Podcast: Aerion AS2 Program Update

Matthew Mejía, Aerion chief financial officer and executive vice president strategy and investor relations, discusses the status of the AS2 supersonic business jet program with Bill Carey, Business and Commercial Aviation senior editor.

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Rush Transcript:

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Bill Carey:

Hello. This is Bill Carey, Senior Editor with Business and Commercial Aviation, and welcome to this BCA podcast, which has the distinction of being the first BCA podcast of 2021.

Bill Carey:

I’m pleased to be joined by Matthew Mejía, Chief Financial Officer and Executive Vice President of Strategy and Investor Relations with Aerion, the developer of the AS2 supersonic business jet. I have asked Aerion and Mr. Mejía to provide us with an update on the AS2 program. Matthew, thank you for joining us today. It’s an auspicious day based on some announcements that have just been made that we can talk about.

Matthew Mejía:

Thank you Bill so much, and Happy New Year. It’s a pleasure to share some time with you.

Bill Carey:

Based on what has been reported recently, the schedule for the AS2 calls for a preliminary design review (PDR) of the aircraft this year. Long-lead manufacturing of the first components is due to begin in 2022, with final assembly starting at the new Aerion Park in Melbourne, Florida in 2023; a first flight planned in 2025 and finally entry into service in 2027. As I mentioned, there have been some interesting announcements made just today, one of which is that the FAA has published its final rule that streamlines the flight authorization process for testing supersonic aircraft over land, so I expect that will be helpful. 

Matthew, has the COVID-19 pandemic slowed down preparations for the AS2 preliminary design review in 2021, and when is that due to happen?

Matthew Mejía:

Thanks Bill. Yes, just like the whole rest of our industry, we’ve dealt with a pretty challenging year, but we’re so excited at the development of the program and the schedule you laid out is the one we’re marching against and we’re very confident we’ll hit. That will be PDR at the end of this year.

When COVID began I think we, just like everyone else, were trying to manage what looked like a pretty heavy disruption in the marketplace, and we certainly saw that and took real early steps to make sure that we could preserve the program. We preserved our entire team of about 150 souls and really advanced the overall design of the aircraft considerably. It was over the course of that year that there was a fair amount of uncertainty, particularly on the commercial side, but we’ve been buoyed by just a considerable interest in private aviation. Given the security constraints, given health constraints, and otherwise, we’ve seen actually increased interest in not only private aviation at large, but certainly our product. That’s been reflected in what has been a growing backlog, and we think even more secure demand for the product in the future.

Fortunately, the industry did weather the year. We’re seeing other aircraft programs kind of return to hopefully more normal behavior. We think obviously with the onset of the vaccines, we’re hoping to get back to normal as soon as possible. We’re quite confident in the schedule that you laid out; getting us to first flight in 2025 and entering the service at the end of 2027.

Bill Carey:

It’s great to hear that you were able to keep the team together during this period. What is the status of the AS2 program industrial team, and specifically, can you describe the participation of Boeing and Spirit AeroSystems as we head into 2021?

Matthew Mejía:

Absolutely. We’ve done a lot here at Aerion, but we’ve always known and believed that we need to really bring the whole industry together to be successful. Boeing, Spirit, others like GE, Honeywell and BAE—they’re critical to this program. We have such fantastic partners.

Specifically, for Boeing and Spirit: Boeing became an investor and shareholder in the company back in February 2019. The amount has not been disclosed, but it was a significant contribution to our fundraising for that. They did receive two board seats. And, actually, last year with one of their board member’s retirement from Boeing, we were really pleased to have Ed Neveril from Boeing take on the board responsibility. Boeing is a great partner there. They continue to believe in the long-term strategic vision that we all came to together. Obviously Boeing, like the whole industry had a lot of challenges this year, but they continue to be just an incredible partner for us.

In the case of Spirit, again, we’ve got a long history with some of the leadership. [Spirit President and CEO] Tom Gentile has just been a fantastic partner for the program. Spirit actually increased their participation in the program. They had always been onboard for the design of the fuselage. We awarded them the production of the fuselage up to 36 units a year, and they actually increased their investment in the program.

I can say similar things for folks like Honeywell, Safran, BAE, you name it. Really the entire industry has come on board the AS2 program and we’re grateful for their participation.

Bill Carey:

Okay. Can you say when Aerion and GE expect to finalize the configuration details for the GE Affinity turbofan engine?

Matthew Mejía:

Sure. Much like the other suppliers, we really just enjoy a great partnership with GE. Clearly there’s some very proprietary details here that we’re going to keep amongst ourselves as we advance toward production. This is an engine that has been built really on proven core design. It’s going to enable incredibly efficient supersonic flight over water [and] very efficient subsonic flight over land, which is key to our whole business model. It’s going to be the most efficient engine ever designed. It will run obviously on kerosene fuels, but it will be the first engine designed to run on 100% synthetic fuels, which we think is just incredibly important to our customers and our investors and really the industry as we think about a more carbon-friendly footprint going forward.

There’s definitely more to come. It’s a fantastic engine. We’ll be thrilled to release more details when we’re a little farther along.

Bill Carey:

Okay then. Now, Aerion made several supplier announcements in 2020, and some that I’ve just perused were with Liebherr-Aerospace for air management systems; as you mentioned, BAE systems for the fly-by-wire system; Spirit forward fuselage components; Collins Aerospace, for stabilizer and rudder actuation systems; and just today, Universal Avionics announced that they will be providing their enhanced flight vision system for the AS2. What other major systems remain unassigned on the platform?

Matthew Mejía:

That’s an excellent question. I believe most of the major systems have been assigned. We continue to have a few competitive conversations for some key components. One of the things that I think really distinguishes just how far along we are and how mature we are, is that all of our suppliers, the ones you mentioned, as well as others, they are on contract, they are designing, they are contributing their own engineering as well as overall support to the program. So, we’re pretty happy with the industrial partnerships that we have with our suppliers. We will continue to make additional announcements, but obviously some of that is competitive and we want to be deliberate about how we make those announcements.

Bill Carey:

How much of the AS2 program does Aerion plan to outsource? Could you say that at this point—as a rough percentage—or do you plan to keep some of the system development vertically integrated in order to manage the program risk?

Matthew Mejía:

I think, again, there’s probably some announcements that we will be taking our time to release. We always go through a pretty detailed trade analysis for what we want to take care of in-house and where we want to leverage our suppliers. For sure our supplier base is a major contributor to the design of the aircraft, to the production of the aircraft. We will be making some announcements regarding some of the capabilities that we’re going to continue to take point on and we’ll make those announcements this year.

Bill Carey:

Okay. You have an interesting agreement with Spire Global, in which they will provide Aerion high-fidelity weather models that will be coupled with your boomless cruise system to compute optimized enroute flight plans. Could you say any more about how this system will be tested, how it will work, how it will be developed?

Matthew Mejía:

This is really one of the key attributes that the AS2 is really bringing to disrupt the market. Just as a reminder, we fly incredibly efficiently at Mach 1.4, so a supersonic flight. We do that where the law allows. We’re bringing out an aircraft that doesn’t require any changes to the regulations. It doesn’t require making new business models. We fly where we can supersonically. We also fly incredibly efficiently on a subsonic basis. So, Mach .95, and we do that over land here in the U.S. where the [sonic] boom is banned. Even at Mach .95, we’re faster than any other aircraft that flies commercially.

One of the areas that we’ve spent a lot of time on is what we call boomless cruise. As the AS2 approaches land, or an area where we’re creating a boom is banned, we slow down to about Mach 1.2. This is sort of an area of technical expertise that has been known for many decades. NASA has studied this, and others have. Effectively at that speed, the boom that you create once you crest Mach 1.0, actually refracts off a denser warmer layer of air called the caustic layer. Basically, the boom is created, but it dissipates before it ever hits the ground, and before individuals on the ground could ever hear it. That is something that’s well-known, but it is really dependent on a good understanding of the atmospherics of the weather, the elevation that you’re flying at.

By using all of that information, you can actually design an aerodynamic flight program that where allowed you fly at Mach 1.2 and the boom never hits the ground. But really the only way to do that we think is an efficient flight plan, is if you have access to very, very accurate weather information that you can integrate into the whole flight. That’s why we partnered with Spire. They have the largest satellite constellation in the world and their vertical weather model support services will give our aircraft real-time information so that when the plane can fly at a higher speed and take advantage of that boomless cruise it can, and when the weather or the atmospherics prevent that, the aircraft slows down. That way the AS2 fleet is always in compliance with the regulations wherever it flies.

Bill Carey:

Is it a function of the weather radar, or will it be data that is up-linked or down-linked to the aircraft? How will that work actually?

Matthew Mejía:

You’re probably getting a little into the technical weeds, at least for me, but yes, it’s a lot of accurate weather forecasting that integrates with our flight planning. I’m sure we can follow up with you with a few more technical details. It’s a model that we find works really efficiently for the aircraft, and again, just gives the capability to our customers that really just doesn’t exist right now.

Bill Carey:

Okay. What can you say at this point about the AS2 cabin interior, and what will distinguish the AS2 cabin in terms of passenger comfort and amenities?

Matthew Mejía:

Sure. This is an area where we spend a lot of time. The AS2 is just a fantastic aircraft, [with] really superb engineering capabilities and bringing to market a disruption to speed that we really think the market is going to embrace. But we also know that the principals for business aviation spend most of their time in the cabin. We actually take a slightly different approach to this.

We feel that even the very high-end business jets that command the premium spots in our market—they’re fantastic aircraft developed by fantastic companies, but we feel like not as much innovation has occurred in the actual cabin design to really bring the business jet cabin up to 2021 standards and beyond. And so our plan is to really integrate future technology with traditional craftsmanship. At our price point and our customer level, they demand the absolute best.

One of the things we did last year was bring on board Tim Fagan, one of the world’s greatest industrial designers. He designed Bombardier’s Global 7,500 interior. We’ve gone through a process where we’re designing right now in collaboration with our owners. We’re going to have the highest standards in the industry for air purity for the lowest cabin altitude. It’s going to have an incredibly quiet interior. We also just know how—especially in this environment and this time of high-speed connectivity—immersive audio visual is incredibly important, [to have] access to a full digital lifestyle. We also know that comprehensive cybersecurity is incredibly important to our customers.

We’re integrating all of that now. Tim has been part of the team. He leads our efforts on the interior. We think we’re going to bring about something that will be incredibly compelling and disrupt the customer experience on the inside of the cabin as much as we’ll do with speed.

Bill Carey:

Okay. That sounds interesting. Now, Aerion aims to build 300 AS2s in the first decade of production at roughly $100 million each. I think that’s what has been reported. Is that for both commercial and military/government customers?

Matthew Mejía:

Let me spend a little bit of time on that. Yes, our business plan, the plan that we have brought to our suppliers and to our investors calls for building 300 AS2s in the first decade of production, priced at $120 million [each]. We’ve had no pushback on price. That 300 unit is really the AS2 business jet. Now we do think there’s a market for selling the business jet configuration to VIP customers, government customers, and that would include what we’ve seen in the marketplace with other business jets.

In addition to that 300 over the first decade, we also believe there is very strong interest in a military hybrid version of the AS2. We’ve had dozens of conversations with various government and military customers. If you think a little bit about the AS2, it flies very high, call it 57,000 or so feet; it flies very fast, it’s got a very long range. An aircraft like that can handle all sorts of missions. And so, we’re currently in conversations with a number of stakeholders who could see using the aircraft similar to something like a supersonic Air Force One, for example, for VIP transport, but also a modified AS2 that could do a lot of other things. All of that market demand is in addition to the 300 commercial business jets.

Bill Carey:

Interesting. Could you say what the current AS2 backlog is now in terms of either value or the number of aircraft that have been ordered?

Matthew Mejía:

I can. Our total backlog is about $6.7 billion. It has grown as we continue to mature the program and announce things like the exciting development of Aerion Park, our new facility in Melbourne, for which we’re starting our groundbreaking now, as well as all of the supplier announcements. The momentum is really building. We’re targeting trying to build the order book as aggressively as we can. We do want to sell 300 aircraft over 10 years. That $6.7 billion represents more than 50 aircraft that are in the backlog today.

Bill Carey:

Could you provide an update on the venture capital round that’s currently being raised and how much funding Aerion is seeking?

Matthew Mejía:

Yes, we are currently raising additional funds per our, frankly, long-standing development program plans. We’ve been backed by two very strategic and long-term investors, but our plan has always been to bring on board additional investors as we mature and develop the program. We can’t talk too much about some of the details there given current conversations and current negotiations, but we expect to actually announce our new investors within the next few months. We’re really excited by that.

We’ve been out to market in a fairly challenging environment, and yet we continue to get very positive feedback from the investment community that we’re doing something different, that we have an opportunity to disrupt a market, that there’s huge demand for what we’re trying to do. Most importantly, we’ve got a team in place between our management leadership, our really incredible professional staff and employees, and the suppliers and industrial base that we’ve lined up together, that we’re viewed as real and legitimate and leading this new sector for the market. We’ve been able to get really strong interest from the investment community, and we can’t wait to be able to share that more broadly with others.

Bill Carey:

Great. It sounds like things are really falling into place and should be firmed up this year with the preliminary design review.

Well Matthew, I’ve run through the list of questions that I have. This has been very enlightening. I appreciate it. Thank you again for participating in this BCA podcast and good luck in the coming year.

Matthew Mejía:

Thanks so much, Bill. Happy 2021 to everybody.

Bill Carey

Based in Washington, DC, Bill covers avionics, air traffic management and aviation safety for Aviation Week. A former daily newspaper reporter, he has covered the commercial, business and military aviation segments as well as unmanned aircraft systems. Prior to joining Aviation Week in November 2017, he worked for Aviation International News and Avionics and Rotor & Wing magazines.