On 5 January 1956, the second YH-16 test aircraft crashed while returning to Philadelphia from a test flight over New Jersey. The cause of the crash was later determined to be the aft slip ring, which carried flight data from the instrumented rotor blades to the data recorders in the cabin. The slip ring bearings seized, and the resultant torque load severed the instrumentation standpipe inside the aft rotor shaft. A segment of this steel standpipe tilted over and came into contact with the interior of the aluminum rotor shaft, scribing a deepening groove into it. The rotor shaft eventually failed in flight, which in turn led to the aft blades and forward blades desynchronizing and colliding.
The aircraft was a total loss; the two test pilots, Harold Peterson and George Callahan, were killed. This led to the cancellation not only of the YH-16, but also the planned 69-passenger YH-16B version.