Supersonic Air Travel Coming Back with a Boom

September 29, 2017

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In this episode of TechTalk, we discuss the technology and financing issues related to the possible return of supersonic air travel. Which financial heavyweights are behind tech companies such as Boom and Aerion? What does today’s market look like for this type of air travel? And can these start-ups navigate the many challenges faced by supersonic airplane pioneer Concorde? 


Transcript

Dave Plaskow: Hello, and welcome to EisnerAmper’s technology podcast series. With more than 500 technology clients, we’re always interested in the latest industry trends and developments, as well as any related business and accounting opportunities and challenges. Today’s topic is Boom bringing back supersonic air travel. I’m your host Dave Plaskow, and with us today is Dave Katz, Senior Audit Manager in EisnerAmper’s Technology and Life Sciences practice. It’s TechTalk. Dave, welcome and thanks for being here.

Dave Katz: Thanks for having me again.

DP:So Dave, tell us, are they bringing back the Concorde or what?
DK: Not exactly. So, boom is a start-up based in Colorado that is designing and testing the next generation of supersonic jets.
DP: Ok, well tell us about these jets.
DK: It’ll be smaller and sleeker. Called the XB-1, it has about 40 seats and flies at 1,450 miles per hour at 55,000 feet, whereas the Concorde flew at 1,350 miles per hour. So, that’s New York to London in about 3 1/2 hours. It hopes to be operational by 2023.
DP: Okay, now for those of our listeners who you know maybe perhaps don’t remember the Concorde or what happened to it, it was really the, you know, pinnacle of flight back in the day. How will boom try to avoid the fate of the Concorde?
DK: Right, so the Concorde had a few of strikes against it. First there was the fallout from the Air France crash in 2000. All Concord flights ultimately ceased in 2003. Second, there was the question of profitability—tickets cost $12,000 each. And due to the plane’s sonic boom, in 1973 they were prevented from commercials flights over the U.S.—severely handicapping potentially profitable routes. Also, post-crash modifications made the plane even more expensive to operate. Then, finally, the September 11 attacks dramatically decreased the short-term demand for air travel.
DP:Yeah, that is a lot of strikes against it. Now, how will Boom avoid these challenges?DK: Yeah, so it’s using newer types of carbon fiber, rather than aluminum, in the plane’s design that will make it lighter and faster as well as hopefully help prevent the sonic booms, which could lead to changing rules about supersonic travel over the U.S. Other advances in software technology and 3D printing will also help with operations and safety. Trans-Atlantic ticket costs will be akin to taking business class—approximately $5,000 per ticket. And, of course, the commercial demand for plane travel to other locations in the quickest most unobtrusive manner has been even higher.
DP:Yeah, people are willing to pay more for comfort these days.
DK: Without a doubt.

DP:Yeah, and $5000 is still a lot, but it’s definitely not $12,000. So, who are the players here?
DK: So, Virgin founder Richard Branson has invested in a startup incubator called Y Combinator, which is backing Boom. NASA is spending nearly $400 million to develop a prototype with Lockheed Martin called the Quiet Supersonic Transport or QueSST; and Texas oil billionaire Robert Bass is behind a different supersonic start-up called Aerion Corporation, which is based in Nevada.
DP: Okay, so there’s a few players in the sandbox here. What’s the market potential?
DK: So, Branson has the option to purchase Boom’s first 10 planes, and the company says it has options for additional aircraft to unnamed carriers. The sale of these planes would amount to about $5 billion dollars. Aerion claims orders of 20 planes costing $120 million each, or $2.4 billion in total. So, if supersonic travel gets off the ground, so to speak, the economic impact could be substantial—particularly if they overcome the sonic boom issue and the companies get the OK for overland flights.
DP:Yeah, those numbers are definitely nothing to sneeze at. So I’m curious, Dave, what are some of the accounting nuances when you’re working with the airline industry?
DK: Yeah, so consolidation obviously comes to mind. We’ve seen a number of players merge and acquire other companies which creates the need for valuation experts, accounting consultants. There will always be regulatory challenges. How do you value something that may never get approval? And a hot topic today is certainly FASBA C-606 which is on the cusp of its effective date for revenue recognition to gross verse net issues, how to deal with frequent flyer programs among other issues.
DP:Okay Dave, well thanks again as always for your expertise and your insight.
DK: Thanks Dave. DP:And thank you for listening to TechTalk as part of the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.

About John Pennett

john Pennett is the Partner-in-Charge of the National Technology and Life Sciences Group, and is a member of the Special Purpose Acquisition Company (SPAC) services team. H


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