Hydrogen-Electric Propulsion Pioneer’s Failure Raises Questions

Within the space of a week at the end of June, Universal Hydrogen decided to close its doors, having failed to secure additional funding, while rival hydrogen-electric powertrain developer ZeroAvia announced a purchase commitment from American Airlines for 100 engines.

These events generate a conflicting picture of the prospects for pioneers trying to bring zero-emission hydrogen propulsion to aviation. But while both Universal Hydrogen (UH2) and ZeroAvia targeted regional aircraft retrofits as their entry point, they chose quite different approaches.

• Universal Hydrogen was focused on hydrogen supply
• ZeroAvia has incremental, vertically integrated approach

UH2 was developing a fuel cell retrofit for the 70-seat ATR 72 to kick-start demand for its core business of supplying green hydrogen fuel. ZeroAvia is taking a more incremental approach, beginning with a fuel cell powertrain for 10-20-seaters, then scaling to larger systems for 30-80-seaters.

The move to liquidate Universal Hydrogen, first reported in The Seattle Times, came June 27 when Chairman and CEO Mark Cousin informed shareholders that the board had decided to wind up the company after efforts to secure equity or debt financing, or to sell the company, had failed.

Confirming the decision in a statement to Aviation Week, Cousin says: “While we have been pursuing new capital for some time and evaluating various strategic options, we have been unsuccessful in closing any new investment, and therefore our board has made this decision.”

Co-founded in 2020 by former Airbus and United Technologies Chief Technology Officer Paul Eremenko, California-based UH2 was in the advanced stages of developing a fuel cell powertrain and related fuel logistics system. At the time of its failure, the company was preparing for the next phase of flight testing for its 1-megawatt hydrogen-electric demonstrator engine on a De Havilland Canada Dash 8-300 testbed.

UH2’s ambitious goals included certification of a 2-megawatt hydrogen-electric powertrain to replace the Pratt & Whitney Canada PW127-series turboprops powering the ATR 72, as well as development of a scalable, module-based logistics transport and storage system for the green hydrogen fuel.

Over its short existence, UH2 made significant progress toward viable hydrogen-based aviation. Its Dash 8 testbed became the largest hydrogen fuel-cell-powered aircraft to fly in March 2023 when it took off from Moses Lake, Washington, while development of the double-walled, vacuum-insulated liquid hydrogen storage capsule showed the company’s fuel logistics concept was feasible.

In a statement to Aviation Week, Eremenko notes that UH2 “raised Series A and Series B financing for a total of about $100 million and with these funds flew by far the world’s largest hydrogen fuel cell airplane and demonstrated a modular liquid hydrogen storage and transportation system in record time. From Series A close to first flight was less than two years.”

Funding problems began after that first flight of the Dash 8 testbed. “Following the first flight, the company raised another tranche of financing from existing investors and went to market to raise a Series C round, which would have brought the hydrogen ATR 72 most of the way to market. We encountered significant headwinds in the raise,” Eremenko says.

“The private equity capital market had cooled due to higher interest rates and constant fears of an impending recession,” he explains. “It was also a different category of investors from the initial financing—the [larger] check size was more in the wheelhouse of growth equity and private equity investors who saw the company’s business model of retrofitting existing airplanes and providing hydrogen fuel services to airlines as complex and risky.”

At the time of the first flight in 2023, UH2 hoped to complete certification in two years to enable entry into service in 2025. But as development progressed, this was pushed back to 2026. In the meantime, the company secured commitments for 247 aircraft retrofits from 16 customers, which represented more than $1 billion in conversions backlog and $2 billion in fuel services over the first 10 years of operation.

UH2 made several attempts through late 2023 at closing “less ambitious financing rounds,” Eremenko says. “However, in addition to the macroeconomic climate, [we] faced the additional headwind of the nearing U.S. election: If [Donald] Trump were to win, investors saw a significant risk that the massive green hydrogen subsidy enacted as part of [President Joe] Biden’s Inflation Reduction Act would disappear.”

By this spring, Eremenko and the board had settled on a new strategy. “We would vertically integrate by merging with an airline that was an existing ATR 72 operator,” he says. “This would simplify and derisk Universal Hydrogen’s business model, as the merged entity would own the entire value chain from fuel to flight. It would also make the combined entity revenue-generating and well suited to tapping new pools of capital focused on infrastructure.”

The attempted merger, reportedly with Florida-based Silver Airways, coincided with the departure of Eremenko from UH2 as CEO. “As I brought no special expertise to the [merger and acquisition] process and was keen—for nearly a year now—to pursue other endeavors, the board finally acceded to me handing the reins to the company’s then-president to complete the transaction,” he says. “I am sad to hear that the merger did not come to fruition and Universal Hydrogen is now liquidating.”

Comparing this story with ZeroAvia’s highlights their differences. UH2 was focused on retrofitting a large regional turboprop certified under the Part 25 transport category to pump-prime demand for its hydrogen fuel services. The startup was working with suppliers to develop the fuel cells and motor.

ZeroAvia is starting with a 600-kW hydrogen-electric powertrain, the ZA600, for retrofit to 10-20-seaters, beginning with the Cessna Caravan. Designed for smaller, simpler Part 23 aircraft, the ZA600 uses pressurized gaseous hydrogen storage and low-temperature proton exchange membrane (LTPEM) fuel cells from Sweden’s PowerCell. A demonstrator engine first flew on a Dornier 228 testbed in January 2023.

ZeroAvia plans to have the ZA600 certified by the end of 2025 and has begun development of the ZA2000, a 2-5-megawatt hydrogen-electric powertrain using liquid hydrogen and high-temperature proton exchange membrane (HTPEM) fuel cells—technology brought in-house when ZeroAvia acquired startup HyPoint in 2022. HTPEM offers higher power density than LTPEM with lower system complexity and weight. ZeroAvia has also brought development of its motors and controllers in-house.

On July 2, just days after UH2 decided to wind down, ZeroAvia announced a purchase commitment from American Airlines for 100 ZA2000RJ engines to retrofit the carrier’s Bombardier CRJ regional jets beginning in 2029. The airline also increased its investment in the startup as part of a Series C funding round that also brought on Airbus, Barclays and Saudi Arabia’s Neom as investors.

ZeroAvia says it “is well capitalized with strong support from investors.” The company says this support is based on its “sequential approach starting with 10-20-seat aircraft and scaling from there, deep vertical integration leading to technical and intellectual-property leadership, and high-performing components with distinct markets, commercial traction with 2,000-plus engine orders . . . and sustained progress with regulators on certification.”

While a tough investment climate contributed to UH2’s demise, analysts still see potential in hydrogen. “Overall for hydrogen aviation, there is the promise it could really help with larger aircraft and longer range where batteries will struggle,” says Robin Riedel, co-lead of the McKinsey Center for Future Mobility. “However, aviation will not be able to unlock hydrogen on its own as an energy carrier. . . . Whether hydrogen aviation can be successful depends on whether other parts of the economy switch to hydrogen.”

In the end, it seems Eremenko’s vision of using regional aviation to demonstrate demand for hydrogen in aviation and start the flow of fuel ahead of Airbus or another major OEM entering the market with zero-emission aircraft proved too risky for investors.

“Universal Hydrogen went all the way to the core of how to distribute the hydrogen, while ZeroAvia is saying: ‘We’re going to concentrate on developing this high-temperature fuel cell, getting the right power density and really making this technology work,’” says Sergio Cecutta, a partner at SMG Consulting. “It’s a more focused effort on propulsion without getting into the question of how you store the hydrogen. For Universal, that was a major added complication.”

Bill Johnson, founder and analyst at Single Seat Consulting, agrees that UH2 bit off more than it could chew by attempting to develop a hydrogen propulsion system and a supporting ecosystem simultaneously—a monumental task better suited to deep-pocketed legacy OEMs than a startup, he contends. “I can see established players like Airbus and Embraer having more chance of success . . . but even these companies, with their significant financial underpinnings, are not trying to initiate new production or delivery of hydrogen.”

—With Ben Goldstein in Boston