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A Zephyrhills company's idea for a revolutionary cargo plane could change the company's fortunes, along with the county's.
By JENNIFER GOLDBLATT
© St. Petersburg Times, published September 23, 2001
ZEPHYRHILLS -- Right now, Atlas Aerospace Inc. is little more than a dream, its headquarters in the belly of a sweltering steel airplane hangar, amid propellers, tools and aluminum parts.
Its assets are an idea for a unique cargo plane, which exists only as a sketch; a solid market for that plane, threatened now by a faltering economy; and a business plan, which requires $30-million in venture capital yet to be secured.
Needless to say, success is far from assured.
But should engineers David Teichman and Jim Stewart transform their idea from artist's rendering into functional aircraft, it would lift not only their fortunes but those of the entire county. Zephyrhills would in a few years be home to an airplane manufacturer with annual sales of more than $200-million, with 500 new jobs paying an average annual salary of $34,000.
"What he's trying to build, if that ends up being manufactured in Pasco, it's going to open us up to a whole new market," said Mary Jane Stanley, executive director of Pasco's Economic Development Council.
Makers of products that could supply Atlas might locate in Pasco, she said, and "the spinoff effect could be pretty big."
Major shipping companies such as United Parcel Service and Airborne Express typically own the jets they use to ship packages to major hub cities. But they use privately owned charter aircraft to service areas farther from major airports, like Brooksville and Venice.
Most of those charter companies fly older turbo-prop aircraft designed and originally used to fly passengers. They are in many ways ill-suited to carry cargo. They have unneeded pressurized cabins; the fuselages are rounded and the doors small, which make loading and storage inefficient.
Still, UPS uses as many as 250 of these planes each night.
There seem to be few alternatives. In 1985, Cessna designed a small, single-engine cargo hauler called the Grand Caravan. That plane is used by FedEx, and is one of the few small planes designed specifically for air cargo hauling. It dominates the market for small cargo-carrying aircraft.
Cessna, an established company with an existing product, would seem to be overwhelming competition. But the Liftmaster, Atlas says, will carry more cargo, fly farther and go faster -- and that's not the half of it.
Teichman says the Liftmaster's key advantage is the design of its cargo compartment.
Unlike the Caravan, which has a side-loading door, the Liftmaster is a rear-loader like the big military transports. And that door is large enough to accommodate the standard cargo containers used by FedEx and UPS in big cargo jets.
The ability to hold Unit Loading Devices, as the containers are called, gives the Liftmaster an advantage over other similar planes, whose cargo holds are not big enough to hold those containers, and whose cargo must be loaded one pallet at a time.
The Liftmaster would be the only small transport in the world capable of carrying the Unit Loading Device. The cargo compartment, at 6.8 feet wide and 5.8 feet tall, can fit three of these cargo containers, or accommodate small cars, trucks, jet engines and industrial equipment.
Teichman is counting on the continued growth in demand for air cargo to feeder markets, fueled by e-commerce and business-to-business transactions. Industry observers says that's not a bad bet.
The volume of air cargo has grown at an average of 6 percent annually, according to the International Air Cargo Association, and is expected to increase annually at 6.7 percent internationally through 2010.
Jacqueline Rosser, manager of flight operations for the National Air Transportation Association, says this short-range cargo hauling is one of the fastest growing segments of the industry.
Dale Froehlich, president of Business Aviation Courier, in Sioux Falls, S.D., said revenues from his cargo hauling business have grown 600 percent to $6-million over the past six years.
"People's expectations are changing," he said. "There are just a lot more people running businesses with just-in-time inventory, and the whole commercial system is just built on smaller inventories."
And Scott Roby, manager of long-range planning at UPS says that if Teichman's project provides a better way to haul packages, it's the kind of plane he would like to charter.
"We'd love to access any plane that's an improvement to current airplanes. There's always a need for more cargo aircraft, and a way to do something better," Roby said. "If he has an effective new design, it may be better than taking a plane designed for passengers and forcing it to haul cargo. He may have some opportunity."
Atlas projects the Liftmaster to cost about $2.1-million per plane, compared with the $1.4-million price tag on the Grand Caravan.
Teichman formed Atlas just three months ago. He and his staff work from the offices of Aviation Instrument Technologies Inc., Teichman's 4-year-old company that designs and develops electronics for aircraft and flight simulators. The company has 17 employees and a customer list that includes Lockheed Martin, Raytheon and Northwest Airlines. So far, he has personally funded Atlas' $67,000 in startup expenses for research and development, marketing and promotion.
That is, of course, a drop in a very big bucket.
Right now, Teichman is trying to raise $3-million in venture capital. That would pay for the Liftmaster's designing, developing a prototype and doing some initial flight testing, a process that will take about a year. These initial investors will get a 20 percent stake in the company.
Then Teichman will need to raise an additional $25-million to finance the company through Federal Aviation Administration certification of the new plane. Those investors will get a 50 percent stake in the company. He hopes to receive certification in late 2003, and begin delivering the Liftmaster to customers in July 2004. If all goes well, Atlas Aerospace could go public or be purchased by a major airframer or shipper in four years.
Near the end of this year, Teichman hopes to begin doubling the size of his building to 10,000 square feet, to accommodate construction of the Liftmaster prototype. Teichman got a $150,000 grant from the Florida Department of Transportation earlier this year to help pay for that expansion.
He is in the process of applying for a $600,000 Community Block Development Grant from the state to build a 100,000-square-foot production facility in the Zephyrhills Industrial Park, which is adjacent to the airport. He hopes to break ground on that facility next year.
Teichman will appear Monday before the Zephyrhills City Council for a public hearing on the grant. If City Council approves, the city will apply for the CBDG money through the state's $10-million small cities program. Zephyrhills got a similar grant to make downtown improvements and accommodate a new Wal-Mart last year.
For Atlas, the risks are steep.
There is the risk of recession; the risk of disinterest from the venture capital market. There's the risk that the Liftmaster won't perform as Teichman projects, and there is the risk that certification by the FAA will be delayed.
Teichman says the biggest challenge will be controlling costs during the certification process, which he estimates will take about two years.
Industry experts say that there are a lot of "paper airplanes," or airplanes that never get from design through certification, because of the cost and time involved.
The number of people who try to certify an airplane from scratch and carry it through to success for the first time is relatively low, said Walter Derosier, director of maintenance and engineering at the General Aviation Manufacturing Association.
"It's still a very difficult industry for new companies to enter," he said. "It's a big challenge for a new company not now earning revenues."
Ayres Corp., an Albany, Ga.-based manufacturer, filed Chapter 11 bankruptcy last year after having precisely that trouble. FedEx had signed a letter of intent with the company in 1996 to buy 50 "Loadmasters," intended to be the first small planes designed specifically for air cargo, with a fuselage molded to fit FedEx's freight containers.
Ayres had planned to fly the first Loadmaster this year, but the company fell behind schedule during certification; FedEx canceled its order in June, citing continuing weak economic conditions in the high tech and durable goods sectors and sharply reduced demand for its express services.
Teichman attributes Ayres' problems to an unusual two-engine, one-propeller design, a mistake he says Atlas will not repeat. The Liftmaster will use traditional design features and a proven Pratt & Whitney engine.
"The fabrication of the technology has been tried and true for the last 50 years," he said.
And what about the risk of a prolonged economic recession, which many fear will be exacerbated by the recent terrorist attacks?
Venture capital investors typically invest in young companies, then sell them or take them public for annual returns that can reach 30 percent or more. In recent years, some venture capitalists got triple-digit returns, mostly on investments in high-tech and communications. (Aviation hasn't been a huge arena for venture capital investment).
But last year, as the economy slowed, venture capital investments took an average 6.7 percent loss.
"It was an incredibly challenging time before Sept. 11," said Jeanne Metzger, vice president with the National Venture Capital Association. "That being said, there's a significant amount of capital that's been raised but not yet invested. The events of Sept. 11 could prolong the recovery. It will be at least another year until we get back to normal."
Teichman says he isn't worried and thinks that any economic slowdown will have run its course by the time the Liftmaster is ready to go on the market.
"Certainly, in the immediate future, people are a little worried," he said. "But in the long term, in four years, it's certainly going to rebound.
"The business cycle may have its highs and lows, the general trend and demand for ever increasing speediness of materials to the outlying areas, isn't going anywhere."
-- Times researcher Caryn Baird contributed to this report. Times staff writer Jennifer Goldblatt covers business in Pasco County. She can be reached in west Pasco at 869-6229, or toll-free at 1-800-333-7505, ext. 6229. Her e-mail address is goldblatt@sptimes.com.
David P. Teichman and Jim D. Stewart are spearheading the development of the Atlas Aerospace Liftmaster.
Teichman, 45, owns Aviation Instrument Technologies Inc., a 4-year-old company that designs and develops instruments for aircraft and flight simulators. He's a licensed commercial pilot and former flight instructor, and spent 10 years in sales and marketing at aerospace and defense contractor ECC International of Orlando.
In 1994, he formed a company called AMDA Aviation, which created 3-D graphics for aerospace and defense companies, and after acquiring two other companies that engineered and repaired aircraft instruments, he formed Aviation Instrument Technologies.
Jim Stewart, 71, has spent more than 50 years designing engines and aircraft for the likes of Pratt & Whitney and Allison Engines, and has six product design patents for jet engines.
He also designed a kit plane, an aluminum replica of a World War II P-51 Mustang, and for six years ran a company called Stewart 51 Inc. that made and sold those planes.
The two are working with a team of engineers with experience from Piper Aircraft and Rockwell International, Lockheed Martin, and General Dynamics.