4 ms·

Title misleading. The relationship is opposite what's implied. Boom will be hiring Branson's "The Spaceship Company" to do engineering, and Virgin gets an optio

Title misleading. The relationship is opposite what's implied. Boom will be hiring Branson's "The Spaceship Company" to do engineering, and Virgin gets an option to buy the first ten planes. Granting an option means Boom has given something to Virgin, not the other way around. > a Virgin Group spokeswoman confirmed their plans to The Guardian: “We can confirm that The Spaceship Company will provide engineering, design and manufacturing services, flight tests and operations and that we have an option on the first 10 airframes. It is still early days and just the start of what you’ll hear about our shared ambitions and efforts.” EDIT: Let's hope that we hear Virgin is making a big investment in Boom soon, that will be a stronger indicator. If Virgin really had substantive interest in the planes, and Boom was actually experiencing demand, Virgin would have had to PAY MONEY for an option.

nostrademons 11y ago
My interpretation is that this is pretty standard LOI-speak. The reason it's an option is because Virgin is under no obligation to buy the first 10 airframes: LOIs are usually non-binding and contingent upon the company actually delivering what they've promised, which means Virgin can back out if Boom can't actually deliver on the promised specs. But the money is still flowing from Virgin to Boom. The bit about the Spaceship Company seems to be systems-integration, not hiring out the full engineering department. If you've ever sold enterprise software, usually a deal with a big company includes a commitment on the part of the customer to provide engineering & testing resources to integrate the new product. For something huge like an SST, they need to ensure it meets Virgin's safety specifications, they need to make sure it can interface with Virgin's maintenance department, they may need to alter the design to meet noise requirements from airports Virgin operates from, and all other sorts of little engineering tasks. These all require engineering resources from the customer, not just the seller.
- timr 11y ago
  "LOIs are usually non-binding and contingent upon the company actually delivering what they've promised, which means Virgin can back out if Boom can't actually deliver on the promised specs. But the money is still flowing from Virgin to Boom." ...unless the deal is an LOI on something so far in the future than it's (effectively) meaningless, coupled with an agreement to pay the LOI-signer for real-world engineering services, today. Then the money is flowing the other way, as the OP said. The finances aren't actually clear from this announcement, but the TechCrunch headline (and some of the reaction here) is certainly credulous. A LOI for an unbuilt airplane is essentially just validation that airline companies would like to have an cost-effective supersonic airplane, if it's possible to create one. I think most reasonable observers know that's true -- they just disagree on whether it's possible.
  - nostrademons 11y ago
    That's exactly what it is. And now they're going to take these LOIs to Kleiner Perkins, Sequoia, a16z, Fidelity, and any other money manager, say "We have $5B in signed LOIs for a Mach 2.2 airplane. Would you like to help us build it?", raise a few hundred million in capital, and then hire a lot of bored aerospace engineers out of Boeing, Lockheed, and Airbus to actually make it a reality. Or try, at least. If they can't build it, the financiers are out their money, but that's a risk they willingly bet on, and by getting the LOIs Boom has de-risked the other serious problem. Before the late 1970s, this is how most businesses were created: big-talking entrepreneur promises something awesome to customers, signs them up, uses that promise to get money from financiers, uses that money to recruit the specialized talent that will actually build the product. Software threw a monkey-wrench into that, because having more people is actually a disadvantage when building v1 of a software product. But in many industries, the only way you can make progress is by lining up a number of commitments from people, all of whom bring something different to the table, and then hoping you can work out all the details later.
    - deleted 11y ago
      [deleted]
    - timr 11y ago
      Yeah, I agree that it's smart marketing. It might even work. It's still quite a long-shot that raising VC-scale money will get you to a working supersonic jet. But hey...better (for society; not necessarily the fund LPs) than investing in the newest SMS-based, on-demand food delivery service for dogs! That said, I don't agree with your second paragraph. Investors didn't suddenly lose (or gain) the ability to evaluate technical risk in the late 1970s. There have probably always been big-dream pitches as long as there have been investors, but most businesses started small, and grew. If anything, the throw-money-indiscriminately-at-a-dreamer style of investment probably became more popular since the rise of Silicon Valley, not less. In this particular domain, all of the big players started tiny, grew off of government largesse, or both. The risk is entirely on the execution and feasibility side of the equation. And a statement from an airline that they'd like an affordable, practical supersonic jet is of nearly zero information. I, too, would like a goose that lays golden eggs.
- deleted 11y ago
  [deleted]
- deleted 11y ago
  [deleted]
- foobarqux 11y ago
  No, because the issue here isn't whether there is a desire for the product, which is what the LOI demonstrates, it is whether the product can be built. Put another way, Boom won't have trouble selling their plane if they manage to build it, and the only point of the LOI is to put Virgin and Boom on the front page of every news outlet tomorrow.
  - nostrademons 11y ago
    It's the issue to us, who are random bystanders on an Internet forum without any skin in the game. It may not be the issue for other key resources that Boom will need to accomplish this. Imagine you were an aeronautical engineer inside, say, Boeing who had discovered a way to control or reduce the sonic boom generated by a supersonic aircraft. You can't get permission from your boss to investigate this further and run actual field trials - the higher-ups have already decided that Boeing is not going to be in the SST business, so why waste money on it? You have a family to feed and only one life to live, so if you jump ship to another job, it better be one where your invention will actually make it to market. By getting LOIs from customers, Boom has something to show to both investors and prospective hires so that the portion of the risk that is outside of their control is mitigated. That matters a lot - as an engineer, one critical thing I look for when joining a company is whether the founders and salespeople are doing their job and ensuring that my work will actually be valuable to customers. Remember that different people all have different pieces of the puzzle. I'm a random HN reader, I neither know nor care much about aviation. Someone who does know a lot about aeronautical engineering is a rather critical part of Boom's story, however, and may have a much better picture of the technical risks involved, and if such a person exists and believes they have a technical solution, demonstrating that you've solved the market & financing risks is a huge selling point for bringing them on board.
    - foobarqux 11y ago
      There is no risk in terms of demand for the product at the target price, just like there isn't a risk for demand for cold-fusion or, as someone else here suggested, a cure for cancer. It is true that the LOI serves a marketing purpose, which is why it was created.

nostrademons 11y ago

My interpretation is that this is pretty standard LOI-speak. The reason it's an option is because Virgin is under no obligation to buy the first 10 airframes: LOIs are usually non-binding and contingent upon the company actually delivering what they've promised, which means Virgin can back out if Boom can't actually deliver on the promised specs. But the money is still flowing from Virgin to Boom. The bit about the Spaceship Company seems to be systems-integration, not hiring out the full engineering department. If you've ever sold enterprise software, usually a deal with a big company includes a commitment on the part of the customer to provide engineering & testing resources to integrate the new product. For something huge like an SST, they need to ensure it meets Virgin's safety specifications, they need to make sure it can interface with Virgin's maintenance department, they may need to alter the design to meet noise requirements from airports Virgin operates from, and all other sorts of little engineering tasks. These all require engineering resources from the customer, not just the seller.

timr 11y ago
"LOIs are usually non-binding and contingent upon the company actually delivering what they've promised, which means Virgin can back out if Boom can't actually deliver on the promised specs. But the money is still flowing from Virgin to Boom." ...unless the deal is an LOI on something so far in the future than it's (effectively) meaningless, coupled with an agreement to pay the LOI-signer for real-world engineering services, today. Then the money is flowing the other way, as the OP said. The finances aren't actually clear from this announcement, but the TechCrunch headline (and some of the reaction here) is certainly credulous. A LOI for an unbuilt airplane is essentially just validation that airline companies would like to have an cost-effective supersonic airplane, if it's possible to create one. I think most reasonable observers know that's true -- they just disagree on whether it's possible.
- nostrademons 11y ago
  That's exactly what it is. And now they're going to take these LOIs to Kleiner Perkins, Sequoia, a16z, Fidelity, and any other money manager, say "We have $5B in signed LOIs for a Mach 2.2 airplane. Would you like to help us build it?", raise a few hundred million in capital, and then hire a lot of bored aerospace engineers out of Boeing, Lockheed, and Airbus to actually make it a reality. Or try, at least. If they can't build it, the financiers are out their money, but that's a risk they willingly bet on, and by getting the LOIs Boom has de-risked the other serious problem. Before the late 1970s, this is how most businesses were created: big-talking entrepreneur promises something awesome to customers, signs them up, uses that promise to get money from financiers, uses that money to recruit the specialized talent that will actually build the product. Software threw a monkey-wrench into that, because having more people is actually a disadvantage when building v1 of a software product. But in many industries, the only way you can make progress is by lining up a number of commitments from people, all of whom bring something different to the table, and then hoping you can work out all the details later.
  - deleted 11y ago
    [deleted]
  - timr 11y ago
    Yeah, I agree that it's smart marketing. It might even work. It's still quite a long-shot that raising VC-scale money will get you to a working supersonic jet. But hey...better (for society; not necessarily the fund LPs) than investing in the newest SMS-based, on-demand food delivery service for dogs! That said, I don't agree with your second paragraph. Investors didn't suddenly lose (or gain) the ability to evaluate technical risk in the late 1970s. There have probably always been big-dream pitches as long as there have been investors, but most businesses started small, and grew. If anything, the throw-money-indiscriminately-at-a-dreamer style of investment probably became more popular since the rise of Silicon Valley, not less. In this particular domain, all of the big players started tiny, grew off of government largesse, or both. The risk is entirely on the execution and feasibility side of the equation. And a statement from an airline that they'd like an affordable, practical supersonic jet is of nearly zero information. I, too, would like a goose that lays golden eggs.
deleted 11y ago
[deleted]
deleted 11y ago
[deleted]
foobarqux 11y ago
No, because the issue here isn't whether there is a desire for the product, which is what the LOI demonstrates, it is whether the product can be built. Put another way, Boom won't have trouble selling their plane if they manage to build it, and the only point of the LOI is to put Virgin and Boom on the front page of every news outlet tomorrow.
- nostrademons 11y ago
  It's the issue to us, who are random bystanders on an Internet forum without any skin in the game. It may not be the issue for other key resources that Boom will need to accomplish this. Imagine you were an aeronautical engineer inside, say, Boeing who had discovered a way to control or reduce the sonic boom generated by a supersonic aircraft. You can't get permission from your boss to investigate this further and run actual field trials - the higher-ups have already decided that Boeing is not going to be in the SST business, so why waste money on it? You have a family to feed and only one life to live, so if you jump ship to another job, it better be one where your invention will actually make it to market. By getting LOIs from customers, Boom has something to show to both investors and prospective hires so that the portion of the risk that is outside of their control is mitigated. That matters a lot - as an engineer, one critical thing I look for when joining a company is whether the founders and salespeople are doing their job and ensuring that my work will actually be valuable to customers. Remember that different people all have different pieces of the puzzle. I'm a random HN reader, I neither know nor care much about aviation. Someone who does know a lot about aeronautical engineering is a rather critical part of Boom's story, however, and may have a much better picture of the technical risks involved, and if such a person exists and believes they have a technical solution, demonstrating that you've solved the market & financing risks is a huge selling point for bringing them on board.
  - foobarqux 11y ago
    There is no risk in terms of demand for the product at the target price, just like there isn't a risk for demand for cold-fusion or, as someone else here suggested, a cure for cancer. It is true that the LOI serves a marketing purpose, which is why it was created.