Startup Stories, VC Stories

Who says you can’t build a business in aviation?

Human beings have always been fascinated with the concept of flight and our ability to conquer the skies is a real triumph of human ingenuity.  But given the level of risk involved in putting people in the air, airplanes are extremely difficult to build and market without a big brand behind you. As an industry, LSA (light sport aircraft) holds glamour for many aspiring engineers but is a litany of failed businesses. In South Africa, the LSA industry didn’t exist at all 10 years ago. To take on this global industry, which hadn’t had a new entrant survive in decades, from a country that had no credentials in the space, took not only guts and skill, but an entirely new take on an established industry. But if you’re Mike Blyth or James Pitman, this sounded like fun. Starting in 2010, they created a truly extraordinary South African business, TAF (The Airplane Factory), and have since sold over 500 airplanes around the world.

Let’s start with why it is so difficult to build an airplane company from scratch. Most obviously, it’s expensive both in terms of time and capital to build your product. You need to design, buy the parts and assemble it. That’s for a hobby plane that you alone fly as pilot. If you want anyone else to be able to buy it, you need it to meet certain standards, pass tests and have it certified by the aviation authorities. Once you’ve built it, you need to get it out there. That usually entails entering various air shows and brand building. If you get any interest, you need to be able to convince these prospective buyers that it is safe and better than the next plane – i.e. sales. The sales cycle is long and the market is competitive. If that weren’t difficult enough, the biggest barrier to entry is in fact trust, which can only be overcome through staying power – about 3-5 years in the market – before most buyers will consider you. In other words, unless you have a good amount of insane in you, don’t start an aircraft company!

Well, two people who are the best kind of insane are Mike Blyth and James Pitman. The story starts with Mike, and we’ll pick it up with him running Comet Aviation, an importer of Rotax airplane engines from Europe into the South African market. It is a very cyclical industry, so Mike had the thought: why not design and build a plane to create smoother demand for these engines? Not a thought most would have the ability to execute on, but Mike who is not an engineer by training, decided he would do just that. This is the first sign that Mike is not your average businessman or person in general. I could write an entire post on his history leading up to this, but suffice to say he’d already done some pretty amazing things, like winning the World Microlite Championships in 1992.

So Mike spent three years, starting in 2006, designing and building version 1 and 2 of the first Sling aircraft, as he called it. At this point, he realized that capital, the first hurdle I mentioned, is a real one. Into the story waltzes James Pitman, a successful lawyer with a flare for adventure (I’m going to guess he was bored stiff in the law profession at this point). The fateful pair met at a dress up party, both donned in frocks, and instantly realized they were both the right amount of crazy for this venture. James brought the capital they needed to build the first plane and they were off to the races. In 2008 this plane took its first flight. They then brought in a Denel engineer who made a few suggestions, whereafter they built the first commercial version of the Sling. A lawyer and an entrepreneur, with the help of a Denel engineer, had created a plane that “flew better than any 2-seater I’d ever flown before” according to Mike. This is when they knew they were really on to something.

The next step in the treacherous journey of building an aircraft company is getting it out there, which is even more difficult than building it. There is a lot of competition in this space, from the old established brands like Cessna, Cirrus and Van’s Aircraft to the hundreds of hobbyists from Eastern Europe to America. A lot of them aren’t building commercial businesses and as such, any new entrant is put in the hobbyist category from the get-go (especially if you come from South Africa, with absolutely zero pedigree in the game). So how do you get an unknown brand recognized in the shortest amount of time with the least capital expenditure? Magazine adverts? Get famous pilots on-board? Get a big shareholder? None of these appealed to Mike and James and true to what has become TAF’s core brand principle, they marketed through adventure.

James and Mike planning the trip to Oshkosh
A splash at Oshkosh

The biggest airshow in the world is Oshkosh. Held every year in Wisconsin, it plays host to over 600,000 attendees and 10,000 airplanes over the week. It’s massive and the only place to launch a new aircraft. Mike and James targeted the 2009 show for their grand launch of the Sling.  Their launch plan was for the two of them to fly the newly built Sling around the world, landing in Wisconsin on time for the July kick off of the show. Mike was obviously well connected in South African aviation circles from his Comet business and he got the word out. The South African flying community, awash with the excitement of a home-grown aircraft, got behind them in a big way from the get-go. In a real stroke of brilliance (remember this is 2009), the team attached a tracker to the aircraft and uploaded live stats to a website where people could track their progress in real time. And track they did. Current CEO, Andrew Pitman, recalls the event. “I wasn’t at the company yet and was working in the UK. I checked in at one stage of the trip and noted with amazement that over 42,000 people were tracking their progress. It achieved an unbelievable amount of coverage”. What we’d now call a viral marketing campaign, resulted in every airline magazine in the world picking up the story, making TAF and their newly built Sling aircraft one of the major talking points of Oshkosh when they arrived.

Truly killing two birds with one stone, they landed to a first order being placed right at Oshkosh. An early adopter from South Africa was in. They were pretty chuffed with one customer and when they returned to South Africa after the show they soon had four more – a remarkable achievement out the gate. Quite extraordinary is how they unintentionally followed the now widely espoused principles of startups. Starting with a proof of concept, they attracted early adopters before building up manufacturing facilities. They built the concept aircraft themselves, marketed through a self-created viral campaign and got their first 5 orders while keeping as lean as possible. The obvious problem though was the five orders and no manufacturing facilities. They quickly leased a couple hangers at Tedderfield airfield in Johannesburg and got going. TAF does two types of orders for regulatory reasons we’ll get into later – they build full aircraft for delivery and they also sell certain aircraft in kit format for the buyers to assemble themselves. The wisdom of today is to get early adopters who are patient and willing to forgive early mistakes as you build the company. TAF got lucky with both of these – their first buyer has bought every new aircraft they launched since and their first kit builder came through to the hanger almost daily to confirm that he was building right and give feedback on what he found difficult – an amazing first customer. The beauty of these first few customers was also their brand loyalty. Not only have they purchased several new models over the years, but they also evangelized the brand to anyone who would listen. This is partly the reason for TAF never focusing on marketing to this day. Their demand is all inbound.

Global ambitions

The first part of their business strategy, although brilliant, was mostly intuitive and played out on autopilot. They had a quality airplane, orders and the early stages of a brand.

TAF had global ambitions from the start, but built their brand in South Africa while the third major hurdle overseas (the amount of time in the market) was overcome through their return to Oshkosh every year. As I mentioned previously, the South African community really got behind TAF from the get-go. “Initially, we thought the market size in South Africa was 20 – 30 planes maximum. 200 planes later and we’re not quite sure how deep it actually is” James Pitman commented when I asked how good South Africans have been to them. In their first two years they sold solely in South Africa.

But who buys airplanes, and who do they buy from? While the obvious buyers are wealthy businessmen or retirees who want to take up flying again, the team also noticed early orders coming from flying schools, which they hadn’t anticipated. Despite TAF’s plane being more expensive than traditional flying school planes, they flew really well and were “much more a plane” to use Andrew’s description. The TAF team quickly realized that schools presented an important distribution channel for them for various reasons. Firstly, schools get a lot of people flying which would mean more airtime for TAF’s planes and more people ‘trialing’ them. Second, if you fly a plane and like it while you’re learning, you’re more likely to buy what you know when you are looking to buy thereafter. Finally, buyers who aren’t learning often go through a flight school for guidance on what to buy. It therefore made a lot of sense to not only actively promote their aircraft to schools, but to make the schools distributors and align them with the end sale when the pupil turns buyer.

Australia was an instant success. An emigrating South African asked if he could sell Slings in Australia. He bought three kits, assembled them in Australia and sold them very quickly out of his garage. He adopted the South African flying school distribution channel model and built on it with an even more successful strategy of letting the school fly the aircraft for two weeks for free. During this time, he’d encourage as many students and pilots to fly it, and then let the school keep the test aircraft if they put down an order to buy (the aircraft take many months to build so this works well for the school if they’re sufficiently hooked – and they usually are). This has proven a great strategy for TAF’s distributors worldwide. The orders kept coming and he kept selling, making Australia the first international success and the biggest market for TAF. The TAF team had put no capital into the operation and it didn’t suck the bandwidth of the management team. Their only headache was getting the production line moving fast enough to keep up – the best kind of problem that they still suffer from today given their strong pipeline.

Cracking America

But to achieve global success, TAF needed to target America and Europe, the biggest markets for LSA aircraft. The tales of achieving distribution success across Europe, America and Australia are contrasted by very different dynamics, stories and timelines. Australia was a near instant success, but America was far more challenging. In America, the TAF team owned majority control in the distributor, put up all the capital and partnered with an expat South African to run the show. What hit them hardest in this market was a combination of not enough of the local partner’s skin in the game and the 6-year trust threshold with American buyers. The reason for this trust threshold was a wave of European manufacturers of LSA aircraft to hit America when the regulations opened up in 2004. The result was a lot of planes sold by companies that overextended themselves and went bust 2-3 years later, leaving planes without support, angry customers and a bad stigma around new aircraft brands from abroad. Added to this, TAF’s strategy of owning the dealership didn’t help. Despite good space being rented in a fancy hanger and a lot of money being poured into the operation, the American sales just didn’t come in the droves TAF had hoped.

After 6 years of losses and the contrasting success of the partner-owned Australian distributor, they decided to give the operation to the local operator. Since then, they have seen a lot more success both in terms of initiative taken, effort and resulting sales in America. It is difficult to say in retrospect whether this was pure timing or change in ownership that did the trick, but the overarching lesson in TAF’s mind was that trying to run a distributor from half way around the world with a small team and a lot of other things on the go wasn’t sustainable. As a result, they don’t own any international distributors anymore and prefer to partner with local players and focus on brand consistency around the world.

Europe was a different story. To get into this part of the story, we need to take a bit of a detour into the dynamics of the sports aircraft market. The global light aircraft market is worth $125m – $225m per year (depending if you include kit planes or not), with America making up about 50% of it and Europe the second biggest portion. The regulations around light aircraft are understandably very stringent, but unexpectedly very different between America and Europe. In America, you can sell sports aircraft in the LSA category (roughly defined as non-commercial passenger carrying, for flying in good weather with a maximum takeoff weight of 600kg). The regulator, the FAA, basically says go build the aircraft per the guidelines we set out and tell us what testing you’ve done. If we’re happy with what you tell us, we’ll sign it off and you can sell it. If your planes start crashing, we’ll investigate, but as long as the harm is only coming to the buyer (and not to paid passengers), we are happy to not physically inspect your process. The European agency, EASA, takes the opposite approach. They say that before you fly, they want to see the entire process and sign it off and also by the way you can only use certified parts to build your aircraft. This approval process is expensive and time consuming. To give you an idea of how expensive, in Europe TAF partnered with Sonaca from Belgium to get this right. Their entire first Sling aircraft design and build cost was around R15m. To have the same style of aircraft certified by EASA in Europe cost €6.5m – a tidy sum. Given the difference in parts, the European version is also c. 30% more expensive. In other words, the market structures are complicated. Europe has been a successful market for TAF, but practically a different animal given the different legislation they deal with.

Today, TAF’s orders are dominated by America – no surprise given the 50% of the world market they occupy. They sell two major types of aircraft, being the 2-seater Slings (LSA and Sling 2) and the 4-seaters (Sling 4 and the Sling TSi) with the TSi being the most recent launch in 2018. Because the 4-seaters are larger, they fall outside of the LSA licence bracket and need to be assembled in America or Europe to meet their guidelines – hence the need for kit sales in those countries.

Scaling production

TAF’s distribution strategy has settled into a 2-pronged pattern of actively targeting the last 2 big markets they aren’t in yet – Russian and China, as well as demand driven opening of distributors in other countries. This normally plays out through a number of orders coming through a country that wasn’t on their radar, and with this demand they’ll look for a partner distributor. The management team focus is thus spent on aircraft development and the associated manufacturing backlog. The manufacturing troubles that have arisen are ironically from one of TAFs greatest strengths – their desire to do everything local. This is not to say there isn’t great talent in SA – there is, but there is just no real aviation industry. As such, they have done everything their way from the beginning, without trying to coax international experts to show them ‘best practice’ from Europe or America. The result is aircraft designed from the ground up that flies better than its competitors. No doubt this has a lot to do with the fresh take that went into it. The downside of such an approach is the lack of best practice implementation in the manufacturing process. But to be honest, this is also driven by their lean approach of solving problems as they arise. To create capacity for 30 planes a month before having the demand would have killed them early on (the aircraft startup graveyard attests to this). They are now focusing on this challenge and Andrew points out they’re pretty close to solving it. If they had to choose between the problems of production and demand, they would definitely pick production to solve.

This issue is not unique to them either. The only vaguely similar startup I could find to TAF is Icon, which started in 2008 to create an amphibian aircraft called the A5, but one in the same category as the Sling 2. To show how expensive this game usually is, Icon raised a whopping $85m in venture capital before delivering a single plane (in stark contrast, TAF has not raised a dime of external capital since James’s injection early on). Icon promised 175 deliveries of the A5 by 2016 and made only 25. The trend continued up until today where they recently cut production guidance to 5 per month from a planned 20 and laid off 40% of their staff. They have also benefited from being American, which meant they could get away with the death of their chief engineer during a test flight without a lot of their orders being cancelled (the company noted this was due to pilot error – a fact often ignored by the public when such news hits the press). Icon also sell a brand based on the spirit of adventure and given their claim of 40% of their sales being to people who didn’t previously have a licence, their entrance into the market can be seen as positive for TAF if they grow the overall LSA market in America.

Being a global brand

Something that I wondered before chatting to the TAF guys was how they keep a brand like this consistent across different regions, buyers and markets. The answer is in what their brand is to consumers. The first world trip taken by Mike and James was dubbed an adventure – and that is exactly what their brand is. Adventuring through the air. They are not selling airplanes, they are selling an experience, a lifestyle – freedom. This is epitomized through everything that the team does. From hosting tours through the African skies for Sling enthusiasts, to the various adventures Mike and James embark on when they launch new planes, to the spirit of the South African operation. There is nothing stiff about it. For the person who wants to go where others haven’t, to break free from the shackles of society – the way to do it is in a Sling. The truth to this brand is illustrated strongest through the deep YouTube archive of customers posting near endless streams of their own adventures and what they have done with their Sling. Once again, this serves a dual purpose. Not only does it reinforce the genuineness of the brand, but acts as the first part of the sales process. The average buyer starts by looking online for several months before even getting in contact with a distributor. To have a library of user generated content serves as a huge moat to would-be entrants who have to build up this content themselves, an extremely expensive exercise that is never as powerful as independent video reviews. That is the biggest barrier to entry in this market – having hundreds of people flying your competitors’ planes for many years. It’s about as big and enduring a barrier to entry as you can face as a new entrant to any market and one that TAF have successfully navigated.

Onwards and upwards

So what’s next for the TAF team? “Well Mike wants us to stand alongside Boeing and Airbus and global aircraft players. That’s the long-term vision. But for now, we’ve already announced the latest aircraft to hit the line-up, the high-wing Sling TSI. After that, we think there is space in the 6-8 seater category for another entrant and we’ll be targeting that.” Ambitious plans. But with inspiring leaders like Mike, James and Andrew and a growing team that genuinely seem to love what they do (I walked the operation – those smiles weren’t fake), I wouldn’t bet against them.

The fact that we have one of the only new global aircraft brands of the last decade operating out of South Africa blew my mind. What saddened me was that despite being well tapped into the goings on of business SA, I’d never heard of them and they’re not heralded as they should be – as the glowing success story that they are. Not only for themselves, but also for the ecosystem of small South African businesses they support as part of the input into their product. So let it be known – South African aviation is flying high and long may it continue to do so!

Thanks to Andrew Pitman for the interview on this one. Loved the test flight!

3 Comments

  1. *Youre so cool! I dont suppose Ive read anything like this before. So nice to find somebody with some original thoughts on this subject. realy thank you for starting this up. this website is something that is needed on the web, someone with a little originality. useful job for bringing something new to the internet!

  2. A really wonderful and epic tale. I have followed TAF since 2010 and really are hooked to the cult. The only reason I still do not fly one is finance. Hope that will be sorted out in the next 3 years. Was nearly there a couple of times. You are inspiring, best of luck and keep doing what you are doing.

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