John W. Kensinger
December 1985
Revised: December 1993
The Learjet Venture: A Case Study In Entrepreneurship
In the late 1950s jet airliners were just
coming into widespread use, but William
P. Lear, Sr. was already dreaming of a
small, affordable, private jet for business
and personal travel. Finally, in 1962 he
sold out his share of Lear-Siegler, which
he had founded and chaired for decades,
in order to work full-time on his “baby
jet.” He worked at first from his Swiss
estate, but soon moved the operation to
Wichita, Kansas. The prototype made its
maiden flight on October 8, 1963, and
production was under way in March 1964.
By March 1965, ten aircraft had already
been delivered. At that time, the capital
base of the company was a mere $5.8
million.
Having solved the problems
associated with bringing his new airplane
into production, he then set up an avionics
division in Grand Rapids, Michigan to
produce the instruments and autopilot for
the jet. Expanding toward new horizons,
he bought out Brantley Helicopter
Corporation (headquartered in Frederick,
Oklahoma), to provide a foundation upon
which to develop a new, sleek, fast
executive jet helicopter.
He even
managed to take time out from the jet
project to invent the 8-track stereo tape
player for cars, and set up a division in
Detroit to produce tapes.
In March 1967, scarcely five years
after he founded Lear Jet, Mr. Lear faced
the decision of whether to sell his 60%
interest in the company to Gates Rubber
for $28 million. By then, Lear Jet had
sold 150 airplanes, for a total of about $90
million. The industry sales for the 8-track
stereo tape system he invented had risen
to $25 million annually. Even so, the
company had reached a turning point,
facing strong competition on all fronts,
and experiencing significant operating
losses.
This is the story of an entrepreneurial
genius, and his best-known venture. Put
yourself in the position of a close advisor
to Mr. Lear, at the time he was deciding
whether to sell.
The Man Behind the “Baby Jet”
Bill Lear was born in Hannibal,
Missouri, in 1902, and dropped out of
school after finishing sixth grade. As a
youngster, he patrolled the back roads on
his bicycle, looking for stranded motorists
with stalled engines. He had learned that
their motor trouble was often in the
ignition, and he would use his pocket
knife to scrape the carbon from the
ignition points for a $2 fee. At the age of
20, after a stint in the Navy, he founded
and made himself president of the Quincy
Radio Laboratory in Quincy, Illinois. He
was already commanding fees of $2000
per month (a princely sum in 1922) as a
consultant in the infant field of radio
communications. He was hard at work
developing the first affordable radio sets
for home use, and one of his designs
produced the famous “Majestic” radio.
He was also at work bringing the radio to
automobiles. By 1924 he had a design
which he took to Paul Galvin, founder of
Motorola Corporation. At first Galvin
was skeptical, but finally built his
company on Lear’s radio.
It didn’t take Bill Lear long to develop
an interest in aviation. In 1930, in the
early days of the Depression, he founded
and became president of Lear
Developments. This company later
became Lear, Inc., and finally LearSiegler. In the early days it specialized in
aviation instruments, electronics,
automatic controls, and fluid handling
devices. In 1935 he announced the
invention of one of the first commercial
radio direction finders for aircraft, which
1
he called the Lear-o-Scope. In 1940, he
was awarded the Frank M. Hawks
Memorial Award for the design of the
Lear-o-Matic radio navigation system for
airplanes—the foundation of the modern
international system.
During World War II, he sold the
military $100 million worth of cowl flap
controls which he had designed to make it
possible to control the temperature of
aircraft engines in flight. These controls
significantly enhanced the efficiency and
performance of U.S. military aircraft.
After the war, he developed the first
operational auto-pilot for jet aircraft, and
in 1950 was presented the Collier Trophy
by President Truman, the highest award in
the aviation industry.
This was followed quickly by more
honors. In 1951 the University of
Michigan conferred upon him the
honorary degree of Doctor of
Engineering, in appreciation for “the
advances which his inventive genius made
possible in modern methods of
communication and aviation.” In 1954 he
received the Horatio Alger Award “for
having pulled himself up to the top of his
field by his boot straps.” Then in 1960 he
was presented Sweden’s Thulin Medal for
his contributions to the aircraft industry.
As the ‘50s drew to a close, Bill Lear
was comfortably established as chairman
of a company with annual sales of $90
million, which he had founded. Although
the company was headquartered in Santa
Monica, California, he lived on a 22-acre
estate near Geneva, Switzerland, leaving
day-to-day operational matters in the
hands of the new president, Albert
Handschumacher. At the time, Lear
described his own role as “bird-dogging.”
That is, he flew all over the world,
keeping in touch with his contacts in the
aviation industry and drumming up sales
for the company. He would buttonhole
people whenever he got a chance, and
pump them to find out their problems.
Then he would promise a solution, and
leave it up to the people in Santa Monica
to find a way to make the solution
practical. He would also drop in on the
home office periodically, as he said, “to
shake things up.” Predictably, this led to
frictions, and he was eventually asked to
make himself scarce.
Bringing the “Baby Jet” into Reality
Bill Lear could have retired to his
estate and rested on his already extensive
laurels, but he wanted a personal jet
airplane for himself and believed other
people wanted one, too. Besides, he hated
idleness. He was once quoted as saying,
“Some men enjoy golf, others sports cars.
For me, the best of life is the exercise of
ingenuity—in design, in finance, in flying,
in business.”1
Initial Obstacles
By 1962, when he was 60 years old,
Mr. Lear had preliminary plans for a plane
that would fly almost 600 miles per hour,
and that he hoped to sell for only
$250,000 each. The plans were based on
a fighter design. Parts for the plane would
be built in four different countries, and
assembled in the United States. He was
very excited about the prospects for
executive jets, and envisioned a market
that would absorb 3,000 turbine-powered
aircraft by 1970.
Less optimistic
estimates within the industry put the
realistic figure at 300. Bill Lear, however,
believed in his intuition, and felt that as
soon as people could see the plane, they
would want to own one. He tried to
persuade the board of Lear-Siegler to back
the project, but they refused. Dissenters
on the board pointed out that Lockheed
and North American Aviation already
were selling executive jets which had
initially been designed for military
specifications. They noted that several
other companies were at work developing
small jets for business aviation, and that
some had already left the field. They felt
that the field was overcrowded, and that
the costs of developing a new aircraft
were not justified by the potential market.
Bill Lear, however, believed that he could
1Business
2
Week, March 7, 1964, p. 111.
build a better aircraft for less money, and
therefore be competitive.
Unable to change their minds, Mr.
Lear asked to be bought out. He received
$14.3 million for his stock in LearSiegler, and dipped into it to found a new
company, Lear Jet, Inc. He was forced to
finance the airplane’s development
personally, because bankers proved to be
as reluctant as the board of Lear-Siegler to
back his project. Lear was once quoted as
saying, “In spite of my track record, I still
scare hell out of conventional bankers.” 2
It wasn’t long before he became frustrated
with the problems of running the new
enterprise in Switzerland, and moved the
entire operation to Wichita, Kansas. He
built a factory there from scratch, and in
October 1963 the first prototype flew. By
March 1964 production was already under
way, even though the plane was not yet
certified by the Federal Aviation
Administration (FAA). Mr. Lear simply
believed that his design would win
approval, and he turned out to be right.
At that point, he had risked $7.5
million of his own money in the
development of the airplane, and had
raised another $1.5 million from industrial
bonds issued by the City of Wichita.
Most of the bonds were purchased by
members of Lear’s immediate family.
Still a meddler frequently poking his nose
into the work of his engineers, he was in a
position to brush aside the resulting
frictions, reminding everyone that it was
his money and his baby.
Siddley was working on the DH-125,
scheduled to begin production in 1964.
Dassault Aviation Co. of France was
coming out with the Mystere 20, and had
already contracted to sell 40 of them to
Pan American World Airways. Pan Am
had an option on another 120, and planned
not only to distribute and service them,
but also to use them in a European charter
operation. Hamburger Flugzeugbau of
Germany planned to have its Hansa in
production by the end of 1965. Douglas
Aircraft Co. had teamed with Italy’s
Piaggio to produce the PD 808 Vespa Jet,
starting in late 1965 or early 1966. In the
U.S., Aero Commander, Inc. expected to
come out with its Jet Commander in late
1964.
It promised to be a crowded market,
considering that industry sales were not
expected to exceed a few hundred aircraft
per year. Competition was potenially so
intense, that one commentator described
the prospects as “a bitter dogfight for a
market of uncertain size.”3 Two
companies,
Grumman
Aircraft
Engineering Company and Fairchild
Stratos Corp. considered the market, but
decided to stay out. Fairchild had even
gotten as far as an eight-passenger mockup in 1958. As one official said, “We
stood down when we calculated that we’d
have to gamble at least $40 million just to
enter an already overcrowded market.”4
Lear Jet had three things going for it,
though. The first was Bill Lear’s
reputation and stature in the industry. The
second was price. The Learjet, priced at
just under $600,000, was much more
expensive than Mr. Lear had hoped; but
nevertheless was $100,000 cheaper than
the nearest competitor. Last but not least,
the Learjet’s cruise speed of nearly 600
mph was faster than any of the others, and
it could fly higher.
Lear was able to achieve the low cost
by offering the airplane in only one basic
model, and one color, with a standard
avionics package of Lear equipment and a
The Competition
In mid-1964 Lear Jet was not alone in
its new segment of the aviation industry.
Lockheed had been selling its $1.5
million, four-engine, twelve-passenger
JetStar since 1958. North American
Aviation’s $1 million, six-passenger
Sabreliner had become available shortly
afterward. In addition, several other
companies were vigorously developing
small 4-6 passenger jets with price tags of
$1 million or less. In Europe, Hawker
2ibid.
3Forbes, February 15, 1965, p.36.
4Business Week, Sept. 28, 1963, p.
p. 109.
3
142.
standard interior. The high speed was
achieved in part by making the fuselage so
small that passengers could not stand up
in the cabin. Although Bill Lear believed
people would be willing to exchange
comfort for speed, there were others in the
industry who doubted the wisdom of his
design.
For all its technical ingenuity, Lear Jet
was hard-pressed to meet the service
advantages offered by some of the
competition. Pan Am, for example, saw
the executive jet as a supplement, rather
than a competitor, of the scheduled
airlines. Vice President Alvin Adams was
quoted in 1963 as saying, “We see a time
when top executives will fly from New
York to Paris with Pan Am, and then
board their waiting Mystere to make the
rounds of European plants and
customers.” Pan Am would supply
servicing and flight data for Mysteres
operating abroad.5
Forest Becket, president of
Youngstown Airways, Inc., ordered
sixteen Jet Commanders in the early ‘60s.
He planned to lease them for about
$20,000 per month. In return, clients
would receive maintenance, operations
support, and two pilots. They would also
take over full ownership at the end of
eight years.6
an option on its 1966 cars, and Lear
arranged to make a “hang-on” version to
be sold through car dealers and parts
outlets.
Lear Jet had gone public in November
1964 with an initial offer of 500,000
shares of common stock at $10 per share,
and the price had soared since then to $50.
Sales were strong, and the airplane was
already becoming the industry standard,
with “Learjet” being a generic term for
small jets.
In April 1966, Bill Lear was in a
position to brag, “I was right; they were
wrong.” He announced plans to acquire a
helicopter company, saying “by 1970
we’ll be doing $200 million a year in
business.” He also expressed the desire to
build an engine plant in Wichita, and
talked of building a 43-place jet to get into
the short-haul commuter business. Also,
he talked of building a stereo tape
production plant somewhere in the South
to turn out 100,000 cartridges per day.7
Only ten days later, on April 25, 1966,
Lear Jet Corp. announced the acquisition
of Brantley Helicopter Corporation of
Frederick, Oklahoma, through an
exchange of stock. Bill Lear was gaining
on his dream of producing a sleek, fast,
executive jet helicopter. The deal gave
Lear 97% ownership of Brantley, which
had 180,000 square feet of manufacturing
and office space in their plant. The 13year-old Brantley made two models of
helicopters, a two-passenger version and a
four-passenger version. Lear stated at the
time that N.O. Brantley, founder and
chairman of the helicopter company,
would stay in top management.8
Lear Jet Grows
With the problems of bringing the
Learjet into production barely solved, Bill
Lear turned his attention to another
project. Tired of listening to commercials
on his car radio, he designed a stereo tape
player that would fit into the dashboard.
He invented a special 8-track continuous
loop tape cartridge, and solved the
problem of miniaturizing a player that
would fit in the required space. Lear
licensed the manufacturing to Motorola,
and RCA gained the rights to sell prerecorded tapes. Lear would make the
tapes at a new division in Detroit. Ford
Motor Company agreed to make the unit
5Business
6ibid.
Bill Lear’s Decision
The fortunes of Lear Jet Corp. had
risen rapidly, but they also turned down
rapidly. The heat of competition make
itself felt by the Fall of 1966. In October,
Lear Jet appealed to the Civil Aeronautics
Board to prevent Eastern Airlines from
7Forbes, April 15, 1966, pp. 54&56.
8Wall Street Journal, April 25, 1966,
Week:, September 28, 1963, p.142.
4
p.5.
acquiring Remmert-Werner, which held
the exclusive franchise for world-wide
sales of the North American Sabreliner.9
The Lear Jet petition said the acquisition
would restrain competition between Lear
and Remmert-Werner by making
Eastern’s extensive facilities available to
the latter. Furthermore, Ampex and
others were making inroads into the stereo
tape business. In the six months ending
October 31, 1966, Lear Jet reported losses
of $1.9 million on sales of $14.7 million.
In the corresponding period a year earlier,
they had earned a profit of $1.4 million on
sales of $15 million.
In early 1967, Gates Rubber offered to
purchase all of Bill Lear’s stock in Lear
Jet, Inc., about 60% of the 2,053,000
shares outstanding, at the current market
price. At the time, the shares were selling
at $22.50 each in OTC trading, down from
$50 a year earlier. Mr. Lear would
receive approximately $28 million for his
stock. Gates Aviation, the Denver-based
subsidiary of Gates Rubber, was a major
distributor of Lear Jet aircraft.
Mr. Gates was quoted as saying, “It’s
our intention to reinforce the financial
stability of Lear Jet and to bring it to the
kind of proven management controls and
marketing know-how that have generated
the profitable, dynamic growth Gates
Rubber has enjoyed over the past 55
years.” Gates also said there would be no
change in the jet aircraft manufacturing
operation; but the stereo division in
Detroit, the avionics division in Grand
Rapids, and Brantley Helicopter were
“under study.”10
Mr. Gates would take over as
President and Chief Operating Officer of
Lear Jet; but Mr. Lear would be allowed
to remain as chairman of the company,
engaged in new product development and
advanced engineering activities. Mr. Lear
was very hopeful about the arrangement,
saying, “I see myself doing for Lear Jet ...
what Pop Kettering did for General
Motors.”11 The sale would also give him
enough money to begin work on an idea
for low-pollution power systems to
replace the internal combustion engine.
9Wall
Street Journal , October 11, 1966, p.10, and
New York Times, October 11, 1966, p.69.
10Wall Street Journal, April 11, 1967, p.14.
11Forbes,May
5
15, 1967, p.70.