Tag Archive for: aerion AS2

Hypernomics 1, Funny Math 0

“Everybody funny, now you funny too” – George Thorogood

This is sad.

In December, I showed how the Aerion AS2, A, had a 1 in 40 chance of making its sales goal of 300 supersonic business jets at $120M in 10 years.

They shut down Friday.

Crucially, all 55 aircraft over $80M that sold over the ten years in Figure C were specially modified “green” airliners, based on long-standing Boeing and Airbus models. Each one requires only a few million added dollars in design and modifications, a tiny fraction of the AS-2’s estimated $4 billion development cost.

Aerion said that “in the current financial environment, it has proven hugely challenging to close on …large new capital requirements to finalize the transition of the AS2 into production.” That hints they are pointing to the pandemic as their primary dilemma.

But the low sales for the Concorde (B) reveal a more pervasive problem. Yes, it was worth every penny spent on it, as its buyers confirmed when they bought them. The issue for the Concorde then and the AS2 now is that there are not enough pennies to go around to make the optimistic sales goals each company set.

Demand analysis lets you know that before you spend $1B and find out the hard way.

#hypernomics #demand #market #aerionAS2

Worth Every Penny – Not Enough Pennies

There are several ways to sink a new project.  A common method is to ask potential customers about their willingness to buy an offering and then suppose some fraction of the resulting sum is viable.  In the 1960s, surveys indicated there was a market for 200-300 supersonic Concorde airliners.

They built 20.

Decades later, multiple companies are entering this market again. One of them, Aerion, is building its AS2 bizjet (A), selling for $120M.  Suppose we compile and analyze a dataset of all business aircraft that cruise at 400 MPH or more.  We’ll then find a production possibility curve for planes worth $120M as shown in B (that curve has an adjusted R^2 of 97.5%, a standard error of $10.1M, and P-values of 6.11E-43 and 1.02E-19 for Cabin Volume and Max MPH, respectively).  By this measure, the AS2, over ten standard deviations above the line, is worth every penny.

However, in C, we find that the market only supported 55 business aircraft worth $80M or more for a decade, up only slightly from a like study done for the same duration done five years earlier (with 46 planes over $80M).

Five years ago, Aerion announced an order for 20 units. They have the same number today.

#innovation #markets #future #economics