Selling CEOs on a Troubled Bird

A civilian version of the much maligned Osprey is coming to market. Will it fly?

The Pentagon is hardly known as a tough critic of military hardware. Yet for more than 20 years, weapons experts inside and outside of the Defense Dept. have lambasted the V-22 Osprey as a flying fiasco. Arguing that the trailblazing aircraft is dangerous, overpriced, and impractical, a wide variety of procurement specialists, politicians, and servicemen have unsuccessfully fought to kill it.

Now, Bell Helicopter Textron (TXT ) is selling a deluxe version of the Osprey to a group of consumers that it believes will be far more welcoming: CEOs. The company is betting that business customers will be attracted to the same futuristic technology that initially enchanted the military: the swiveling "tilt-rotor" propellers that allow the Osprey to take off like a helicopter, then fly like an airplane. The appeal of such an odd bird, on paper at least, is obvious. The smaller, civilian incarnation of the Osprey, known as the BA 609, flies faster and has longer range than a chopper, yet can land in places inaccessible to planes. It's the only aircraft that can whisk a chief executive directly from Pebble Beach's 18th fairway and deposit him in the meadow in front of his Aspen estate.

But will companies buy a plane derived from technology that is so widely viewed as a white elephant? "This is a risky initiative," says Hans Weber, CEO of Tecop International, an industry consultant. Noting that the Osprey was just deployed by the U.S. Marines in Iraq last month, he added: "Every time a V-22 goes down in Iraq, Bell is going to have to prove it wasn't a design failure."

The odds of bad press in Iraq seem high. During the 25 years it has taken the aircraft to progress from drafting table to battlefield, there have been four crashes in test flights, resulting in some 30 deaths. Although the technical glitches that triggered those accidents appear to be resolved, critics charge the Osprey remains more dangerous than either a helicopter or an airplane in the event of engine failure. Unlike a chopper, it cannot "auto-rotate" safely to earth. Nor can it glide to ground, even for a rough landing, like an airplane.

These problems--coupled with fears that aggressive battlefield maneuvers could result in crashes--have resulted in a reduced combat role for the $119 million aircraft. Originally envisioned as a multipurpose wondercraft, able to zip into dicey combat situations, it's being used more like a flying truck, delivering marines and gear far from live action. The shrinking capabilities and rising costs led the Army to abandon the aircraft in 1992.

With all the negative attention swirling around the Osprey's debut, it's hard to imagine a worse time to roll out its civilian relative. The BA 609, manufactured by Bell in a joint venture with Italy's Agusta Westland, faces many of the same pricing and practicality concerns that have plagued the Osprey. The initial supply of pilots qualified for the civilian craft, for example, could be limited to ex-Marines trained to fly the Osprey.

Then there's the price. Although a fraction of the cost of its military kin, the BA 609 is still quite expensive compared with helicopters and private jets. No official price has been set, but industry sources predict one of $10 million to $15 million, depending on how the nine-passenger BA 609 is customized. For the same price, a Hawker 800 bizjet seats a dozen and can go nearly four times as far on a single fill-up. And while a Sikorsky S-76 helicopter is slower, with less range, than the BA 609, it too holds up to 12 and costs a bit less, $8 million to $10 million.

So what on earth is Bell thinking? The company is betting, ultimately, that the BA 609 can fill a unique niche. At a top speed of 317 miles per hour, the BA 609 is almost twice as fast as a helicopter and can fly two times as far. It can land at thousands of corporate campuses, isolated oil fields, and regional airfields with runways too short for business jets. "It's not going to replace helicopters or jets," says Don Barbour, executive marketing director of the Bell/Agusta joint venture, "but it will do a lot in between that no other aircraft can do today."

Although they may share technological DNA in the design of their tilting rotors, the civilian and military versions share practically no parts, says Richard Aboulafia, vice-president of the Teal Group, a market analyst. The Osprey holds up to 24 marines, seated on bare metal, and lacks niceties such as pressurized air or a bathroom (marines use "piddle packs"). In contrast, the BA 609 is about half the size of the Osprey. Inside, it is all custom-designed, with leather seats and a compact bar.

So long as people aren't shooting bullets at it, the BA 609 won't face most of the problems haunting its big militarized sibling. And it is going to market at a time when global sales of business jets and helicopters have never been hotter. The BA 609 also has unique macho appeal. It outmuscles traditional helicopters and jets the way Hummers overshadow jeeps. For the billionaire seeking a one-of-a-kind status symbol, the BA 609 has undeniable James Bondian allure. The sight of its huge propellers pulling the bus-sized aircraft straight up into the sky, then swiveling into a vertical position and slingshotting away, is a spectacle.

With two prototypes going through certification in the U.S. and Europe, Bell/Agusta expects to make initial commercial deliveries in 2011. So far, the joint venture has accumulated 70 refundable deposits, including one from H. Ross Perot Jr., son of the onetime Presidential candidate. Early demand has been a tad disappointing, concedes Lewis Campbell, CEO of Textron, Bell's parent company. But he believes it will surge when executives recognize the BA 609's practicality. "You have to ask: What is it worth to a CEO and his team to fly from point A to point B without ever going through an airport?" Campbell says.

The BA 609 enters a hot bizjet market as the Osprey draws scrutiny.

Busy Skies

"[T]he business jet, a phenomenon as over-the-top-American as the tail-fin Cadillac once was, is making major inroads around the world," The New York Times reported in an article on Sept. 25. In Europe, cultural objections to corporate planes, once associated with "vulgar tycoons flying their poodles to the Côte d'Azur," have softened. Asian businesspeople, meanwhile, are scooping up long-range aircraft for trans-Pacific flights. The industry is expected to sell more than 1,000 jets this year, an all-time record, the Times said.

Sad Saga

Whatever its combat shortcomings may be, the V-22 Osprey is a political survivor. Over the past two decades, Bell Helicopter (TXT ) and Boeing (BA ) have fought off concerted efforts to kill the aircraft. "The saga of the V-22," says Time in its Oct. 8 issue, "demonstrates how Washington works (or rather how it doesn't). It exposes the compromises that are made when narrow interests collide with common sense."

By Adam Aston

    Before it's here, it's on the Bloomberg Terminal.