Contemplating the Uncertainty Principle

Conceived of in a Southern California business incubator known as MuckerLab and officially founded in 2013, Surf Air is a Los Angeles-based aviation marketplace that offers members access to charter flights for a fixed monthly fee.

Surf Air neither owns nor operates the numerous Pilatus PC-12 single-engine turboprop aircraft adorned in its livery. Rather, the company coordinates flights for its members aboard subject aircraft—which are operated by third-party FAA certificated air-carriers.

In February 2021, Surf Air announced its intention to acquire Ampaire, the Los Angeles-based designer and manufacturer of hybrid-electric aircraft propulsion systems. However, in April 2022, Surf Air quietly abandoned the reportedly $100-million acquisition.

Comes now August 2023 and news of Surf Air’s stock tumbling precipitously from the $20-per-share initial reference price set by the New York Stock Exchange (NYSE).

On Thursday, 27 July, Surf Air stock opened trading at only $5-per-share. As trading continued into the late morning and early afternoon, the stock’s price fell to $2.75-per-share before trading in the company was halted on account of price volatility occasioned by the stock’s freefall.

On Friday, 28 July, Surf Air stock opened at a modest $2.64-per-share, a price reflecting a market capitalization of less than $500-million—well below the $1.2-billion valuation reported during a May 2023 fundraising round, but indicative, still, of an enterprise value 25-times greater than the company’s annual revenue.

Surf Air’s management has made public its intention to operate a fleet of hybrid-electric Cessna 208 Caravans after the fashion, not surprisingly, of Ampaire’s Eco Caravan—the first hybrid-electric aircraft to enter into the FAA’s formal certification process. Ampaire expects the agency to bestow supplemental type certification—tailored for the Eco Caravan’s hybrid propulsion system—upon the machine in 2024. Ampaire’s brass maintains an STC scheme will prove less costly and time-consuming than a full aircraft certification program.

Surf Air—in partnership with AeroTEC, MagniX, and TAI—is ostensibly developing a similar STC for a hybrid-electric Caravan.

On 23 July, mere days before its stock listing, Surf Air merged with Palm Beach, Florida-headquartered Southern Airways Express, a part 121 commuter air-carrier operating a fleet of 39 Cessna Caravans in passenger service.

In its pre-listing Form S-1 financial documents, Surf Air enumerated several challenges, including: operating losses of $96-million since 2021, a first-quarter 2023 net loss of $20.5-million, and total liabilities—primarily owed back-taxes—of $124.2-million. Surf Air further reported having a meager $241,000 cash on-hand at the beginning of 2023’s second-quarter.

In May 2023, Surf Air owed the U.S. federal government and a number of California counties a combined $8.3-million in back-taxes. What’s more, the company owed various vendors upwards of $6-million in past-due aircraft leases and related expenses.

Joint Surf Air/Southern Airways Express first-quarter 2023 operations showed losses of $22.7-million on $28-million in revenues.

Worrying numbers notwithstanding, a few Surf Air backers remain optimistic. Following the company’s 27 July stock slide, William Woodward, managing partner of Surf Air seed-capital provider Anthem Venture Partners, remarked: “The successful listing of Surf Air Mobility is a testament to the team's dedication to creating innovative aviation and technology solutions for new EV air mobility. We are proud to have supported Surf Air Mobility’s growth and development, and we believe their public listing will further accelerate their positive impact on the aviation industry.”

2023 has proved, more or less, an abattoir in which formerly-promising aircraft charter and fractional ownership concerns the likes of Wheels Up, Jet It, and now Surf Air are liberated from the travails of existence. Whether by over-promising, under-performing, or run-of-the-mill alloyings of avarice, multitudinous millions of dollars handed over in good-faith have been lost by management personnel insufficiently aware or recklessly unheedful of an air-carrier business characterized by enormous costs and razor-thin profit margins. The kingly revenues brought in by a single coast-to-coast charter can metamorphose into losses with terrifying instantaneousness by a lightning strike, a blown-tire, a ramp-mishap, an aircraft breakdown, or a poor PIC decision. A few such consecutive instances and even a sizable and successful Part 135 operation is apt to find itself in existential crisis.

Whether or not the aforementioned companies endure into 2024 and beyond remains to be seen. Certainly, it is in the best interests of all aviation industry stakeholders that they do. Contrariwise, the occasional culling improves the overall robustness of the herd.

FMI: www.surfair.com