The Company That Wants To Bring Back Supersonic Jet Travel

25:46And you can get enormous time and cost savings by just putting everything under one roof. Why has no one done that before? Well, SpaceX has. I think one of the things that lets you go do this is getting out from under defense and congressional appropriations as kind of being your primary revenue stream. So long as you're going through traditional DoD procurement processes, you end up being subject to all these forces that end up with the complex diffuse supply chain being at some level optimal or at some level necessary. But if you look at what SpaceX did, they pivoted away from that approach.

26:27NASA did the commercial crew program with them and the commercial resupply program with them. And that gave them a lot more ability to just do what was efficient. And I think we're doing the same thing at Boom here. We're starting with commercial customers. We're not beholden to congressional funky dynamics. And so we're able to go do the efficient thing, not the politically expedient thing. I mean, some people would argue that SpaceX did get a lot of development money from the government, which is one of the things that has allowed it to do this. I think that's true. And yet they being, I think, really the only alternative to the big legacy players, history shows they were able to do it without compromising how they went about it.

27:08You know, if you go to their factory in Hawthorne in the Falcon 9 days, it's basically raw materials in one side of the building and rockets and rocket engines out the other side. They brought in-house substantially all the production processes. And that results in, frankly, I don't think they would have succeeded without that.

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29:13Introducing the all new Adobe Acrobat Studio, now with AI-powered PDF spaces. Do more with PDFs than you ever thought possible. Need AI to turn 100 pages of market research into five insights with a click? Do that with Acrobat. Need templates for a sales proposal that'll close that deal? Do that with Acrobat. Need an AI specialist to tailor the tone of your market report to sound real smart in real time? Do that with the all new Adobe Acrobat Studio. Learn more at adobe.com slash do that with Acrobat. Talk to us more about financing from here, because this is a thing that comes up and maybe it's changing a little bit, but large upfront investments aren't the sort of natural domain of VC or tech.

29:59And there's a reason that a lot of this kind of investment often seems to come from the government or the public sector in some way. And it's going to be a long time before you have your factory. And then it's going to be a long time before you have planes rolling out. And there's going to be a long time before payback. Talk about financing from here. Who's going to invest to get you through your next leg? Starting with pulling the camera back, I think it is largely a mythology that hardware companies are more capital intensive than software companies. If you look at what Lyft and Uber and Airbnb raised in VC and you compare it to like SpaceX and Tesla and Andrel, what you find is that many times the software companies actually consumed way more venture capital than the hardware companies.

30:47And I do think there is one important distinction, which is in a software company, you can prove you've built a useful product by shipping a simple version of it and noticing that it gets adoption. Yes. And the VC playbook is largely spend a small amount of seed money, ship a product, find out whether it's working, then double down. Okay. And you can't do a hardware company that way. Like we can't go build a supersonic airliner in order to find out whether anybody wants supersonic airliners. We have to have another way of proving the market's really there. And that's why pre-orders really matter.

31:21I think in hardware companies, you got to prove that if you go invest in the development, that there's actually a there there in the end. And then the risk is, can you actually execute it in a capital efficient way? It's not a risk of like, does anybody want this thing? The other thing that I think is a piece of the strategy is you need to get very clever about how to pull revenue to the left. One thing we've done at Boom is our agreements with United and American include a prepayment schedule. We've already gotten non-refundable deposits. We'll get more from both of them as we approach delivery.

31:51The other piece is you want to find other ways to monetize early. And we've got something very exciting that will probably reduce by an order of magnitude how much capital we need to raise that we haven't announced yet, but we'll be sharing later this year, our equivalent of what Starlink is for SpaceX, the sort of the side hustle that pays for the main hustle. Huh. You're teasing us now. We'll have you back on. Yeah, this is a real tease. I wish I could share it. It'd be fun. It's going to be so much fun. Okay. All right. Well, we'll look out for it for sure. So speaking of pre-orders, one of the complicating factors of building a brand new aircraft has to be the regulatory process and getting things like FAA approval.

32:34I'm really curious what that has been like for you and what your expectation is in terms of the timeline. Yeah, the surprising thing is we've actually never had a regulatory delay. And you read all the headlines about what Boeing struggles with, with FAA. And I think that the principal reason there is really two things. One is they lost the trust of their regulator. And then number two is they operate in this delegated model where they have their own sort of internal FAA that are all Boeing employees that do approvals as they develop an airplane. And then they show up at PAPA FAA at the end of the program and say, please rubber stamp me.

33:15But then the PAPA FAA, one, doesn't trust them. And two, hasn't seen any of the work along the way. And so now you're at the end of the program and they're telling you to go back and change things if they never had any input along the way. And that's just a really terrible way to work with a regulator. And if you look back in history before Boeing really lost its way, like in the 1990s on the 777 program, it was Boeing plus FAA versus the problem. and they shipped a pretty amazing airplane on time with an FAA certification process that took less than a year. And so what we looked at that example and when we did our XB1, we said, we're gonna work with the FAA kind of the old good way.

33:54And so we showed up in DC and we said, let me tell you what we're doing. We'd love to get your input. Come anytime you want, look at anything you wanna look at. Please give us your feedback. Please give it to us early enough that when we have your feedback, we can actually act on it. And so they saw XB1 when it was a piece of paper. They saw it when it was a bucket of parts. They saw it when it rolled out and they saw it when it was ready to fly. And as a result, what usually is a 90 day like approvals process for an R &D airplane took literally 90 minutes. Like the day we said we're ready, they handed us the paperwork.

34:28And that's not some kind of lobbying miracle. That's just building trust. And I don't think it'll be 90 minutes on our airliner, obviously, but we're already talking with them. We're saying, here's what we're doing. Here's some of the big choices we need to make. Here's how we're thinking about those trade-offs. What do you think? We don't have that sort of boom FAA proxy. We just work with them directly. And so by the time that we're done, we'll have gone through the process together. Everyone will understand the decisions. They'll understand the testing we've done. And I expect that when FAA is convinced it's ready, that'll be about the same time that we're convinced it's ready because we'll have gone through it together.

35:06I have a question. It's more related to the business of supersonics than the manufacturing of them. I've gone to Europe for work a few times with Bloomberg, and I've been fortunate enough to be able to fly business class. And it's really nice. And I really like lying down on the plane. It's just such an insane luxury every time. I can't believe it's real. Are you sure that people will trade beds for shorter flights en masse? Because I don't know. It's like, oh, yeah, OK, I get there a few hours earlier, but then I don't get this very nice live flight experience. I don't know. Why are you confident so much demand will materialize just for the sake of speed when, yeah, it's longer with the current thing, but it's really comfortable?

35:47A couple things. One is I think it helps to look at what people pay for on flights that are already shorter. So like a transatlantic flight, supersonic is going to be three to four hours. And you say, well, what about domestic flights that are three to four hours? What it's like on board? Well, it's a nice first class seat. and nobody puts flatbeds on flights that are, you know, three, four, five hours. They put them on longer flights, particularly longer flights that are scheduled overnight. And so the experience on Overture, there's another thing I, unfortunately I can only tease. I can't show you yet.

36:19It's going to be nicer than domestic first class from space, connectivity, comfort. There's some really nice little innovations we're doing that will, I think, beat the socks off of domestic first class. and yet you'll be able to go to Europe or to Asia in the time of a domestic flight. And I think airlines will schedule them so the vast majority of flights are daytime. So instead of leaving US in the evening, sleeping on the airplane and getting to Europe in the morning, you actually leave in the morning and you get there in the afternoon or evening and you're awake and productive on the flight and you get to sleep in a far better bed that you can find on any airplane, the one at home.

36:54If you could be productive, I have to say like, I actually don't care that much about seats anymore because I just scroll my phone the whole time This is true. I've been on flights watching Joe and this is what he does. Yeah, it's totally fine. As long as I have good fast Wi-Fi, I actually don't really care that much anymore. All right, I have another question. You know, obviously building planes is one part of a broader anxiety or push or whatever for more domestic U.S. manufacturing. One of the things that there's seemingly a bipartisan interest for, though maybe different people have different ways of getting there.

37:28I don't know, maybe the probably people from the Trump administration who do ask you this question, so maybe this is not hypothetical. What are the barriers? It's like, OK, we want to be like – we want to be at the cutting edge of more things in general. What's getting in the way of that? And are there policy things other than lifting the overland supersonic ban? Are there other things that you could think of that generally hold the U.S. back from being an advanced manufacturer in a range of things or things that you've discovered along the way that are counterproductive to these efforts? Yeah, I think there is enormous fundamental American dynamism.

38:07And what gets in the way is really ourselves and our own red tape. The ban on supersonic over land in the US, I think, is probably the best example of a regulatory own goal where literally every airplane from the Wright brothers through the Boeing 707 was faster than the one that came before it. And then we banned the primary vector of innovation. And if you follow that thread forward, it's not the only cause, but I think it's a big piece of the undoing of Boeing. Because if you put a lid on innovation, the best and brightest don't even want to work there. But Boeing kept building new... But you can find...

38:39But that was in the early 1970s, and Boeing kept building powerhouse planes for at least a few decades after that, right? Yeah, they had a decent runout. But if you look at the latest generation Boeing and you put it next to the very first jet jetliner, it is literally a carbon copy of the same basic airplane concept. They kept iterating and optimizing the technology, but they didn't have any capability. And ultimately, it's like, who wants to go work for Boeing if you're a great engineer, so you can like re-engineer the same basic thing? Okay, so that's plans. And I get the speed thing. There's obviously a lot of, we seem to have stalled out at the cars we seem to be falling behind in, obviously other things.

39:18Are there other sort of like broad themes you've discovered in U.S. manufacturing that are holding us back? Yeah, I think there's a lot of regulatory environment, both federal and state and local, that just adds cost and time. I'll give you an example. So we built a factory in Greensboro, North Carolina, almost 200 ,000 square foot factory. And it took longer to get the building permit than it took to build the factory. It took about 18 months to get the building permit. And if you double click on that, it's like, why? Well, we had to do an environmental impact study on the noise that our airplane would make once it was built.

39:58And it was like, wait a minute, before we can roll a cement mixer, we have to study the noise profile of an airplane that we haven't finished designing, let alone building, where we've pledged it's not going to be any louder than other airplanes. And if it were China, my guess is they wouldn't have to do that. And I could tell you more stories. We're building an engine test facility here in Colorado, and the long pole in the tent is the fire department. I think we've made a big mistake in the U.S. So in China, you can look at this stuff and it's kind of anything goes, which I don't think is the right answer.

40:31And in the U.S., obviously we want clean air, clean water. We want airplanes that don't crash, buildings that don't burn down. All this is common sense, but the risk underwriting decisions we've given to monopolistic government entities that have the sole power to say yay or nay and have an asymmetric incentive to say nay because if they approve something they shouldn't approve, it's their career. If they hold something up, it doesn't really matter. And so all the incentive of these sort of centrally planned risk underwriting entities is that they slow things down and they add cost. But I think we've got fundamentally the wrong frameworks for those things, and we need to get out of our own way.

41:13I'm so fascinated by the actual manufacturing process here and the idea of starting to build an aircraft basically from scratch. Could you maybe zero in on one specific part and talk to us about how that particular thing comes into being? So I'm thinking maybe something like composites because you're building out of composites instead of aluminum, like the Concorde. Where do you actually get that from? Yeah. Well, maybe I'll talk about engine parts because they're some of the most fun. So engines are these sort of jet engines are these amazing machines, and they need to operate at super high temperatures in order to be efficient.

41:50And in fact, the high pressure, high temperature air that comes out of the back of a jet engine combustor is actually above the melting point of the metal that the turbine blades are made out of. And so these turbine blades, they're these metal parts that are hollow on the inside. And cooling air goes through them. It comes out these little pores on the tip of the turbine blade. And by the way, the cooling air is only 1 ,000 degrees. And it sort of envelops the turbine blade and allows it to operate in a thermal environment that's above its own melting point. And all this is happening while it's spinning at thousands of RPMs.

42:29And so to make these parts so strong, they're actually cast out of a advanced casting process that allows the entire blade to be one single crystal metallic structure. So these are investment castings in what's called a directional solidification oven, where they start cooling it from one side so that as the crystal starts forming, as the molten metal freezes, the lattice spreads out. And it's one very specific grain structure, one crystal, the entire blade. And that allows you to get this incredibly high performance. Now, the most amazing thing about what I just shared is that's 1970s technology.

43:11And it's still state of the art. That's what we're using. We're using a more advanced version of what I just described to build the production turbine blades for our symphony engine with some 3D printing and the investment casting process. So how do you actually start doing that, though, as a brand new company that has never done this before? What's step one and then step two and step three? Step one is hire great people. And many times the alchemy of great people is the most important part of the solution. We have this thing we call the talent distillery. So what's that? It's about the mix of senior and junior talent.

43:47I believe in teams that are basically 80 % young and up and coming, smart, driven, bright. They don't know what's impossible. And about 20 % of the, what we call the oak, they've got a bit of scar tissue, got some experience. And then you put them all together and the oak and the spirits interplay with this great alchemy. And many times what we do is we put the, like on our engine program, for example, the guy leading it is this guy, Nick Sharika, who's at this point a nine-year boom veteran. He ran flight tests on XB1. He's never done an engine before, but he loves engines and he's a really fast learner.

44:21And then we've surrounded him with people that have done engines before and they just learn super quickly and we get to hardware super quickly. So, you know, we'll go on this like lightning tour. We'll tour every factory in the country that's relevant to this, decide what we're going to do ourselves, decide where it makes sense to pick a partner and go forward from there. Have you been peeling any old oak engineers from Boeing? Unsuccessfully. We've had a handful of people that we get out of Boeing earlier in their career before they've been corrupted. But every single big aerospace hire that we've made out of any of the top companies and put into a senior leadership role, it hasn't worked out a single time yet.

45:02That's interesting. And I think the reason is that to succeed at a startup doing something differently, you can't walk in thinking you already know all the answers. So if we do this the way Boeing would do it, we're going to end up with a$10 or$20 billion program, and it's just impossible. You have to be willing to think differently. And so you've got to have people that are willing to say, I want to learn all the principles. I want to learn all the fundamentals. I want to learn all the physics and all the manufacturing engineering. but I'm not going to, I'm going to forge my own path for how we go about the development program.

45:32I'm going to write a new playbook because the old playbook doesn't work. I'm reading the bio page for Nick, Nick Sharika, who you mentioned, and it says, in his free time, Nick fabricated and test flew his own experimental home-built aircraft. Sounds like a cool guy who you'd want to have, who you'd want to have on your team. What did, you mentioned how some of this tech is 1970s tech. What actually has substantively improved tech-wise since the age of the Boeing such that the economics, just from a sort of like cost per mile or cost per seat, are going to be better? So it turned out that Boeing shipped all the technology you need for an economic supersonic airliner on the 787 about 15 years ago.

46:13So it's carbon fiber composite airframe. And that matters not because it's lightweight, although it is. It matters because you can shape it in very complex ways. If you look at the fuselage on Overture, it's not a constant tube. It's bigger in the front and it's skinnier in the back. That results in about 20 % better aerodynamic efficiency. And you can't build that in an efficient way out of aluminum. You need to be able to build it out of composites very precisely. So new materials make a difference. Engine technology, Concorde flew with converted military engines with afterburners. And that is a, it's a very expensive way and a very loud way to make thrust.

46:54But today, every commercial airplane flies with a turbo fan. They're cleaner, quieter, way more fuel efficient. And you just have to have enough thrust to overcome the drag. You don't actually need an afterburner to go supersonic. So materials and the airframe, improved engines. That's about engine architecture. It's also about the super alloys that go into those engines that allow them to run at higher temperatures. Then a lot is computation as well. It used to be you have to develop in a wind tunnel. And every iteration would take six months and cost millions of dollars. And today we have software virtual wind tunnels.

47:25And we can press a button. And overnight, we can run the equivalent of hundreds of wind tunnel tests, looking at many different designs and pick the best ones. And with cloud computing, you can just rent that capability computationally. And then we've got our own software that allows a small design team to do the work that would historically require a large design team. So we've got new materials, we've got better aerodynamics, we've got better engines, we've got software everywhere. And all of that adds up to about a 20 % aerodynamic efficiency improvement. Similarly, about a 20 % engine efficiency improvement.

47:59And you put all those together into an airplane, and then again, relative to Concorde, you can make the seats bigger and more comfortable while the costs come down. I do remember seeing the 787 for the first time when it debuted at Farnborough, and they took all the reporters on. You could walk through it. And it was an amazing experience. And everyone was like oohing and aahing over the composites and just moving from like room to room to room within the aircraft itself. But just on this note, and this sort of dovetails with Joe's question earlier about whether or not customers will be willing to give up flatbeds for an extra, I guess, two hours, three hours of their time.

48:40How confident are you that airlines themselves are going to prefer higher speeds over lower operating costs? I think the United and American and Japan Airlines deals are going to speak for this. At the end of the day, airlines are in business to make money. And if you look at the economic profile on an overture relative to the economic profile flying a flatbed in business class, the airlines are going to make more money supersonic than they would make subsonic. So there's a very capitalist motivation there on one hand. On the other hand, there's also an arms race. So our passenger research says that 87 % of people who fly first-year business internationally today would switch airlines in order to access supersonic flights and walk away from their status and their loyalty points and whatnot.

49:28And what that means is as soon as one airline gets supersonic, all their competitors have to get it too because passengers want it. Wait, just real quickly, why are they – just walk through like the cost basis or the economics of a flight on a supersonic and why it's compelling for the airlines that have already made the preorders. Yeah. Let's take New York, London as just an example case. It's pretty representative from a cost perspective. With 80 % of the seats full, which is a little bit less than what airlines typically get, the break even fare round trip is about$3 ,500. And that compares to people routinely paying five grand or more in business today.

50:06So it's super profitable. And why is that? Well, you're starting with a pretty efficient airplane. Initially, it only carries the premium passengers, the first in business. And because it's a faster airplane, it can do twice as many flights with the same airplane and crew. So you can sweat the asset. And I think that's the thing that a lot of people don't realize about supersonic. If you can build an airplane that's got enough demand and it's got the right number of seats and the right amount of range, you're going to be able to fly it 12, 13, 14 hours in a day just like a wide body. but you're going to get twice as many trips out of that.

50:41And so we call that the speed dividend. By going faster, a bunch of costs actually come down. Blake Scholl, this is super fascinating. It's so great to, I love hearing about manufacturing history and all of this stuff. And when you have all of these exciting new side projects and side revenue sources and everything, let's do another episode. Let's do it. Anytime you want to come to Denver and see the factory and see the test airplane. When's your next test flight? Next test flight is probably about three years out. We did 13 on the XB1, accomplished everything we wanted to accomplish. And so that airplane is retired now.

51:14And the next test flight is going to be the airliner. Thanks so much, Blake. Really enjoyed you coming on the Outlaw. Appreciate you having me. Good to chat. Tracy, good to chat. Thank you. Thank you so much.

51:36Tracy, it was one minor point in there that I thought was interesting. You know, when it comes to manufacturing, people always talk about the importance of agglomeration and having everything together in a Shenzhen or whatever. It is funny to think about that for political reasons. We have specifically decided to make the American defense manufacturing base extremely diffuse so that every congressman and senator feels the need to protect jobs in their own home state to consider various weapons programs. It is funny, but I mean, it also weirdly exists for commercial products as well, right? And I'm thinking there was a chart that I tweeted many, many years ago that showed manufacturing of a hot tub in America.

52:17And you could just see the round trip that all these different parts actually took. It's built in like Colorado, but then stuff gets sent to Arkansas, North Carolina, whatever. And it does seem like it's very time consuming. We just need one state or one really big chunk of a state to sort of have. Which state do you nominate, Joe? That's the problem. Well, I would pick it somewhere like in West Texas or something like that, where there's just a ton of flat land and a bunch of solar panels. Of course you would pick Texas. And then you'd have it like libertarian, no rules and no, and just build up whatever you want.

52:52No, I thought that was really interesting. I don't know. I guess I'll believe it when I see it. Yeah. I mean, it would be really cool. I'm very pro it. But what does that mean to be pro it? We are pro it. But like, it'd be really cool. I'd love to see it actually happen. So there's two things that really stand out to me. So number one is, I think the operating costs are going to be key, right? Like that really is one of the things that kind of doomed the Concord. It wasn't very fuel efficient. And then because it was such a small fleet, the actual maintenance was really expensive because you had to have all these specialists and things like that.

53:27So operating costs are a big one. And then I'm just not sure that airlines are going to airlines and customers to the point that you made are going to be that interested in, I guess, like a two hour gain on a flight if it comes with a higher ticket price or a lower profit. So that seems to me to be the key. And again, like I've seen the business class airlines start up before, like Silverjet and Maxjet. What's your theory about why they failed? It was operating costs. So they started, I think it was post 2008, and then things were going okay, but then oil spiked. Yeah. And that kind of doomed them.

54:07And actually, that reminds me, I was going to tell you a story. Silverjet, one of the business class only airlines. So when it was entering its last days, it was obviously having trouble getting extra money from its various creditors. And so the CEO started putting jet fuel on his personal credit card. Oh, that's cool. And the funniest thing was his personal credit card had reward points with British Airways. So he was earning tons and tons and tons of BA points while purchasing jet fuel for his own airline. That's a good nugget. You know the story about FedEx, right? How like the company, I think FedEx like was really close to going bankrupt really early on in those days.

54:49And the founder, there's like some story the founder like went to Vegas and played blackjack. Let me look at a FedEx founder Blackjack. There's some story how Fred Smith rescued FedEx from bankruptcy. He won$27 ,000 playing Blackjack one time. And he rescued the companies from bankruptcy. So yeah, sometimes entrepreneurs, they just got to like put it all on the line themselves. They got to gamble. To save their company. Yeah. All right. Shall we leave it there? Yeah, let's leave it there. This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

55:22And I'm Joe Weisenthal. You can follow me at The Stalwart. Follow our guest, Blake Scholl. He's at B Scholl. Follow our producers, Kerman Rodriguez at Kermanerman, Dashiell Bennett at Dashbot, and Kale Brooks at Kale Brooks. For more OddLots content, go to Bloomberg.com slash OddLots. We have a daily newsletter and all of our episodes. And you can chat about all of these topics 24-7 in our Discord, discord.gg slash OddLots. And if you enjoy Odd Lots, if you like it when we talk aerospace, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free.

56:00All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

56:17Thank you.

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