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.
