SPACs and Knowledge 1.0

Aerospace has always been powered by money. Usually lots of it, not always wisely spent. In fact, throughout its existence, aerospace has had notoriously low rates of Return On Investment, despite the vast quantities of capital deployed. So the recent flurry of mergers between aerospace start-ups and Special Purpose Acquisition Companies (SPACs) is more significant than normal. What caught my eye was the eye-watering amounts of money involved in some of the deals. As industry analyst Richard Aboulafia (always worth listening to) so succinctly puts it, “If you are an [aerospace] investor, for $100 million you can dig yourself a hole. For $500 million you can dig yourself a considerably larger hole.” So what was I missing?

Simplistically, the value of a start-up company is in the perceived potential – which, in turn, is based on the perceived value of the Intellectual Property – which is, in turn, dependent on the perceived knowledge base for maximising IP commercial value by delivering quality product to a receptive market quickly.

Therein lies the problem. Aerospace is a dinosaur in comparison to the mobile app world (usually the poster-child of start-ups). Aerospace has product development cycles of five years, whereas mobile comms can be five months. Aerospace products are expected to be commercially viable (in some shape or form) for 25-odd years, as opposed to 25-odd months for mobile handsets. The aerospace regulatory environment is vastly more severe than the consumer product approval process (and for good reasons!). The aerospace knowledge base usually required to deliver a competitive product goes back decades, not months, as many hard lessons of real-world airline operation require a couple of project cycles to work through the design teams.

In this respect, Boeing has a knowledge base stretching back a hundred years, Airbus' is fifty years old (well, for the parent company at least) and Bombardiers’ (rapidly shrinking) knowledge base is at least thirty years old.

And yet Boeing is carrying $19bn in deferred 787 production costs (not to mention the 737 Max charges), Airbus is shutting down the A380 with substantial losses and the C-Series broke Bombardier. Not exactly successes. So what went wrong with applying the knowledge base? It wasn't technical, as all three products have earned rave reviews from savvy passengers. Application, maybe? Certainly examples of established retained corporate knowledge bases not being used properly abound. Since the knowledge base is ageing rapidly, the old aircraft development business model looks to be going stale.

However, it isn't for want of possibilities. Aerospace is a fabulous business to be in if you want thoroughly mind-stretching, multi-disciplinary challenges, working with other very multi-talented people to deliver practical solutions in a demanding regulatory environment to a very tough market (though on several occasions, I have had to remind myself of just how much fun it is through gritted teeth when working with examples of How Not To Do It - which unfortunately greatly outnumber the examples of How To Do It Right).

And in that respect, there is a fascinating new aerospace dynamic that SPACs might - just might - enable. Providing fresh pastures to re-juvenate the knowledge base and allow it to grow could generate a whole new level of aerospace value creation. But creating the right growing conditions in those fresh pastures to enable stable and long-term value creation is fiendishly tricky. Tricky enough to require some very insightful judgement and a some high-quality, old-school person management skills - the sort of skills that drove past corporate innovation and product successes - that do seem to be a bit thin on the ground in the modern, 128-character-driven business environment, judging by some of Richard Abloufia's recent posts.

Which is where the people at that wonderful little aerospace company, Shorts, provided me with yet another worked example of How To Do It Right way back in my early days.

In 1993, I’d just finished taking a year out in Belfast to complete an MSc in Manufacturing Systems when the worst down-turn in aerospace (to that date, anyway!) hit, resulting in zero employment prospects. My crisp new MSc certificate I’d just earned gave me absolutely no additional leverage in the job market on top of the previous six commercial aircraft flight test projects I'd completed. So the university offer of post-grad research based on the quality of the MSc thesis I’d submitted suddenly looked very appealing (and it even had a small bursary too!).

The subject was “Intelligent Databases for Aircraft Structural Design”. Bit of a dry title for a research topic, and one for the nerd community (of which I was founder member). As an additional plus, it meant getting re-involved with my first local employers, Shorts (and for who I had a real soft spot), which by 1993 was owned by Bombardier. A great little aircraft company with an amazing history. Shorts for mostly the right reasons, Bombardier sometimes for the wrong ones.

My primary goal for this research was to find out what factors make a successful aircraft design. My secondary goal was to keep me off the streets by doing something mind-stretching, entertaining and educational (which was merely an extension of the original mission goal for the MSc anyway). By itself, a database had no chance of being a PhD. But by inserting the word “Intelligent” into the research task, it suddenly became very much acceptable to 1993 academia, where the hot topic was commercial applications in the fledgling area of Expert Systems (and whatever happened to those??!!). Besides, I got to swot up on the many aerospace activities well outside my comfort zone that knit together to create an aeroplane – including knowledge transfer. I mean, just how DO these guys and gals work together to create and build good aeroplanes?

Armed with a tape recorder, a highly recommended "Expert System" knowledge elicitation script and a list of old friends, I set out to glean as much insight as I could on aircraft structural design practices and ensuring a good configuration that gave a practical product. In that respect, Shorts had a distinctly above-average track record over the decades, building twenty-five aircraft types within forty years. I started to spend three mornings a week buying old contacts coffee and biscuits while they talked aircraft design with varying degrees of enthusiasm. Great work, just a shame it was at student rates.

But the conversations quickly made it pretty obvious that I’d clearly underestimated the interactions that took place in the evolution of any design configuration and how that information in evolving that design was exchanged. The limitations of approaching this from my rather narrow flight-test-based view rapidly became apparent. At least all the guys I was talking to freely admitted that they didn’t have The Big Picture, either. However, by wide acclaim, there was one guy who did.

Harry.

Harry was a fairly crusty but highly enthusiastic long-serving character who was legendary within Shorts. While he had a reputation from some people as being difficult Old Geezer, the people who I rated, rated Harry.

For good reason. Harry had started at the company as a 14-year old mail boy in Rochester in 1940, and came to Belfast when the company facility had been moved to escape the Blitz. He never left. An amateur wrestler of some connections, he had an excellent way with people and perspectives, so much so that he once convinced Mr. Universe himself –Arnold Schwartzenegger – to visit the Shorts Weight-Lifting Club in the late ‘60s. Always with an active mind and manner, dressed in a crisp white shirt rolled up to the elbows, he had worked through some of the toughest design projects in the toughest conditions on those twenty-five odd types (including the world’s first VTOL flat-riser) - and come up trumps.

So, like the A-Team, if there was a particularly tough design problem that needed fixing and nobody else could solve it, Harry and his little band would be called in to provide a solution. And like the A-Team, he and his small squad had a bit of a nomadic existence but could eventually be found in some little office hidden away somewhere in the darker reaches of Shorts' Queen’s Island facility. People would (metaphorically) throw tough problems in through his door, and he’d (equally metaphorically) throw some fabulously practical solutions back at them.

With some trepidation, I arranged an introduction.

Harry was helpfulness personified. He was intrigued by what I was doing, understood the intention, and was supportive enough of the work to give me three one-hour session from his busy schedule for initial discussions. I breathed a sigh of relief.

It was short-lived. In the first session, it rapidly became obvious that the traditional “Expert System” robotic Q&A approach was – for working with Harry – tedious, to say the least. We definitely weren’t making the best use of his valuable time, and were definitely missing something. That inspiration wasn’t there. The second session was no better.

So for the final session, I tried one last effort to get the conversation going. I threw out the recommended and approved "Expert System" knowledge elicitation script. I dug up a long-dormant memory about a small design proposal that I’d been aware of years ago in my first incarnation in Shorts on which Harry had been involved. It didn’t make it to the test stage, and I thought it would be interesting to know why – failures can teach you more than successes, after all.

We met in the usual fairly tatty conference room in the Guided Weapons facility off Airport Road on a bright Wednesday morning at 10am. As usual, I brought the fresh cream buns from the little shop in Dee Street and Harry brought the coffee. I set up the tape recorder and Harry pulled out his note pad, not with a lot of enthusiasm. I made a simple opening gambit. “Tell me about the Shorts 360 Nacelle Boat-tail Fairing project, Harry…..”

Harry sighed gently and not a little wearily. That might mean he regarded it the same way I had (an idea that was better than it was given credit for). It could also mean he thought he was wasting his time with the conversation. I took the former more positive view, but it could just have easily been the latter. Irrespective, we were here, the coffee was warm, the cream buns tasty and he said he’d help, so we might as well see the hour out.

“Well,” he started slowly, doodling gently on his sketchpad as he began to talk, “we knew that tailplane vibration could do with a bit of a reduction and any increase to aircraft performance would certainly be worthwhile….”

Just to try and show a bit of enlightened interest on my part, I interjected “…..just like the prototype Mosquito, then……..”

Harry stopped, and slowly looked up in my direction. I braced myself for an earful for the interruption.

He looked at me quizzically, as though digesting what I’d just said.

“Yeah…….” he said quietly, as though musing to himself.

“Yeah!” he continued, realisation crossing his face.

“YEAH!!” he exclaimed, excited. “How did you know that?!!”

“Well, anybody in this business interested in aircraft should know little things like that. It helps understand the design….” I replied, surprised at the response the simple interjection had created. I was amazed at what followed.

“Oh, I didn’t know you knew THAT sort of stuff! Well that’s different then….”, and he launched off, transformed into an enthusiastic lecturer in full flight, relating anecdote after anecdote to me. He actually explained the entire project to me in 15 minutes flat. All of it. Or rather, all of it that mattered, good and bad. Within a few exchanges, he knew intuitively where my background knowledge and experience would fill in the blanks, or where additional elucidation was required. We suddenly found ourselves communicating seamlessly. It was just fascinating, and all the essential information that I needed was all there. And then we went onto the next example project, with the same result. And then next……

Listening to the recording afterwards in the cold light of the university office brought back a very warm recollection of everything in the conversations. But to anybody else, the conversations were simply unintelligible, with not a single complete sentence at any point on the tape. As a sanity check, I played it to a couple of friends in the student common room. One guy asked why I’d bothered to record an argument in a bar.

Because it wasn’t data. It wasn’t information. It was Knowledge Transfer in its’ purest form. But only if you were on Harry’s wavelength and with a high enough bandwidth to understand it and make sense of it.

By sheer fluke, I’d tuned into one of Harrys’ Knowledge Transfer harmonic frequencies. I took full advantage. The next three sessions were simply fabulous, and not a note was taken, just the recordings (which I still treasure). Despite not being a structures guy or a stress man, he gave me all the fundamentals I ever needed to understand design and integration, most of which I still use today for the benefit of enlightened others.

Which is why Harrys’ Little Team were so special. Not only were they on his wavelength, they had the bandwidth to keep up and (more importantly) communicate back on the same level. The exchange was effortless, unlocking everybody’s creativity within the diverse little squad, maximising the value of the solution. That small team punched well above its weight, despite the disparate set of characters involved. The sort of team and personnel management skills that an MBA can’t teach. Which also explained why some thought Harry a difficult-to-work-with Old Geezer – they simply couldn’t keep up.

I had to push the pause button on the research in July 1994 when BFTC offered me a 604 flight test contract (which subsequently funded more research). But I left Belfast for that contract with a fundamentally different mindset from the CRJ200 experience that I’d arrived with two years previously – and it showed.

This time round in Wichita, I actively sought out the “Harrys” of the project in BFTC rather than avoid them, and I rapidly discovered they were usually unsung geniuses all. Don S was by far the biggest influence, letting me tap into his encyclopedic experience in other flight test programs to optimise the reporting. By focusing on the knowledge and not the data, previously tediously limited project engineering reports were turned into a seamless “How-Goes-It” information update service for everybody. Any question could be answered at any time, effortlessly, maximising solutions and ensuring productivity. We ended up with a much leaner and meaner flight test programme as a result. And because The Big Picture was now expressed much more clearly, our solutions were easier to justify to the management and the programme easier to optimise. We certified six weeks early, probably saving the company about $1.2m in the process. Just sayin'.......

Cultivating relationships with the local “Harrys” to maximise the Knowledge Transfer was clearly the fastest way to maximise progress. The lessons were obvious. Establishing their “natural frequencies” was paramount. Appreciating them for who they were – not who you wanted them to be – was essential. Listening properly was vital. And never, ever attempt to slow them down – it’s what made them great at what they do in the first place.

Harry’s Little Team back in Shorts had dug Senior Management out of so many holes on previous projects that they had been left to their own devices with the simple brief of being available when they were needed. And Harry made sure they were. It was a very simple deal between Harry and the Senior Management. Just the sort of deal that an MBA would declare “high-risk” while incurring an overhead that would drive a Boeing Financial Executive nuts.

But they did the sort of things in the sort of way that SpaceX, the darling of the investor community, does today. By being practically creative, building solutions rapidly, fixing mistakes, solving problems, iterating quickly and cheaply. Working Intelligently. Generating the sort of value that makes SPAC investors salivate. And doing the sort of work that creative genius simply loves. With knowledge freely exchanged for those on the right frequency with enough bandwidth. The sort of people that Shorts had a disproportionate number of.

Many aspects of the recent track record for Big Aerospace hardly constitutes a success story. So it is no wonder that the current spate of aerospace investor SPACs are taking a different approach – but one with some provenance, despite the distain with which they are regarded by mainstream financial institutions (which, let's face it, backed Boeing). By trying to create the right environment for assembling their own team of “Harrys”, a SPAC can fund the environment that unlocks the creative talent to provide much better product solutions for vastly lower costs. Eric Schmidt managed to create just those conditions at Google. But failing to create that environment - a much more likely outcome - will simply result in yet another very expensive dead-end education programme for young engineers and managers. That would be a shame for an industry with such potential.

Whether the (probably MBA’d) SPAC Investors themselves can detect and tune into the relevant frequencies to make this happen – and understand the message being broadcast – will be interesting to watch.

If one SPAC – just one – manages to get the right team of “Harrys” in the right place at the right time, there is every prospect of an aerospace Tesla. Whether the market can bear the losses of the other 99 – let alone the likely 999 – remains to be seen.

Because Harry was unique. And “Harrys” are rare.

But pure gold when unearthed.