Kestrel Aircraft’s financial struggles not unique for airplane manufacturing startups

On Wednesday, Beth Brogan and I broke the news that Kestrel Aircraft Co., which employs about 40 people at Brunswick Landing, is late on paying rent, vendors, and has been unable to cover employees’ insurance premiums.

Alan Klapmeier, Kestrel’s CEO, confirmed the financial struggles, but said renewed funding is on its way that will right the company and allow it to continue building a prototype of its new turboprop single-engine airplane.

Eager to offer historical context to Kestrel’s situation, I called Mike Boyd, who is now an aviation industry consultant in Colorado, but was once the vice president of Bar Harbor Airlines in Bangor.

Kestrel’s situation is not unique, Boyd said, as quoted in the original story. All airplane manufacturing startups have faced these kinds of problems, he said.

Boyd points to the case of Eclipse Aviation as evidence of how tough the aircraft manufacturing business can be. In the early 2000s, Eclipse was attempting to build a new, lightweight twin-engine turbojet. After taking legitimate orders (and down payments) on 1,500 planes, the company went bankrupt in late 2008, costing investors, suppliers, and order holders more than $1 billion, according to a 2009 article in Flying magazine.

That article’s author, J. Mac McClellan, suggested at the time that the spectacular collapse of Eclipse would chill investor interest in aircraft manufacturing startups.

“The trauma will linger for years as investors, rightly terrified by the Eclipse disaster, refuse to put money into new airplane programs that can really work,” McClellan wrote at the time.

Interested to know if the Eclipse fiasco’s chilling effect could be contributing to Kestrel’s struggles to secure financing, I contacted McClellan on Wednesday.

McClellan, who is has covered the aviation industry as a journalist since 1976, said he was not surprised by the financial challenges Kestrel is facing. Past experience is not encouraging, he said. Eclipse isn’t the only aircraft manufacturing startup that faced initial troubles, though it may be the most spectacular.

No aircraft manufacturing startup in the United States has succeeded that didn’t have its roots in World War II, said McClellan, who is now editor-and-chief of publications for the Experimental Aircraft Association. Some point to Learjet, started in the late 1950s, as the exception, but McClellan said the original Learjet went bankrupt after manufacturing 100 airplanes.

“I think it’s part and parcel of the whole history of aircraft manufacturing startups — spectacular failures,” said McClellan. “There really isn’t a clean play at success for an investor. You can’t point to a company and say, ‘Ah ha! I invested early and made a lot of money.’ It just hasn’t happened.”

Cirrus Aircraft, the company Klapmeier was involved with prior to his role at Kestrel, could be considered a success from a customer’s point of view, McClellan said, as the company makes a good plane, never stopped production, and never filed for bankruptcy. But the company was bailed out by an investment firm backed by investors in the Middle East, and most of the early investors didn’t gain a return, McClellan said.

“Even in that case you can’t say, ‘Ah ha! Those people figured it out,’” he said.

“Even Boeing, mighty Boeing, missed everything about the 787 [Dreamliner]. Every detail they couldn’t meet, they’re three years late,” McClellan said. “If Boeing can’t do it with almost unlimited funds, capabilities and experience, that just shows how hard this is. A Kestrel is not remotely as complex as a 787, but it still has to fly. It’s just not easy.”

All that being said, Boyd and McClellan are not saying Kestrel can’t be successful, it just has the deck stacked against them from the beginning.

“History has a lot of failed airplane programs out there,” Boyd said. “It’s tough to break into. But nothing ventured, nothing gained. This is not a pipe dream on their part.”

“They aren’t shysters,” McClellan said. “They’re optimists and they love aviation and they think this is the one.”

Correction: The original version of this blog post included a comment from J. Mac McClellan that said no early investors in Cirrus Aircraft saw a return on their investments. That was incorrect. The sentence has been changed to say “most of the early investors didn’t gain a return.”

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Whit Richardson

About Whit Richardson

Whit Richardson is Business Editor at the Bangor Daily News. He blogs about Maine business, entrepreneurs and the economy.