companies (Bell, Airbus, Embraer, etc.), startups seeking or funded by angel investors, or, in some cases no doubt, aspiring pyramid schemes.
  7. As a result of #6, the biggest difference is that aviation usually provides investors with returns. UAMs are another story. The sheer scale of required UAM investment, in air vehicles, enabling technologies and systems (particularly batteries), services, and infrastructure, means tens of billions in expenses. Even if that cash is provided, it will be many years, if ever, before we see any healthy balance sheets in UAM. But most UAM companies will suffer grievous fates, destroying millions in investor cash. UAM operations might simply never be profitable.Perhaps Silicon Valley investors don’t care; they might be used to throwing money at multiple startups, hoping that one in hundreds turns into a winner, or that they can help create a bubble and cash out before it pops. Uber itself is losing billions per year ($1.8 billion in 2018), and that’s just on car operations. Most of these investors have a great deal of cash to invest, and very little, if any, understanding of aviation. Silicon Valley’s tolerance for up-front losses combined with the sheer scale of losses possible in aviation…what could possibly go horribly wrong?

    Now for that one comparison that puts UAM in a less negative light:

  8. UAMs offer excitement in an industry that might have gotten…how to put this gently?…a bit mature. Consider the subjects of headlines that dominated Le Bourget this year:
  • A flawed derivative of a 50+ year-old jetliner, and how to fix it.
  • A stretched derivative of a 30+ year old jetliner.
  • A possible new mid-size jetliner leveraging current technology in a familiar package.
  • A few concept fighters that won’t be built until most air show attendees retire.

Excited yet? If so, you may, like me, be an industry person. Many of us industry folks look at this parade of rather sleepy characters and think it’s all pretty neat. But I’m confident many outsiders don’t share our enthusiasm. Yes, there’s New Space, but prospects for New Civil and Military Aviation have been pretty limited.

In that context, UAM visions help attract new talent, new dreamers, and of course new money. Sure, there will be financial carnage. Sure, all the techno-utopian videos and drawings will look incredibly goofy in the rear-view mirror (see Popular Mechanics covers from the 1950s for the same stuff). Sure, the Silicon Valley “Move Fast and Break Things” mantra is toxic for an industry built on carefully learned practices and regulations that keep things incredibly safe. Despite all this, UAM might help keep us exciting and relevant to the non-aero world.

And who knows? Perhaps in a few decades radical battery improvements, autonomy, and other advanced technologies will lower the price point for UAM, creating an opportunity to grow the market to the point where it will no longer be for just the very rich. Maybe ordinary rich folks can participate too. After many other rich folks lose lots of investment money, of course.

Yours, ‘Til There’s a Flying Car Taxi Stand Near St. Germain De Pres,

Richard Aboulafia