Struggling electric jet startup Zunum sues Boeing for fraud and misuse of trade secrets

In 2017, Zunum Aero was flying high. The Kirkland, Washington-based aviation startup came out of stealth mode with bold plans to build a fleet of 12-seat hybrid electric jets for short, regional hops between cities. The company, which had received millions of dollars from the venture arms of Boeing and JetBlue, said it would be ready to fly by 2022.

Not long after, those dreams came crashing down to earth. In 2018, Zunum ran out of cash, forcing it to lay off nearly all of its employees and vacate its headquarters. It struggled to raise additional funds that it needed to get its plans back in motion. And now, Zunum is striking back at one of its former investors. The company filed a lawsuit in Washington Superior Court this week accusing aerospace giant Boeing of fraud, technology theft, breach of contract, and misappropriation of trade secrets.

Zunum said that Boeing “colluded with other key aerospace manufacturers and funders” to sabotage its efforts to raise additional cash and tried to poach Zunum’s engineers during the process. The startup claims that Boeing saw its superior technology and potential to disrupt air travel as a threat to its own dominance in the aviation world and sought to undermine it. Using its due diligence as an investor as subtext, Zunum said Boeing gained access to its business plan and proprietary technology, and “exploited” Zunum for its own benefit.

“Boeing saw an innovative venture, with a dramatically improved path to the future, and presented itself as interested in investing and partnering with Zunum,” the company claims in court filings. “But instead, Boeing stole Zunum’s technology and intentionally hobbled the upstart entrant in order to maintain its dominant position in commercial aviation by stifling competition.”

It’s rare that a startup would sue one of its investors after failing to deliver on its promises. But Zunum said its setbacks weren’t because of bad technology or a faulty business plan. Rather, the company claims it was sabotaged by Boeing, which misused its position as an investor to pillage its talent and patents before eventually scuttling the company’s ability to continue to raise money.

Zunum also names HorizonX, Boeing’s venture capital arm, and French engine supplier Safran as co-defendants. The company is seeking compensatory and punitive damages. A spokesperson for Boeing said the lawsuit was without merit and that the company would “vigorously” contest it in court.

Founded by former executives from Microsoft and Google, Zunum proposed building several models of hybrid aircraft, one with a 700-mile range by 2022, and another with a 1,000-mile range by 2030. These jets wouldn’t be suitable for flights that are long-haul, cross-country, or transoceanic, but rather short, regional trips under 1,000 miles. (Think LA to San Francisco or New York to Boston.) The idea was to offer cheap flights that are low-emission and low hassle to take off and land.

“Jet engines are efficient when they’re big and up high,” Matt Knapp, Zunum’s chief technology officer, said 2017. “If you fly a jet engine a short distance, it’s not very efficient. So you’ve got this damned-if-you-do-damned-if-you-don’t [approach] to flying a small airplane a short distance.”

That same year, Boeing’s HorizonX and Jet Blue’s venture division agreed to invest in Zunum, instantly bolstering its credibility. The companies sank a combined combined $6.2 million into the company in Series A funding, according to a Zunum fundraising pitch obtained by the Puget Sound Business Journal. Washington state’s Clean Energy Fund kicked in an additional $800,000 in a research-and-development grant.

“Zunum is reinvigorating the regional market with a solution that’s both innovative and realistic,” Logan Jones, managing director at Boeing’s HorizonX, said in a statement at the time.

But things quickly went south, and in 2018, the company was forced to cease all operations. According to Fortune, the founders laid off almost all of their 70-person staff and gave up two of their facilities, one in Indianapolis and the other in Bothell, Washington. Creditors seized equipment from and changed the locks at another facility in Illinois, Fortune says. Zunum disputes this, saying it’s assets are just in storage.

Zunum puts the blame on Boeing. The Chicago-based company repeatedly reneged on promises for additional funds and dissuaded other investors from putting money in, the lawsuit alleges.

“Boeing also kept Zunum beholden to it for much-needed capital and market validation, stringing Zunum along with the prospects of an anchor investment and providing leadership on further fundraising,” the lawsuit says. “Although Zunum also sought investments elsewhere, Boeing actively interfered with and undermined those business relationships while inducing Zunum to continue its reliance on Boeing by holding out the prospect of a strategic partnership or merger.”

Zunum also accuses Boeing of copying its plans and technology that it disclosed to Boeing as an investor. After obtaining the proprietary information, the lawsuit alleges, Boeing approached Safran, the French engine supplier, with plans to build a hybrid-electric plane based on Zunum’s designs.

“Zunum discovered that Boeing was secretly developing a replica prototype of Zunum’s flagship aircraft design, staffed by the very same engineers and other professionals whom Boeing had assigned to conduct extensive due diligence on Zunum, under non-disclosure and non-use obligations,” the lawsuit reads.