SpaceX Is Cribbing From Boeing's 1920s Playbook

On March 3, 1919, William Boeing and Edward Hubbard took off in a seaplane from the harbor of Vancouver, British Columbia. They flew 142 miles south to Seattle, where Boeing—a businessman who had previously started a profitable lumber company in Michigan—would soon make a name for himself as one of America’s most successful entrepreneurs of the 20th century. But first, he needed to help his friend Hubbard, the owner of Hubbard Air Transport, deliver some mail—60 letters, to be exact. On that day, the two men became the first to deliver international mail by airplane.

The role that mail routes, like the one between Vancouver and Seattle, played in the story of Boeing’s success is often overlooked. As F. Robert Van Der Linden, the chairman of the Aeronautics Department of the Smithsonian Institution’s National Air and Space Museum, describes in Airlines and Air Mail: The Post Office and the Birth of the Commercial Aviation Industry, there was a sudden interest in developing the aviation industry in America after World War I, once Americans had seen Europe’s powerful fleet of airplanes. The U.S. government used mail contracts from the Postal Service, one of the most important federal agencies at the time, to encourage the private sector to invest. Boeing jumped at the chance to profit by building industry-acclaimed airplanes—but not just to carry letters and packages. Mail contracts, he realized, could lead to something bigger: reliable airlines that could take people to any destinations they desired.

At the time the time of Boeing’s trip with Hubbard, the only people flying were amateurs and small operations that employed old war pilots. Little more than a decade after his initial flight, Boeing’s company controlled 50 percent of the combined airline and aircraft manufacturing industry. Their passenger service (later rebranded to United Airlines) was the industry’s largest.

Now an $82 billion behemoth, Boeing aspires to a new frontier: private space travel. The company, contracted by NASA, is currently working on a project to send astronauts to the International Space Station. And, as was the case with Boeing’s early passenger-service ambitions, they aren’t alone. SpaceX, a company launched in 2002 by Elon Musk, also won a contract from NASA to send astronauts to the space station. This month, despite a recent explosion during testing for the Amos-6 mission, Musk will provide details on the much-anticipated Mars Colonial Transporter project. As Musk described at a conference earlier this year, the project aims to shuttle thousands of people to Mars by 2024 for a cost of about $500,000 per trip.

Musk’s plan is audacious, but if successful, SpaceX would be the first company to launch a passenger space-travel service designed for the masses. And they would beat Boeing by using one of the oldest plays in the 100-year-old company’s playbook.

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In 1926 Hubbard came to Boeing with an idea. As detailed in Airlines and Air Mail, he suggested that the two men create a more ambitious air-mail service than the one Hubbard had started six years earlier. That year the United States Postal Service had announced plans to privatize mail delivery after a series of accidents involving their pilots. The Postmaster General told companies he would divide the country into routes and give contracts to the lowest bidder in each region. Hubbard—knowing it would require deep pockets from a wealthy man like Boeing—suggested they join forces and pursue one of the most lucrative routes, San Francisco to Chicago. There was just one small hitch in the plan. Boeing wasn’t an airline; they were an airplane manufacturer.

Boeing quickly hired some of the smartest men in the industry and launched Boeing Air Transport. Compared to more established competitors like Western Air Express, the company was inexperienced. This proved problematic since the Postal Service made it clear they would award contracts to safe, reliable companies. But Boeing had an advantage over nearly every company in the industry: They had a plane capable of carrying passengers.

Two years earlier, the Boeing Airplane Company had responded to a request by the Postal Service—then delivering air-mail for the country—to build a plane capable of the job. Clairmont Egtvedt, the company’s chief designer, drew up plans for and later developed the Model 40. The Postal Service only ordered one plane, however, and Egtvedt was forced to shelf the project. Then in their rush to launch Boeing Air Transport, the Model 40 was revived with one important change. Egtvedt replaced the water-cooled engine with an air-cooled engine that was lighter and took up less space. This would prove to be one of the most important innovations of the decade.

On January 16, 1927, William Boeing and his wife, Bertha, boarded a train for Washington D.C. to attend the opening of the air-mail bids. After the Postmaster General opened the bids, the couple went to their hotel room to wait on a decision. According to Van der Linden, they both nervously drank scotch highballs in anticipation while a committee reviewed each bid and vetted the companies. Finally they received a call. Boeing’s D.C. representative answered the phone and then yelled into the receiver, “You don’t mean to say we got it?” The next day it was announced that Boeing Air Transport had won one of the country’s most important mail contracts.

Boeing Air Transport won the contract thanks to Egtvedt’s ingenious design. By switching out the water-cooled engine for an air-cooled engine, the Model 40 had free space and additional payload capacity. This afforded the company an advantage none of their competitors could match: They could fly passengers. In his new plane, Egtvedt created a small but comfortable hull for two people. This gave Boeing two sources of revenue on each flight, which then allowed the company to charge less for mail. Western Air Express executives were shocked when their bid was undercut by almost 50 percent.

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On their inaugural international mail flight in 1919, neither Boeing nor Hubbard could have anticipated the changes soon to come to their industry. The only people flying at that time were adrenaline junkies referred to as barnstormers and wealthy men like Boeing, as Van der Linden points out. But in mail contracts, Boeing and his friend saw a bridge to passenger service, something that set them apart from many of their peers.

“The people at Boeing had a vision. They knew that in order for the industry to develop it needed Wall Street money. And in order to get that, they needed a reliable source of revenue,” Van der Linden told me. At the time there was very little demand for passenger flights because they were expensive. Mail contracts were essential in attracting what Van der Linden refers to as “real money,” a source of steady income. And because the contracts lasted four years (they were later extended to 10 years), investors could be confident in forecasts.

Shortly after winning their San Francisco-Chicago mail contract, Boeing launched a passenger service along the same route. A year later, William Boeing merged his three companies, Boeing Airplane Company, Boeing Air Transport, and Pacific National Bank. Included in the merger was the most successful engine manufacturer at the time, Pratt & Whitney. In 1928, the new company, United Aircraft and Transport Corporation, went public and within days it was valued at $150 million—the equivalent of roughly $2.2 billion today.

SpaceX’s business strategy looks remarkably similar to the one that made Boeing so successful. In phase one of the company’s life, they used government contracts to develop their first rocket. Phase two, currently underway, is a combination of launching people and cargo into orbit. And phase three, which Musk will further explain this month, is the audacious goal of regular passenger service to Mars.

Like Boeing, Musk funded his company during its first years, but understands how much capital success will require. In January 2015, SpaceX raised $1 billion from Fidelity and Google. According to a press release in September 2015, the company has more than 60 missions in the works and $7 billion under contract from private companies and government organizations like NASA.

It’s easy to remain skeptical about a Mars-Earth route, especially in our lifetime. The average distance to Mars is 225 million kilometers. The $500,000-per-passenger price tag Musk advertised earlier this year is more than 10 times the average American’s salary. And even that figure seems optimistic given that the cost-per-pound SpaceX charges today is roughly $10,000. Using that figure, it would cost $1.5 million to launch a 150-pound human into near-Earth orbit, a distance of only 250 miles.

But one of the best lenses to view the future through is that offered by history. Musk likes to compare Mars colonists to settlers who left Europe for the New World in the 1500s, yet the development of passenger air service offers a much more recent historical analogy. In the early 1920s, air travel costs were prohibitively high for everyone save the ultra-wealthy and governments with large budgets. Paris and New York were separated by two weeks, and plane tickets cost an equivalent to many times the average American’s salary. By 1933, thanks to Boeing and other private companies, a ticket between New York and San Francisco cost $160.