The Coming Giant Airship Renaissance: An Investment Opportunity, Part 1

After decades of disappointment, the freight and passenger airship industry may finally be approaching takeoff. At the time of writing, here is the latest news.

• Hybrid Air Vehicles (HAV), in Great Britain, has a buyer for its Airlander 10 hybrid airship. The Spanish airline Air Nostrum wants to buy ten of them. HAV built a prototype Airlander 10 a decade ago, and it flew test flights for a few years before it self-destructed (as a safety feature) in an accident. The airline plans to start its passenger airship operations in 2026.
• LTA Research and Exploration, funded by Google co-founder Sergey Brin, used to be rather secretive. It has been regularly making news lately, including spectacular photos of what they’re building in the giant Airdock in Akron, Ohio. They’re working on the Pathfinder 1 in California, expected to fly later this year, and the larger Pathfinder 3, due to fly next year in Ohio.
• Flying Whales has been raising more capital: 122 million euros from fundraising backed the French government, and $55 million from Quebec.
• Sceye is testing airships over the New Mexican desert. These stratospheric airships are aimed at surveillance and communications roles. They have just announced a 35 million Euro installation investment in Spain.
• The US military is “quietly transitioning high altitude balloon [airship] projects to the military services.”

The first post in this series seeks to discern how large, risk-tolerant investors can aid the breakthrough in airship development. With shrewd investing and a little luck, airship investors can ride to enormous profits.

The qualifiers “large” and “risk tolerant” are important. Airships are inherently enormous and have huge economies of size. It takes a lot of money to get into the game at all. Huge and profitable areas of application open up only with the capabilities and efficiencies that come with size. Airship investments can go wrong by aiming too small or failing to achieve competitive economies of scale. Until governments decide they want national airship industries, airship investing is a game only the rich can play.

Here are a few takeaways:

• Once the initial investment hurdle is surmounted, transport airships will enjoy growing demand in a wide variety of existing and new markets. Just replacing cargo jets would represent a trillion-dollar industry.
• Intercontinental shipping is the easiest market to quantify and provides a good basis for forecasting demand and profitability.
• Based on conservative assumptions, calculations suggest a very high ROI for cargo airships.
• The future airship industry will serve many profitable niches and business models, some currently existing, others emerging in response to the new possibilities airships will create.
• Patents are a key way for early entrants to leverage the industry’s growth to win high returns.
• Brand names and team synergies can also provide a basis for sustainable profits, but should be ready to pivot and reposition, as opportunities emerge.

The Size of the Future Industry Implies Many Profitable Niches

Transport airships, as opposed to the relatively small blimps that are used in advertising and surveillance, could create value in intercontinental shipping, moving bulky project cargo. In passenger configurations, these airships could provide sightseeing cruises, comfortable intercity passenger transport services, including overnight flights where passengers save time by sleeping on board. Another area for specialized airships is for “sky-crane” functions based on local heavy lift capabilities. Transport airships can provide remote access for mining operations, disaster relief and humanitarian assistance including “flying hospital” operations. Finally, potential roles exist like resupply of ships at sea, transport of fish to market from fishing boats at sea and remote islands, logging, military resupply, and “flying warehouse” operations in which the airship serves as a platform for drone delivery of small consumer product orders. The range of applications is enormous, and the value creation potential is epic.

As a new transportation system, transport airships will support new supply chains that capture this value creation as revenue and profit. Supply chain members include forward and backward linkages to the manufacture of transport airships. The backward linkages include: building hangars, masts, and other ground support infrastructure; tier 1, 2 and 3 parts suppliers for airship builders; airship “architectural” work (designing functional and artistic airship blueprints to custom specifications); manufacturing materials that airship builders will use; developing and patenting either whole airship designs, or materials, parts, and production processes for airships, then licensing them and earning royalty income.

The forward supply chain linkages include: leasing airships; operating airship airlines or charter airships; developing projects dependent on airship logistics such as remote mining or sustainable logging; repairing airships; buying and selling used airships; refurbishing and modifying airships for new lines of business; training airship crews; monetizing airship flight data for research; running side businesses that add surveillance and advertising byproducts to the operations of cargo airships; developing real estate on islands and other remote places that airships render more accessible; and doubtless many more that elude my imagination for the moment.

Amidst all these possibilities of value creation, more forms of monetization will be economically practical if the industry is larger. Journalists who cover airships often seem to assume, without real evidence but with intuitive plausibility, that the airship industry is destined to be small and niche. If that were so, maybe only two or three lines of business in the industry would prove to have a critical mass of demand sufficient to cover costs and produce profits. But serious technological and economic forecasting points to an industry for airships that will rival the current airline industry. Dozens of niches, with dozens of quite different business models and product offerings, will furnish profits and wealth to people and companies.

Figure 1 dramatizes the idea that the range of profitable niches in the giant airship industry depends heavily on the size that the industry will ultimately attain. Large economies of scale point to a trillion-dollar industry with room for profitable companies in many specialized niches. The downward arrows in Figure 1, indicate the contrast between “upstream” industries, which sell into the airship industry, and “downstream” industries, which will benefit from buying airship services, and the size of the dollar signs represent the value of the purchases and sales for large and small markets.

Figure 1.  Forward and Backward Supply Chain Linkages

Expectations that the transport airship industry will become very large should affect investment strategy. The industry’s scale will attract competition, but also offer many opportunities for early-stage investors to specialize into specific niches within the industry, and still get enough demand to cover overhead and achieve high profits.

Airship Industry Demand is a Sum of Many Demand Curves

Airship industry demand, like any aggregated demand, is the sum of many demand curves, in this case the demand for the many different functions airships will serve. This is useful conceptually even though it’s unlikely that any individual airship will be suited to all the functions. A mature airship industry will have a lot of specialization.

It is likely, for example, that future cruise airships will be relatively poorly suited to, and would be uncompetitive in, cargo operations. Cargo airships are likely to vary greatly in the degree to which they are equipped for remote operations versus optimized for efficient load exchange with highly developed ground infrastructure. Despite this, there will be a large overlap in the equipment capabilities, skills and experience of crew, capital investments, regulatory permissions, and so on, needed to meet these demands. It makes sense, therefore, to draw a single demand curve for airship services.

Demand curves can be summed horizontally, as in Figure 2 below, where the total quantity demanded for any given price is the horizontal sum of the quantity demanded under each function.

Figure 2. Airship Market Size

The chart is conceptual but hints at the potential industry size at different price points. The key takeaway is that the principal sources of demand are likely to be quite different for each price point. The mining industry might pay high rates for relatively small airships to enable exploration and resupply for the camps. But to be economical in the carriage of mineral concentrates, the airships would need to be as large as possible. Similarly, intercontinental shipping will require very large airships to start buying at all, but then will absorb huge numbers of airships once they become established.

Figure 2 suggests that airships will first be employed in industries like mining support, with high willingness to pay, then later in industries with more elastic demand, such as intercontinental shipping, as they mature technologically and produce more ton-miles of shipping services per dollar of capital invested. Demand can also take time to mature, and investors can expect some of the most lucrative opportunities to arise only in step with complementary investments that the availability of airships encourages. Investors may do well to look for airship companies that can pivot among airship markets as they evolve.