Investors pledge a record $4.3bn for air taxi start-ups

Investors have earmarked a record $4.3 billion (€3.66 billion) to electric air taxi start-ups this year, as many hope to uncover “the next Tesla”.

The money – an annual record only eight months into 2021 – was raised through a combination of venture-capital funding and investors backing proposals to list on the public markets through special-purpose acquisition companies, or Spacs, according to figures from McKinsey.

Spacs list on stock markets and then go hunting for a target company with which to merge.

The money has rushed into the nascent market as funding for all types of future air mobility solutions, including drones, has soared 83 per cent to more than $10.4 billion in the past five years, the consultancy said. The figures excluded non-public funding by strategic players.

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It is one of the hottest markets, despite most start-ups not yet having a flying prototype able to carry passengers. The excitement around the fledgling sector has drawn comparisons to the enthusiasm surrounding electric-car companies.

‘Next Tesla’

Peter Harrop, chair of technology consultancy IDTechEx, said parts of the air taxi industry have a promising future but warned that billions of dollars have been invested by people who “want the easy money of finding the next Tesla”.

“We are in a white-heat situation where you can float almost anything for billions. We have companies that don’t yet have a product selling the dream and raising billions,” he said.

But there are signs that some of this exuberance could be on the wane just as several high-profile air taxi start-ups, such as Lilium, Archer and Vertical Aerospace, prepare to go public this year.

Joby Aviation, which listed on the New York Stock Exchange through a Spac this month and counts Toyota among its backers, raised less than expected on the day.

However, Joby said proceeds from its market debut alongside cash on its balance sheet were enough to fund the company through initial commercial operations.

Fellow start-up Archer recently cut its valuation by $1 billion in a revised deal with Atlas Crest, the Spac with which it is preparing to merge. The groups said the change would establish a more attractive entry point for investors.

Robin Riedel, partner at McKinsey who leads the consultancy’s future of air mobility group, said: “The enthusiasm we have seen in the first quarter of the year has quietened down a bit.

“It’s [due to] a combination of things: overall the markets have [become] less excited about Spac deals; the range of players has broadened; and people are accepting there might be delays in terms of things like certification.”

Frothiness

Michael Cervenka, president of Vertical Aerospace, which in June unveiled preliminary commitments from Virgin Atlantic, American Airlines and leasing company Avolon to buy up to 1,000 air taxis, told the Financial Times: "This is a new space and with some frothiness coming out, you would expect redemptions."

Martin Warner, founder of start-up Autonomous Flight, one of the smaller players, said it was "inevitable that once the hype goes people will trade out and it corrects. I don't think there is anything wrong with that.

“You are getting a correction but I am still optimistic this industry is something really different.”

Vertical Aerospace’s Cervenka said there was “real value” in “companies like ours going public”.

“Given we are changing aviation and transportation” visibility, transparency and public trust were important, he said, and “part of that [trust] comes from being a public company”.

Funding deals were still coming through for companies, added McKinsey’s Riedel.

The biggest challenge for the industry remained certification by aviation safety regulators. Maria Algar Ruiz, drones programme manager at the EU Aviation Safety Agency, said the regulator expected the "first commercial piloted air taxi operations will be in place in 2024-25".

In the UK, Heathrow and London City airport are working with Brazilian aircraft manufacturer Embraer and regulators to explore how to redesign regional airspace to safely accommodate low-flying air taxis. London City believed it could be possible to introduce an air taxi network by the middle of this decade.

The technology might enter service sooner in other countries: Singapore has pledged to run the world's first commercial electric air taxi service by the end of 2023 in partnership with German start-up Volocopter. – Copyright The Financial Times Limited 2021