Kratos Should Leave Supersonic Boom (NASDAQ:KTOS)

Supersonic flight has been an illusion since the Concorde was removed from service. Occasionally, we do see trans-Atlantic flights reach supersonic speeds, but that is with the help of strong currents. Boom Supersonic (“Boom Aerospace,” privately held) has made its mission to change that. Recently, the company partnered with Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS). The defense contractor is tasked with developing the supersonic engine for Boom’s Overture aircraft. In this report, I explain why I think Kratos better stay away from Boom Aerospace.

Boom Overture: Not For Everyone

This year I will be celebrating a decade of writing with Seeking Alpha. During that decade, I often heard the complaint that many aircraft have developed, but cruise speeds have barely improved. I would partially agree. The Boeing 707 flew at a cruise speed of Mach .8 and the Boeing 767 cruises at the same speed. However, the Boeing 787 has a cruise speed of Mach .85, meaning it flies 0.85 times the speed of sound at that altitude.

One thing that often is not considered is that the reason aircraft don’t fly faster is because, at higher speeds, the velocity of the air over the wings goes supersonic. That has implications for the aircraft’s drag profile. I won’t go into details on that, but the result is that to overcome the drag around sonic speeds, the aircraft would burn more fuel. To fly at speeds significantly higher than the speed of sound, an aircraft would require engines that are developed for this speed regime, and those engines are not particularly fuel efficient.

That ultimately means that the aircraft consumes more fuel and ticket prices are higher, unless there is some major breakthrough on design of supersonic jets and engines which technology curves do not suggest is the case. The trend for air travel demand is directed upwards, and air travel has become a mass transit medium, with air travel becoming more affordable for more people. Supersonic travel really does not fit that trend.

For a long time, Boom Aerospace presented itself as a company that would provide the aircraft that would make the world smaller or bigger depending on the way you look at it. By flying faster from points A to B, many doors open. The company saw itself as a connector of families, companies and cultures. People would be able to fly London-New York and could be home in the evening again to spend time with their family.

What Boom did not add to this ideal story is the fact that the Boom Overture is a jet with 65 to 80 seats and that tickets would cost approximately $5000. That is something that was deeply buried on their website at the time I did my research on the topic. In a day and age where low-cost travel is booming, it is clear that while Boom sees itself as a connector, it only really is a connector for those who have the money to spend. So, doors only open for those who have the money, completely defying the trends in the industry. Defying the trend doesn’t make the business case right or wrong, but the role as a connector is much smaller for Boom than it wants the world to believe.

Changing The Marketing Sauce

Boom Aerospace altered its marketing pitch during the pandemic. The company now presents itself as a way to efficiently connect personally. That obviously has everything to do with people spending two years of their lives in Zoom and Teams meetings rather than meeting in person. With demand for air travel increasing sharply, Boom tries to capitalize on that with the element of personal meetings.

The new element is the environment. During the pandemic, many companies including airlines were kept afloat with government loans, and most of them promised significant reductions in greenhouse gas emissions. Sustainable Aviation Fuel (“SAF”) by many is presented as the solution even though its scale to support the airline industry is so limited that it hardly is a solution. Nevertheless, Boom also uses this miracle cure to address the problem of carbon emissions. It even goes as far as stating that the Boom Overture will be optimized for use of SAF.

I would characterize this as misleading, because, while in theory current technology turbofans can already operate with 100% SAF, regulations only allow a 50:50 blend between traditional fuels and biofuels. United Airlines (UAL) did execute a flight with one engine running fully on SAF to show there is no difference. So, when it comes to SAF or the emission challenges, Boom is not at the slightest providing a solution, they are misusing a trend because changes in regulations are required to allow for 100% SAF use and there is no need for new aircraft or engines to allow this. Even if Boom’s Overture will be operating on 100% SAF, they really are not helping making aviation greener. Due to the inefficiencies of supersonic flying and the capacity constraints on SAF, every unit of SAF that the Overture uses is a unit of SAF that another aircraft carrying more passengers cannot use.

Is There Booming Demand?

Boom Aerospace constructs its business case for the Overture against an ESG framework, but relative to other aircraft concepts I don’t believe that business case is very strong. That, however, does not mean that there is no demand. For markets that are saturated, the Overture could add something, and we see some airlines also positioning for a scenario in which the Overture becomes reality. In the end, however, I do have significant doubts that the Overture will have a huge market – if it ever sees daylight – because the development timeline has slipped several times. Boom, however, does see demand for 2,000 supersonic jets, which I believe is extremely ambitious.

Kratos: In or Out?

Kratos does have experience with design of supersonic engines in the form of the F-119 and F-135 that are used on the F-22 and F-35, respectively, and it has experience in other engines classes as well. So, it is somewhat fitting that Kratos would end up one of the parties under consideration for the development of the Symphony engine which will have a takeoff thrust of 35,0000 lbf. Is that enough for Kratos to eventually develop the Symphony for the Overture? I would be inclined to give a negative answer on that. The reason is that there are many unknowns, and the business case of the Overture is not as compelling as the company wants stakeholders and the flying public to believe.

Other turbofan suppliers such as GE Aviation, CFM International, and Rolls-Royce Holdings plc (OTCPK:RYCEY) already have shown no interest in developing the Symphony for Boom. In 2022, Rolls-Royce pulled out, marking the supersonic market as a non-priority for them. That is a polite way of saying that they do not believe the market is commercially attractive, and in the worst case is an indication they don’t believe in the product Boom wants to develop.

Kratos was one of the last developers that Boom approached, and if this was a market that was truly as strong and a product that was truly as convincing as Boom portrays, I do believe other engine manufacturers would have stepped in. So, that is another reason why I believe that Kratos should not pursue the development or at least not have high hopes on commercial success.

Conclusion: An Engineless Business Case For Supersonic Travel

I think if you look at how Boom Aerospace has reshaped its business case for the Boom Overture several times with selling points that really are not as strong as the company apparently wants everyone to believe, and the fact that other engine manufacturers have refused to develop an engine for the Overture, I do believe that there is not much to win for Kratos Defense & Security Solutions, Inc. here, and especially not if the engine they want to develop can only power the Overture. While I do understand that Boom would eventually end up with Kratos because the company does have know-how on supersonic engine development, I do have major doubts on the commercial viability and feasibility of the project.

The only reason why I do believe that suppliers have some interest in the project is to learn under the wings of the Overture for a future in which supersonic travel is commercially viable for equipment manufacturers.

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