Reaction Engines, Lilium, and the Reality Check for Engineering Startups

The news is out that that Reaction Engines has entered administration under PricewaterhouseCoopers (PwC). I want to start this post recognising the immensely talented and extraordinary team within Reaction. Breaking into competitive markets with cutting-edge hardware has always been a formidable challenge.

The story of Reaction Engines is remarkable. Founded in 1989 by three former Rolls-Royce engineers who wanted to keep the HOTOL (Horizontal Take-Off and Landing) project alive, Reaction Engines developed the Skylon concept and focused its efforts on the Synergetic Air-Breathing Rocket Engine (SABRE). Throughout its journey, the company achieved technological breakthroughs that set industry standards, such as high-performance heat exchangers that were lightweight, compact, and capable of withstanding extreme temperatures. A key milestone was the SABRE precooler demonstration at Mach 5, which opened the doors to cutting-edge applications across Motorsport, Defence, Energy, and Aerospace. Despite its age it is still could be classed as a scalable start up.

?A Vision Misaligned with Financial Realities

The story of Reaction Engines as it stands today, ?represents more than a single company’s fall; it is an instructive example of the immense pressure engineering companies with startup scopes face when navigating the balance between ambition and financial reality. With SABRE, Reaction sought to develop a hybrid engine capable of leveraging atmospheric oxygen during initial flight and switching to rocket mode in space, a unique and exciting approach. But this ambitious vision demanded an exceptionally high level of financial support, and as costs mounted rapidly, commercial applications proved elusive.

Reaction Engines needed an additional ￡150 million (US$193 million) to continue development. However, major backers like BAE Systems, which acquired a 20% stake in 2015, Boeing, and Rolls-Royce declined to further invest, citing funding risks in the current landscape. This left a last chance with potential Middle East investors, who also ultimately declined to participate. Without options, the company found itself unable to sustain its operations and was forced into administration, with PwC now managing its assets. The financial fallout is stark: Yesterday , PwC had laid off 173 out of 208 employees, with the company’s website now redirecting to PwC’s formal notice for creditors. Reaction’s fall marks a severe setback, not only for its employees but for the UK government’s ambitions in hypersonic technologies. The UK’s ￡1 billion Hypersonic Technologies & Capability Development Framework (HTCDF), created to support hypersonic missile capabilities, now faces significant challenges without Reaction Engines’ advanced cooling technology. This loss has further reverberated into Formula 1, where teams, including Mercedes-Benz affiliates, held hope on Reaction’s heat exchangers for performance gains.

Startups and Novel Technology Vendors are Not R&D Labs

Reaction Engines’ collapse reveals a critical oversight that afflicts many engineering and aerospace startups and novel technology vendors : an imbalance between visionary ambition and the financial ability required to stay afloat in high-risk, capital-intensive sectors. For decades, Reaction’s board and management focused on SABRE as the linchpin for future hypersonic and sustainable aviation. Yet, they were slow to recognize a changing industry landscape, including the impact of reusable rocket technologies pioneered by SpaceX and the lengthy timeline for hypersonic technology funding and the hydrogen-fuelled aircraft to reach any sign of a date close to immediate future maturity. For a company , aiming to solve problems that require decades of research and the funding to accomplish ?is immense and as a proposition, extremely high-risk. When all is said and done it was the responsibility of Reactions board reluctance to scale back, shift strategy, or align more closely with the financial realities. Unbridled cash burn is what has ultimately brought the end of the company.

The disconnect between a management teams’ idealism and a disconnect with the company’s financial health resonates far beyond Reaction Engines. Across the aerospace startup ecosystem, similar boardroom issues emerge as corporate veterans, accustomed to the steady-paced worlds of BAE Systems, Boeing, or Rolls-Royce, enter startup roles. They often misjudge the flexibility and nimbleness needed to navigate the volatile funding cycles and swift pivots typical of high-stakes startups and Novel technologies. Reaction’s leadership mirrored this pattern, misinterpreting the adaptability required for success in the startup world, where being pragmatic and quick to adjust are vital.

The Government’s Misplaced Faith in “Big Backers”

The UK government’s initial support for Reaction Engines reflects another miscalculation. While the government saw the involvement of BAE Systems and Rolls-Royce as validation, this reliance on traditional industry players as a proxy for viability has proved shortsighted. The ￡1 billion Hypersonic Technologies & Capability Development Framework was established with the aim of driving the UK’s leadership in hypersonic technologies, yet this collapse exposes the naivety of assuming that “big backers” alone guarantee a startup or novel technology companies’ financial resilience or capacity to endure long development cycles. The government’s reliance on these firms has left it scrambling to cover the capabilities Reaction was supposed to contribute.

Hydrogen , Aviation’s Mirage of the Future

Beyond hypersonics, Reaction Engines also threw its weight behind hydrogen technologies as a sustainable aviation solution. Like other companies in this space, it invested heavily in hydrogen technologies, inspired by a vision of net-zero aviation. However, aviation experts have long warned that hydrogen-powered flight may remain unfeasible for another 20-30 years, given the immense challenges of energy density, infrastructure, and storage costs. For Reaction Engines, as for many others, the push to develop hydrogen technologies has proven financially unsustainable, especially when the market and supporting governments that will need to find trillions of dollars to support it currently doesn’t exist and at the reported cost, likely never will. This further illustrates the difficulty startups face in balancing long-term sustainability ambitions with short-term survival. Investors and customers expect timely returns, and startups often fall into paralysis when these markets fail to materialise quickly, leading to hesitancy from investors weary of indefinite R&D cycles.

A Lesson in Prudent Management for the Future of Engineering Startups

The story of Reaction Engines should serve as a lesson of introspection for all involved, investors, government agencies, and the aerospace industry alike. To succeed in the capital-intensive world of aerospace, startups / Novel tech providers require pragmatic, disciplined leadership willing to make hard choices, even if that means scaling back or to abandon cost intensive visionary projects.

While it’s respectful and right to celebrate Reaction’s achievements and ponder its closure, it’s crucial to recognise that a business exists to generate profits and not serve as an eternal R&D project, such scopes belong in the confines of academia. When technical ambition is allowed to overshadow practical business fundamentals, it sets the stage for massive failure as seen here. Reaction Engines’ collapse is a reminder that engineering startups must be more than incubators of big ideas, they need their business models grounded. This calls for the essential requirement for startup-experienced leaders and board members who understand the rigours of high-stakes innovation and who can navigate the complexities of capital-intensive R&D without the flaw of falling victim to their own ambitions.

The real failure here resides in Reaction’s board and management team, namely their inability to execute a financially grounded, realistic strategy for the company. In a field where technological ambitions clash constantly with financial demands, the need for disciplined decision-making and a laser focus on breaking even, let alone turning a profit can’t be overstated. Visions and ideals may inspire, but they don’t keep the lights on.

On a closing note, albeit cynical, I believe that Reaction’s technology will likely be scooped up for a penny on the pound by a major player aiming to secure a lucrative cosy cost-plus Hypersonic contract from the UK Government. Or, in true political style, the Government may jump in under the guise of ‘saving the day’ on its growth mandate, ultimately pledging financial support shifting ownership to one of the big companies with the afore mentioned cost-plus setup. In many ways, this would be a fitting next chapter, where costs can spiral unchecked with minimal incentive to economise. After all, cost-plus contracting provides the ideal setup: predictable cash burn, bloated budgets, and plenty of leeway to continue down the road of financial freedom, all funded by the taxpayer.

Frankly, I’d be surprised if PwC doesn’t already have such a plan already sitting on its desk.

Carl Cagliarini