We usually write about publicly held companies but there has been a private startup company that has caught our attention. What if you could drive your car over to the local airport, sprout wings and fly to another airport, stow the wings then drive (as a car) to your destination. Sounds like the future, right? There is a company named Terrafugia taking orders for this product today. The aircraft/car is called “The Transition”. How’s it work? A few pictures are worth a thousand words (or click here to view a video):
The following description is from Wikipedia:
Terrafugia is a small, privately held American corporation that is developing a roadable aircraft dubbed the Transition. Terrafugia was founded by graduates of the Department of Aeronautics and Astronautics at the Massachusetts Institute of Technology and graduates of the MIT Sloan School of Management. Their team and business plan was the runner-up for the 2006 MIT $100K Entrepreneurship Competition. Terrafugia was then incorporated May 1, 2006, with much of the initial funding coming from CEO and founder Carl Dietrich’s US$30,000 Lemelson-MIT Student Prize. The first round of convertible note financing began at EAA AirVenture Oshkosh 2006 and closed December 21, 2006, raising US$258,215. Five additional rounds of convertible note financing followed. The first round of equity financing closed in 2008 and raised US$1,531,323. Another round of equity financing was planned in 2009. Second and third rounds of equity financing raised US$2,037,680 in May, 2010 and US$960,418 in Dec, 2010…
The Transition would qualify as a LSA (Light-sport aircraft) under FAA certification. There are several LSA manufacturers; probably one of the most recognizable names is Cessna which is owned by Textron (TXT). The Cessna 162, a LSA, sells for approximately $150,000 and the Transition anticipated base price is $279,000. Although this is sort of an apple to orange comparison since the Cessna is strictly an airplane that you cannot drive home and park in the garage as you can with the Transition. Are the advantages worth the cost? Terrafugia poses this question on their FAQ webpage:
Why would I get a Transition® instead of a car and a plane?
Having ground mobility and the ability to fly integrated into the same vehicle provides new options for travel that are not available with two separate vehicles: If bad weather is encountered en route, the pilot can land and drive without worrying about ground transportation or having to return to pick up his plane. At the destination airport the pilot can fold the wings and drive off the airfield without having to move bags or arrange for additional transportation. Driving and flying can be combined between multiple airports as it is not necessary to take off and land at the same field. The Transition provides a flexibility that cannot be matched with a separate car and airplane.
The Transition® also reduces the cost of ownership of an airplane by burning automotive gasoline, parking in your garage at home instead of renting a hangar, and nearly eliminating ground transportation costs.
To date, Terrafugia remains privately funded by a sophisticated group of accredited individual investors. They do have an Investors link on their web site where one can request investment information however you must certify that you are an SEC accredited investor to receive the information. The federal securities laws define the term accredited investor here.
This is a company in the cash burn phase with no guarantee it will survive long enough to produce positive free cash flow. Should Cessna, with the backing of TXT, or other large manufacturers such as Cirrus decide to enter this market they could be a significant competitor. The advantage Terrafugia has to date is a head start of several years and increasing as they work with the various regulatory agencies to have their design serve as the new standard for a road worthy aircraft; no small task. That said we have not heard of any plans to develop a flying car meeting US regulations by either Cirrus or Cessna.
However another threat could come from what are known as VTOL designs (Vertical Take-Off & Landing). A list of competing ideas can be found here. The key to success here are safety in community areas, flight instruction learning curve and high on the list; cost.
There appears to be a growing demand for the product. They do note on their website that roughly 100 aircraft have been reserved, representing an order backlog of over $25 million. How many actually follow through when the time comes will depend in large part to economic conditions improving and/or the emergence of new competitors with financial backing.
Could this be an opportunity? Even though interest and demand are starting to emerge it’s too early to tell. Bottom line, any investor should be prepared to lose their entire principle but that is typical of any start up in the early phase.