Blain’s Morning Porridge – June 4 2021: Boom? The ultimate meme/disruptive nonsense stock?
“Just before you break through the sound barrier, the cockpit shakes the most… ”
This morning. Boom Supersonic has “sold” 15 new aircraft to United Airlines. They are still in development, will be “sustainable” and “carbon-zero”, and make supersonic flight as cheap as cheap. Really? The laws of aerodynamics and economics don’t bend that easy! It might make a great SPAC or meme stock story, but if it ever flies….
I had to check the date wasn’t April 1st when I read United Airlines has placed a firm order for 15 of Boom Technology’s Overture supersonic passenger jets. They will come in at a price of $200mm each – and Boom is not offering any discounts. United has options for 35 more of the as yet purely theoretical plane – which is due to fly in 2029. More to the point – United has actually paid some cash up front with the firm orders… options cost nothing. I bet the United PR department shoulders that cost…
The news was followed by a rash of stories about how we can expect to get to NY in 3 hours, or Tokyo from San Francisco in 6. They were liberally laced with quotes from Blake Scholl – Boom’s CEO – about net-zero carbon aircraft, sustainability, and their “mission to create a more accessible world”. I think I mentioned Scholl in a previous article after he claimed his supersonic aircraft could reduce the cost of a flight to anywhere to $100 as costs will come down. Suffice to say I wanted a quarter of whatever it is he’s been smoking….
As a plane freak, nothing will delight me more than beautiful, Concorde-like planes again gracing the skies… But… this is 2021, not 1951!
Remind me why Concorde stopped flying 18 years ago? Oh…. Because it was ludicrously expensive to operate, massively inefficient, obsolete technology, an environmentally hamstrung white elephant… etc, etc. But it was beautiful. To be honest, the rest of the world were insanely jealous – especially the Shermans.
On-the-other-hand, it was pretty useless. It took the same amount of fuel to fly 100 Concorde passengers 1/3rd the distance a Boeing 747 could fly 400 passengers. Concorde was designed when fuel costs weren’t a concern. The equation was simple – more fuel meant go faster. There was a secondary environmental issue – noise. Concorde’s 4 Rolls Royce Olympus engines made Spinal Tap look lame – they went all the way up to 13 (*4) Like all supersonic aircraft, it created a sonic boom – meaning it could only stretch its very long legs over water.
Technology has moved on. Planes are lighter and made of carbon fibre. Engines have improved a bit. The new Boom Overture looks remarkably similar to Concorde, but slightly smaller – 88 passengers. It will be aimed at routes based out of coastal hubs because it will still only be able to fly supersonic over water. Initially, it’s going to be targeted at high end first and business class customers. It will be about 12% slower than Corcorde. Boom say their plane is much cheaper to operate.
Now, it maybe that Mr Scholl and his team at Boom have been able to rewrite the laws of Aerodynamics and the Economics of fuel vs speed, but… not for $200mm per plane.
The economics simply don’t work.
First up, Boom say it will cost them $8 bln to develop the new Overture. That’s less than 1/3rd the expected $24 bln development cost of a replacement for the Boeing 737 a few years ago. Boeing opted not to spend the money, but developed the discredited B-737 Max instead as it had spent over $32 bln on the B-787 Dreamliner programme, meaning that plain is unlikely to ever make a penny profit for the firm. The Dreamliner is a great plane to fly, but the programme was years late and still suffers irregular problems.
The second big issue for Boom will be fuel.
They say on their very glossy and fabulous website they will be the first manufacturer to incorporate sustainability from day one. They are going to run on 100% sustainable aviation fuels. And – and this is the clincher – they have a dedicated sustainability team to ensure “environmental stewardships is part of every key decision across Boom.” You can read a really fascinating piece of marketing puff thoughtful analysis about how Boom’s sustainability is akin to saving gorillas in Rwanda and that because they are a new company they will do it better… blah, blah, blabity blah blah… (If you don’t barf… read it again..)
Actually, I happen to know something about Sustainable Aviation Fuels (SAF) which include reprocessed animal fats, cooking oils and biofuels, which are blended with Jet-A. The economics matter – and it boils down to less than 2% of Av-gas is currently SAF because it is massively (upto 5 times) more expensive than Jet-gas, and in terms of carbon abatement, you’d be much better off planting a forest.
All the big airlines claim to care about SAF, and embrace the concept because they know passengers want to think they are flying greener planes – till you ask them to pay a premium, at which point they step off and catch Ryan Air.
Boom have also done a deal with Prometheus Fuels to supply carbon-neutral jet fuel to its test-bed aircraft. Prometheus removes CO2 from the air (using only the finest greenly generated volts to do so) to make green fuel – a so-called Electrofuel. It’s marvellous tech, complete bollchocks and irrelevant as you have to expend about 5 times as much renewable energy to extract the CO2 than the actual fuel combustion generates. But.. whatever.. its green..
Boom are not in the least discouraged. They have assembled a team. And they are going to disrupt conventional air travel. $8 bln is only about $7.75 bln more than Boom has currently raised.
Interestingly, the news Boom has sold planes to United comes less than one week after the leading supersonic aircraft dreamer manufacturer Aerion literally ran out of financial fuel and went down. It was well down the testing track for its smaller 12 seater fast jet. It was using “digital modelling techniques” to negate the need for costly demonstrators, and manufacture over 300 aircraft from 2023. Sure… the aviation regulators will just love that approach after the Boeing Max.
Just like Boom, Aerion said it “met all market, technical, regulatory and sustainability requirements” for the new supersonic sector of the market – which they claimed was validated by a $11.2 sales backlog. Meanwhile, I understand Qatar may not take delivery of the last few A380s from Airbus…. do you spot any similarities… both planes which are marvellous and utterly unneccessary.
Now.. some conclusions. Let’s think it through logically.
- Is this doable? Yes, You can build a supersonic plane. You need big engines and lots of fuel. You can make it safe – at a cost.
- Is there demand? Yes. People want to travel.
- Is this an economic proposition? No. The development costs will rise – they always do. The certification process will be complex in relation to SAF engines.
- Is this climate friendly? No. SAF fuels are carbon-neutral, but they still give off CO2 when combusted, and the effect of burning them at 60k feet (where Overture will fly) magnifies the greenhouse effect. Demand for business travel and tourism will change in line with rising environmental awareness.
- Is this practical? No. There are planes that will already fly you anywhere for a cost. SAF will make Overture prohibitively expensive in comparison. Or it may be obsolete if orbital tech can be perfected.
So… how to play it. This will be the ultimate meme stock. I confidently predict that sometime in the next few weeks Boom will be taken public by a SPAC for a quintillion dollars, or its Silicon Valley VC funders decide to push it to an IPO to make sure they get the disruptive tech buck. I mean, what’s not to like about supersonic aircraft?
The trick is not what you think about Boom’s longevity or chance of success, but what the market choses to believe….
To Infinity and Beyond..
Five Things To Read This Morning
WSJ – William Ackman SPAC Nears $40 bln Universal Music Deal
CAPX – How “socially responsible” investing could distort markets and harm the planet
Bberg – The Next Market Crash Looms Large In Fund Reform
FT – Tiger’s Julian Robertson bets big tech stocks will keep marching higher
WSJ – AMC Shares Sink on Stock Sale Plan and Warning to Buyers
Out of time, back to the day job… and have a great weekend…
Bill Blain
Shard Capital