July 30, 2021, ©. Leeham News: Last week, we went through the later tasks in the Prelaunch Phase. We talked about Concept refinement, Supplier selection, and Certification work.
Now we dig deeper into the important Authorization To Offer (ATO) milestone. This is where the project starts to promise stuff to customers and others, and it can be both good and bad.
For established OEMs, Authorization to Offer (ATO), is an important milestone in the pre-launch phase. At this point, technical teams have enough confidence in the configuration that the product will achieve its key objectives, such as performance, maintenance cost, passenger experience, etc. The preparation work with suppliers also helps create a schedule that is agreeable to suppliers.
From a business perspective, the program may not have finished all supplier negotiations but the management team should have a good idea about program cost, both non-recurring (Development) and recurring (Production).
Depending on the situation, some suppliers may want to see orders prior to committing to the program. This is especially important for systems with very few suppliers, where these need to deploy substantial resources to work with the project on the development and integration of systems to the aircraft. If a supplier does not believe in the OEM’s forecast or ability to execute, it may go for other, less risky opportunities.
On the revenue side, this is the time when the project signs firm contracts with customers. These are typically binding contracts with guarantees, not MOUs or LOIs. It also signals to the market and suppliers that the company is getting ready to fully launch the program. Once the OEM has a sufficient amount of firm orders and a good understanding of the cost, the program would advance to approval from the company board for a formal launch.
When we look at today’s upstarts for electric aircraft and UAMs, it’s different. Most have “orders” from customers. This is quite intriguing because most products then have low maturity compared to traditional projects.
Some upstarts have a proof of concept that does not resemble the “sold” configuration. Others are simply ramping up to conduct the work needed before having an ATO. Yet, if we look at it from a startup standpoint, these “sales” may be a necessity. Early-stage investors often ask startups for demos of “customer interest”. These, however, could be a double-edged sword.
From a technology demonstration viewpoint, vehicles used for technology demonstration lead investors or the public to believe these products are more mature than they are and hence set unrealistic expectations. Getting an experimental airworthiness certificate for a one-off aircraft is very different from having a vehicle that is ready for final version certification flight tests.
One question people should ask to get a better sense of the program’s progress would be “Has the authority accepted your certification application?” Certification authorities typically need tangible confidence in the product and the team before accepting a certification application (more about this in the next Corner).
Very early customer orders (MOUs, LOIs, or contracts with lots of walkaway clauses) create constraints that limit the team’s ability to optimize the product. If a team, as an example, commits to a certain payload-range, it constrains the typical mitigation plan when the “inevitable weight creep” sets in (there has yet to be an aircraft project that hasn’t had weight creep above the estimated empty weight during the project).
The typical way to recover payload-range after weight creep has reduced range is to add more energy. You need then to increase the Maximum TakeOff Weight (MTOW) as lowering the Operational Empty Weight (OEW) is often difficult (the creep in your OEW is the cause of the trouble).
Adding MTOW can mean higher thrust needed from engines, more energy to absorb by brakes, higher loads on the airframe, and so on. It increases the empty weight even more. This is called the weight spiral and it’s at the very core why aircraft engineers are so fanatic about weight. Reduce a bit of weight in your part of the design and you are a hero, tell your bosses your part project has increased its weight and it’s the reverse.
To promise vital parameters like payload-range and operating costs too early in a project would make design tradeoffs difficult. Having too many constraints reduces the ability to make necessary trades among comfort, weight, cost, performance, and so on during early development. It may also tie your hands when critical fixes to emerging problems are needed later in the program.
In general, promising too much early in an aircraft program is a negative for its development.