After years of false starts, questionable alliances, tens of millions of dollars in R & D; expenditures and no revenues, a small Long Beach company appears to poised to obtain preliminary approval for what would be the region’s first new business jet manufacturing operation in decades.
Preliminary approval by the Federal Aviation Administration of Advanced Aerodynamics & Structures Inc.’s Jetcruzer 500 could come early next year, and would be the most significant step forward in the company’s 11-year quest to manufacture the aircraft.
The nation’s slowing economy and earlier testing difficulties with the plane have not stalled AASI’s efforts to move forward aggressively with plans to begin mass production of the six-passenger corporate jet as soon as the company obtains final FAA approval, expected in the summer of 2002.
In a sign of the growing demand for private jets, customers have paid AASI a $10,000 non-refundable down payment for each of the 188 planes ordered so far. Final sales of those planes alone would generate $226 million in revenue for AASI.
FAA approval and the resulting revenue are sorely needed for AASI to regain any of the confidence it has lost within the last year on Wall Street, where last month the company’s stock fell below $1 per share. As of last week, it had fallen below 50 cents a share.
The company reported a net loss of $10.7 million ($1.26 per diluted share) for the year ended Dec. 31, 2000, compared to a net loss of $9.3 million ($1.05 per diluted share) for the previous year.
Aside from the down payments, AASI has generated no sales revenue thus far to help absorb development costs of $37.9 million. As a result, the company has suffered a cumulative net loss of $61.1 million over the past decade.
If FAA approval is granted, the company expects to deliver 120 Jetcruzer 500 jets annually. Development of the Jetcruzer 500 follows AASI’s decision in 1996 to scrap its Jetcruzer 450, for which the company had obtained full manufacturing approval from the FAA. That decision was made after AASI officials concluded that the market for the Jetcruzer 450 would not be large enough to generate sufficient profits.
Consumer confidence
Orders for the 500 model have been taken over the past three years at sales prices ranging from $1.3 million to $1.4 million each. Virtually all the buyers are corporations, 65 percent of which are based in the United States.
The Jetcruzer 500 is a pressurized, 30-foot-long jet that’s able to fly at 345 miles per hour at an elevation of 30,000 feet, creating a smoother ride than the non-pressurized, 24-foot-long 450 models, which can only fly at 250 mph and at 12,000 feet.
Marketing studies showed that the company would only be able to reach annual sales of 30 of the Jetcruzer 450s at $795,000 each, largely to tourist agencies.
Analysts were perplexed when AASI scrapped the 450 after spending millions in development and gaining FAA approvals, and their consternation grew when CEO Carl Chen decided last December to merge with the Tiwenz Group, a China-based television, real estate and satellite company.
“(Tiwenz) had nothing to do with aerospace,” said Bryn Harman, an analyst with Red Chip Review, a research publication that focuses on small-cap securities. “I couldn’t figure out what the hell is going on. Management of AASI hasn’t called me back in six months. Without (the back orders), I never would have initiated coverage in this thing.”
When AASI could not verify Tiwenz’s assets after a two-month search, however, it cancelled the merger a move that analysts lauded.
To provide further direction, the company recently added Roy Norris, former Raytheon Aircraft president, to its board of directors. Also on the board is James Lovell Jr., commander of the Apollo 13 mission.
Cash infusions
Without a revenue stream, AASI has stayed afloat through a series of debt and equity offerings, including a $20 million investment made by an unidentified Taiwan businessman, $35 million generated when it went public in 1996, and a $15 million investment with a commitment for $20 million more from New York-based LH Financial Services Corp.
By the time full production of the Jetcruzer 500 begins, the company will have spent approximately $80 million on development and prototypes of both the 450 and 500 models, company records show.
The first step towards getting the planes on the assembly line is obtaining “tight inspection authorization” from the FAA. TIA is a precursor to full certification, which is granted three to nine months later, after FAA pilots successfully test fly the prototypes. AASI officials said they would follow the course of other airplane manufacturers and begin limited production upon receiving TIA.
Long Beach-based Gulfstream Aerospace Corp., which specializes in making luxury planes costing $32 million to $45 million, are not seen by industry experts to be in competition with AASI’s $1.4 million models.
AASI officials estimate that full production would necessitate an increase in the workforce from the current 120 people, plus 20 outside consultants, to a staff of 600.
