(FORTUNE Small Business) – When Rick Adam got his pilot's license in 1993, he was dazzled by a bird's-eye view of the Grand Canyon, delighted to be flying himself to St. Thomas for a wedding. But one thing bothered him about flying: the dearth of makes and models of airplanes. "With all else in life—computers, cars, boats—you're overwhelmed with choices," he says. "But with aviation, there's not much choice."

Adam set out to remedy that. As a former partner at Goldman Sachs and a founder of a successful software company, Adam is one of the few people with the means to even dream of being an aviation industry pioneer. In 1998 he founded Adam Aircraft with the aim of building a smaller, lighter jet or, in industry parlance, a microjet. But so much for the lack of choices. The field has quickly grown crowded, and at least four other companies are horning in on Adam's niche. A burst of innovation in other industries—new, lightweight engines from missile manufacturers, composite materials from bicycle makers—has launched a wave of microjet hopefuls such as Avocet, Eclipse, and Safire. They plan to offer aircraft priced from $1 million to $2.5 million. That's well below the least expensive jet currently available, the $4.1 million Cessna Citation CJ-1.

For the moment Adam has the lead. The Englewood, Colo., company is the only one with an actual flying prototype. That's a big deal: Just ask the Wright brothers. Adam's microjet seats six, flies 380 miles per hour, has a range of 1,100 miles, and has a ceiling of 41,000 feet. Industry analysts expect the company to be first to market, offering its A700 (pricetag: $2.1 million) in mid-2005. But Adam has chosen a notoriously difficult business. (How do you make a small fortune in aviation? Start with a large fortune.) Adam faces a fierce dogfight that will pit his company against established players like Cessna and also against fellow startups. His archrival is a charismatic Microsoft millionaire named Vern Raburn, CEO of Eclipse Aviation out of Albuquerque. It's Snoopy vs. the Red Baron at Mach 3. "We'll be first to market," says Adam. "All our competitors still have paper airplanes."

Clearly the stakes are high. There's ample reason Adam and his rivals are swarming all over the microjet category. A commercial airliner on a flight of 500 miles or less averages only 75 miles per hour. Factor in delays and layovers, and such a flight takes about the same amount of time as driving. And while 70% of all commercial air activity goes through just 30 large airports, such as Chicago's O'Hare and Los Angeles International, roughly 5,000 smaller airports are in operation around the country. For every nightmare destination like O'Hare, a smaller field is available nearby—such as DuPage, 30 miles west of Chicago.

The nation's smaller airfields are already employed by plenty of planes, from dinky uni-props to $45 million Gulfstream G550s. But Adam and its competitors believe they've identified a sweet spot between the propeller planes and the least expensive corporate jets. Because jets are faster, safer, and require less maintenance than prop planes, the jetmakers are banking that companies that own the latter might want to upgrade. Microjets might also appeal to intrepid entrepreneurs who pilot their own planes on business. (Earlier in their careers both Adam and Raburn fell into that category.) Best estimates by analysts put the corporate microjet market at several hundred planes a year, or $500 million in annual revenues.

Other, more speculative markets have the potential to vastly increase the pie. Perhaps microjets can become a mainstay of existing charter fleets. Or maybe they'll be snapped up by fractional operators such as Flexjet and NetJets, which offer partial stakes in an aircraft—like condo time-shares. And then there's the Hail Mary: air taxis. While one set of entrepreneurs is rushing to build microjets, another group is hoping to assemble fleets of them. In the future, an airline might be able to fly from, say, Cincinnati to Columbus to Madison, picking up different sets of passengers at each stop. That would allow for more customized travel without the hassles and convoluted hub-and-spoke routing of commercial airlines.

That's the game, and Rick Adam is trying to score first and big. Adam was born in 1946 into what can only be described as a flying family. His father was a career Air Force officer who piloted a B-29 for atomic bomb flight tests in Texas during World War II. His mother was a private pilot. Adam graduated from West Point in 1968 with a specialty in computer engineering. He then wrote programs for Apollo missions 8 through 14 designed to detonate the rockets remotely if they strayed badly off course and threatened to crash into downtown Miami.

His first civilian post was at IBM, and from there he wended his way through a series of jobs in the computer departments of various large companies, including Goldman Sachs. In 1993 he founded New Era Networks, a firm that helps businesses link together incompatible software packages. By the time Sybase bought New Era in 2000, the company had expanded to 1,400 people and $150 million in revenue. Adam says he grossed about $50 million.

Adam Aircraft is no ordinary small business. The company has a work hard-play hard ethic. The workforce has grown from 100 to 300 in the past year, and the buzz is palpable at the Englewood facility as employees scramble to fabricate parts in giant molds the shape of wings and tailfins. But there's also a Foosball table, flying lessons subsidized by the company for all takers, and a tradition called Bad Shirt Friday, when colleagues try to outdo one another with gaudy Hawaiian prints.

Employees in the factory put in three 12-hour days a week, with four days off. One worker's schedule might be Monday through Wednesday, 6 a.m. to 6 p.m. Another might work the 6 p.m. to 6 a.m. shift. In this way every minute of the week is covered. Adam has been able to run his factory 24/7 for the past two years, allowing him to get the edge on competitors. This unusual work schedule has provided a recruitment edge as well. Denver is full of skiers and outdoor enthusiasts happy to work three long days in exchange for four days off.

Adam instills in his troops what might be described as a zest for the new. Commercial aviation is a notoriously hidebound industry. Given the relatively small number of new planes sold each year, design overhauls are a rarity. Detroit looks daring by contrast. Undaunted, Adam is proceeding with a plane whose body is made entirely of carbon composite, a material pioneered in bicycle frames and tennis rackets. A standard jet with an aluminum airframe has 25,000 parts, but the A700 has 3,400. That means fewer pieces to break and less inventory to keep in stock.

Composites are also lightweight, so a plane made of them can be powered by a smaller, lighter engine. Adam has gone with one manufactured by Williams International of Walled Lake, Mich. Founder Sam Williams is the reigning guru of jet propulsion. He got his start with Chrysler in the 1940s trying to develop a car with a gas-turbine engine. Ultimately, he made his mark—and his fortune—designing incredibly lightweight engines used in cruise missiles. For his efforts, Ronald Reagan decorated Williams with the Collier Trophy in 1988. Other recipients have been Orville Wright and Charles Lindbergh.

The A700's cockpit features ample digital display screens, replacing those little round readouts called steam gauges by frustrated pilots. A terrain-avoidance system generates graphic images of mountains or other obstacles that might be in the plane's flight path. Thanks to the ubiquity of software, Adam Aircraft pays $20,000 for the components of a high-tech avionics panel; an oldfangled one could cost upward of $200,000. "There's been a complete revolution of very low-cost, very user-friendly stuff that makes it both easier and safer to fly a plane," says Adam.

But getting his plane off the ground has been tough. The requirements for FAA certification are beyond rigorous—good news for prospective pilots and passengers, bad news for airplane makers. A tremendous amount of so-called destructive testing is required. Radios are placed in freezing chambers to make sure they can bear up under adverse conditions. As you read this, an Adam aircraft is strapped into a rig, vibrating continuously, as part of a long-term fatigue test to ascertain what breaks and when. Copies of every single engineering sketch, 7,500 of them so far, have been submitted to the FAA. In anticipation of a mid-2005 certification, Adam Aircraft is in the process of submitting final reports, nearly 300 binders, containing tens of thousands of pages. Adam says he devotes 60% of his time to working with the FAA, far more than he ever would have imagined.

Funding has also been an ordeal. At the outset, Adam was overly optimistic. It was 1998, and he was a tech guy hailing from a booming sector into which money just kept flowing. But he found that prospective investors were far more wary of aviation, an industry with a deplorable history of bankruptcy. It took 18 months for Adam to land his first investor—and that was his former employer, Goldman Sachs. Adam says he has raised $30 million from various investors, most notably billionaire Texas oilman Ray Hunt. Adam has also anted up an additional $25 million of his own.

Along the way, Adam also found it a challenge to go head-to-head with Raburn, a fervent and convincing fundraiser. "I'd call a list of 20 guys, and they would all have invested in Eclipse already," says Adam. "Vern gathered up the usual suspects before I could." Raburn, meanwhile, says he has raised $325 million, including stakes from such luminaries as Bill Gates and former Ford CEO Red Poling. He says he has put up less than $1 million of his own. The Eclipse jet has comparable specs to the Adam A700. It will seat six, travel 430 miles an hour, and have a 1,500-mile range.

In temperament, Adam and Raburn could not be more different. Adam is a large man who moves slowly and chooses his words with deliberation. He's a history buff (Stephen Ambrose is a favorite) and is particularly drawn to tales of military and business failure that offer clues about why it went so wrong. Adam didn't even get a pilot's license until he was in his 40s. By contrast, Raburn has been flying since age 12 (with adult supervision in the early years). As a hobby, he used to perform in airshows, piloting a vintage World War II plane, flying in formation like the Blue Angels, and executing all manner of flips and rolls and loop-de-loops. "I think some people thought that was crazy," he recalls.

But Raburn's push-the-envelope style also contributed to the most serious setback his company has faced. Like Adam, Eclipse looked to Williams International for a jet engine. But Eclipse took the revolutionary route, selecting one that promised more thrust in a smaller engine than has ever been achieved. By contrast, Adam, with typical caution, chose a modified version of an existing Williams engine, a 4:5 scale knockoff of one already used in the lightest Cessna.

Williams delivered prototypes to Raburn in the summer of 2002. But they kept failing; the Eclipse was able to take off only once. (Williams places the onus on Eclipse, saying the problems stem from the aircraft maker's original design rather than the engine it delivered.) Raburn was forced to go back to the drawing board, totally redesigning the microjet for a heavier engine. He estimates that the delay cost his company two years, causing him to fall behind Adam Aircraft. "It was a disaster," says Raburn. "That was about as bad a thing as could possibly happen to a new company."

Amid a haze of acrimony, the relationship between Eclipse and Williams has ended. The aircraft maker is going with a new engine in development by Pratt & Whitney. The Eclipse is now slated for delivery in early 2006.

Despite the delay, Raburn claims that his company has more than 2,100 firm orders. His business model calls for selling 1,000 planes each year. In the aviation world, those are mesospheric numbers. Only 518 business jets were sold worldwide in 2003, and many of those were high-end Gulfstreams and Learjets. Raburn says his microjets will expand the market by drawing in all kinds of new buyers. But his price is also expanding: An Eclipse currently lists at $1.2 million, up from an original price of $775,000.

Adam Aircraft claims only 125 orders. Compared with Eclipse, the company appears to be operating on an utterly different scale. Adam figures that he can achieve profitability by selling maybe 60 planes a year, mostly to businesses. If his company starts deliveries in 2005, as expected, Adam estimates that it will generate $55 million in revenues and be cash-flow-positive by year-end. "We're relying on a more conservative business plan," he says. "If those various other markets turn out to be real, it will simply be icing for us." Adds John Walsh, an Annapolis aerospace consultant: "Adam has its head on its shoulders. Eclipse has its head in the clouds."

Now, a word about those various other markets. It's unlikely that charter operators will purchase many microjets; they tend to buy larger planes, and they tend to buy them used. Fractional services such as Flexjet and NetJets, which usually use larger aircraft, aren't likely to show much interest either. Microjets have a range of roughly 1,000 to 1,500 miles, whereas a larger jet can fly nonstop across the nation, or even an ocean. (Many companies would rather buy a one-sixteenth share of a Gulfstream and travel vast distances in regal comfort.) "There are no current plans to add microjets to our fleet," says Maryann Aarseth, a spokesperson for NetJets. What's more, airplane makers own most of the fractional companies. For example, Bombardier—maker of the Learjet—also operates Flexjet. As one might expect, such services are mostly stocked with the manufacturers' own airplanes.

Less promising still is the vaunted market for air taxis. To be viable, such services would need to operate vast fleets with breakneck efficiency. Say a customer wants to fly into Wayne County Airport in Wooster, Ohio. The operator had better be able to find another passenger to fly out of Wayne County Airport. Or else it had better be able to move the plane quickly to a nearby airport where it can pick up a fare. It's okay to sit curbside in a $40,000 Lincoln Towncar. But air-taxi companies will have to keep their fleets of none-too-cheap microjets constantly moving or risk dying. "It's all very speculative," says Richard Aboulafia, an aviation consultant with Teal Group in Fairfax, Va. "There might be some limited regional markets where sky cabs work, but it isn't going to revolutionize air travel as we know it."

Raburn claims that many of the 2,100 Eclipse orders are from air-taxi operators, but declines to name any. "They're not ready to announce their existence to the world as yet," he says, "because they need our airplane first." But there's one order, at least, that was publicly announced. An outfit called the Nimbus Group ordered 1,000 Eclipses, but, according to Raburn, the order has been canceled. FSB tracked down the Nimbus Group. Turns out the Miami company is now a subsidiary of Taylor Madison, a cosmetics and skin-care products maker that, according to CEO Lucien Lallouz, has revenues of $350,000. Pressed on how a company of that size could possibly afford an order for 1,000 Eclipse microjets, Lallouz admitted, "Obviously today we don't have money for the order."

Some other air-taxi operators tracked down by FSB were just as sketchy. A company called Penguin Airlines proved to be little more than a cyber-shingle hung out on the Internet. A guy named Chris Stevens claims the title CEO. He's 28 years old and runs the company alone, part-time, out of his home in the Dallas area. Stevens says he hopes to build a vast network of air taxis. First he hopes to raise $1 million. Asked whether he has any money, he demurs, "I sure don't."

The air-taxi concept has been lent a patina of respectability by Don Burr, founder of People Express, the revolutionary no-frills airline during the 1980s that is now defunct. He has joined forces with Bob Crandall, former CEO of American Airlines. Their Stratford, Conn., venture, called Pogo, plans to go into operation in 2006, first serving the Northeast. It hopes to have a fleet of roughly 15 Adam jets by late 2006, which would give it the capacity to serve only about 25 passengers a day. "We'll start small and grow quietly," says Cameron Burr, Don's 42-year-old son and the company's executive vice president. "It's a new industry, so we have to move very carefully." Bottom line: Air taxis are a giant question mark written across the sky. "Wait a decade. They'll be as ubiquitous as cellphones," says Burr, who dreams of building a nationwide fleet of thousands of microjets.

The microjet market has become crowded before it has even started. No doubt, competitive missteps and failure to get FAA certification will winnow the list of players. Adam's cautious business plan—sell 60 jets annually, turn a profit—puts it in a position to survive. And it cannot be stressed enough: Adam has a working prototype, an honest-to-goodness plane that takes off, lands, and flies in the interim. That's more than can be said for any of its competitors.

WHILE NONE of these microjets is on the market yet, each maker hopes to lure customers with low prices.