• 17 Jun 2020 12:39 PM
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Financing the Electric VTOL Revolution

COVID-19 Pandemic Will Thin eVTOL Herd, Experts Predict

By Richard Whittle

Vertiflite, July-August 2020

Aviation industry and finance experts say the global economic recession caused by the COVID-19 pandemic will prove deadly for many developers of electric vertical takeoff and landing (eVTOL) aircraft and may lead big corporate investors to slow their eVTOL ventures. But the recession will likely just speed the arrival of the inevitable.

[Above photo: Wisk is a joint venture between Boeing and Kitty Hawk, which is supported by Google co-founder Larry Page, an “ultra-high-net-worth individual.” (Wisk)]

“You have just witnessed the period where the earth has the most number of eVTOL companies that will ever exist on this planet,” one eVTOL advocate said in a private text message on March 21 as the US stock market crash approached its nadir. “Time for some market collapse… bound to happen at some point.”

Cyrus Sigari, Managing Partner of UP.Partners, a venture capital firm investing in multi-dimensional mobility, agreed that the pandemic’s economic effects will force some vehicle developers out of the race. “The term I would use is the thinning of the herd,” Sigari said, who with his co-founder Ben Marcus has organized three exclusive UP summits since 2017 on the topic of electric air taxis, bringing together leading eVTOL developers and other industry representatives with investors or potential investors.

John Langford, founder and former head of Aurora Flight Sciences Corp., offered the same prediction, even using the same analogy. “We know there’s going to be a culling of the herd, and I wouldn’t be surprised if COVID-19” accelerated it, he said. Boeing bought Aurora in 2017 and Langford left last year and founded a new company, Electra.aero, to develop a hybrid-electric, distributed-electric propulsion short takeoff and landing (eSTOL) regional transport aircraft.

The 2008 financial crisis, Langford recalled, “precipitated a shakeout of companies” that were developing innovative four- to eight-passenger very light jets (VLJs) for business travel, and the COVID-19 recession will likely do the same to urban air mobility (UAM) eVTOL developers. “Capital dries up and a lot of marginal companies go under,” Langford said. “There’s way too many companies, way too many ideas for them all to succeed.”

Kirsten Bartok Touw, founder and managing partner of aircraft finance and leasing company AirFinance, agreed that, “What we’ll see is a separating between the winners and the losers happening a lot quicker because of COVID-19 than we would have before. It would have taken longer to weed out the winners and the losers.”

eVTOL Development Will Require Patient Capital

The eVTOL rush began with the founding of Joby Aviation by JoeBen Bevirt in 2009 but gathered momentum after Google cofounder Larry Page started Zee.aero (now Kitty Hawk). However, Touw said few such “ultra-high-net-worth individuals” have invested in eVTOL. Nor, she said, have venture capital firms, which typically make a large number of investments in hopes some will pay off within five to 10 years. And while a few tens of millions of dollars may be enough to get an eVTOL demonstrator up in the air relatively quickly, a decade and $500M to $1B will likely to be needed to get an air taxi certified by aviation authorities and in production.

Uma Subramanian, who led the creation of Airbus’s on-demand helicopter service Voom and was its chief executive officer from 2016–18, said she later helped “a couple of companies” try to raise money for eVTOL projects but found venture capitalists reluctant. “Fundamentally, there are very few investors that would make the eVTOL bet on the vehicle side,” Subramanian said. “It is an extremely long payback time period — best case scenario, 10 years to certification, I don’t care what anybody says. Particularly in this post-737 MAX world, there is no way that the FAA is going to fast-track certification,” referring to the US Federal Aviation Administration.

Sanjiv Singh, chief executive officer of Pittsburgh-based Near Earth Autonomy, a leading developer of autonomy technologies for aircraft from drones to military helicopters, said venture capital investors he heard at “TexasUP,” the most recent summit organized by Sigari and Marcus in Fort Worth, Texas, last year, seemed mainly interested in software development, which can pay off quickly and in high multiples of the money invested. “They’re looking for an aircraft company that has software as the main business,” Singh said. “They are used to investing in the internet space — social media, whatever. A lot of these people don’t understand how serious aviation is in terms of being conservative, in terms of certifications, in terms of timelines.”

Touw said this is why most funding for eVTOL vehicles has come from “strategic investors” such as Airbus and Boeing or automotive companies Toyota and Hyundai. But the recession, she said, will cause even some such “strategics” to slow or abandon eVTOL projects.

Indeed, in March, citing the COVID-19 pandemic, Airbus shut down its Voom helicopter service, which operated in São Paolo, Mexico City, and San Francisco to gather data for possible future UAM operations using eVTOL aircraft. In April, after reporting a €481M ($521M) loss for the first quarter of 2020, Chief Executive Officer Guillaume Faury said Airbus was “bleeding cash at an unprecedented speed, which may threaten the very existence of our company.”

Spokeswoman Paige Wilson said in a May email that Airbus Helicopters would continue flight tests of the company’s eVTOL multicopter CityAirbus into 2021. “We are continuing to work on air traffic management solutions to be able to accommodate a range of flying platforms, including eVTOLs,” Wilson added. But company officials have previously said the four-seat CityAirbus is just a technology demonstrator, not a prototype product (see “The eVTOL View from Europe,” Vertiflite, Jan/Feb 2020). Airbus’s other eVTOL demonstrator, the single-seat Vahana, developed by Airbus’s Silicon Valley subsidiary, A³, was mothballed last December after final flight tests.

Boeing, whose 737 MAX crisis had put the company in financial distress well before the COVID-19 pandemic began, has pursued eVTOL projects through its Boeing NeXt business unit created to work on future mobility air vehicles and infrastructure. Boeing NeXt’s projects include a partnership with German automaker Porsche to develop a “premium” eVTOL for wealthy customers; an electric Cargo Air Vehicle (CAV) multicopter designed to carry up to 500 lb (225 kg) of cargo; and the air taxi joint venture with Kitty Hawk called Wisk. Boeing’s subsidiary Aurora Flight Sciences — including its Passenger Air Vehicle (PAV) partnership in the Uber Elevate initiative — is also part of NeXt.

“We haven’t changed our outlook on the potential of future mobility, to include Urban Air Mobility and eVTOL technology, in light of the current environment,” Boeing NeXt spokeswoman Alison Sheridan said by email. “Even before COVID-19, we believed these types of platforms are still years away. Our investment and interest in these technologies are still active and our view on the timing hasn’t altered: When the safety, public acceptance and economics of these vehicles coincide, that is when we’ll see the market evolve.”

Wisk announced last year that it would conduct passenger air taxi trials in New Zealand using its two-seat, “self-flying” eVTOL Cora. Spokesman Chris Brown said that while Wisk’s flight testing and manufacturing were paused because of COVID-19, “there is no impact to our passenger trials in New Zealand.” That country, furthermore, has already eliminated the novel coronavirus.

However, Touw said, “I think what you’re going to see is that Boeing going forward will limit the amount they have to invest in this space. They won’t stop investing but they probably will have less capital. I mean, they’re in cash conservation mode. So, if you’re thinking about laying off people and do you have enough money to even pay your salaries while you’re not selling any aircraft, you’re stopping everything that’s not essential.”

eVTOL Developers with Funds Will Outlast the Recession

Touw said eVTOL strategic investors under less financial pressure will be less affected by the recession, such as helicopter and tiltrotor manufacturer Bell, which in January unveiled its fully eVTOL Bell Nexus 4EX air taxi.

Toyota Motor Corp., Toyota AI Ventures and JetBlue Technology Ventures — all of which have invested in Santa Cruz, California, eVTOL maker Joby Aviation — will stay the eVTOL course, Touw predicted, and a JetBlue Ventures investment manager, Jim Lockheed, agreed.

“We discussed the topic internally and our general perspective would be that eVTOLs are a long-term solution for sustainable urban mobility and a long-term investment play,” Lockheed said by email. “We do not see COVID-19 impacting eVTOL plans or investment activity for firms with this view or the leading companies in this space, such as Joby Aviation (of which we are an investor). However, newer entrants will likely have a more challenging time raising funds during the current economic environment given the pullback in general funding and particular reluctance toward travel concepts.”

The Air Force’s new Agility Prime project to promote advanced aerial mobility could help some startups, and the project’s leader, Col. Nathan Diller, said that after talks with investors, he thinks many will remain interested in eVTOL (see “Agile Change In Air Force ‘Agility Prime’ Launch Amid Pandemic Pays Off,” pg. 50).

On an Agility Prime webinar, Diller said that the current contracting approach gave the Air Force the “latitude to award potentially hundreds of millions of dollars” for eVTOL. The military “could in the near-term be a significant investor,” he said, “but that would be just enough to really prime the market.” After the recession, and if the technology proves itself, he added, “I do think that there will be investors that are there.”

Companies with enough funding to keep working through the pandemic should be able to ride out the recession and even benefit from the fact that layoffs at hard-hit firms will increase the available pool of engineering talent and reduce competition, Touw said. Joby Aviation and Volocopter of Germany, both of which have flown several prototypes and “raised significant amounts of capital prior to COVID-19,” will be fine, Touw predicted. “They’ll just continue with their heads down, building what they were building.”

Joby, Volocopter and Lilium, another German eVTOL developer that has conducted flight tests of its Lilium Jet, all announced shortly before the pandemic began that they had received new rounds of funding in the hundreds of millions of dollars.

“The funding round is secured and allows us to keep moving towards our goals without delay,” Volocopter CEO Florian Reuter said by email. “That being said, as a venture financed company, we are always looking for additional funds, [and] it will be interesting to see how this pandemic will affect the overall willingness to invest into future technologies.”

Meanwhile ride-hailing company Uber has been hit hard by the recession, laying off thousands of employees and closing dozens of offices globally. Uber’s Elevate plan to stage air taxi demonstrations in 2020 was put on hold because of the pandemic. But Mark Moore, director of strategy for Uber Elevate, said by email, “We remain hopeful that we could potentially launch commercially by 2023, but we’re staying flexible.”

“Many of our eVTOL partners are fortunate to have raised sufficient investment to advance towards program milestones in the year ahead,” Moore said. “On-demand air mobility remains poised to grow into a substantial market in the coming years as networks of safe, reliable, clean air taxis are certified for commercial deployment in cities around the world. We expect the size and addressability of this market opportunity will continue attracting investor interest going forward.”

Meanwhile, Sigari noted that of the nearly 300 concepts listed on the VFS World eVTOL Aircraft Directory (www.eVTOL.news), many are working on aircraft for missions other than air taxi service that are far more within reach and could even gain momentum from the pandemic, such as autonomous cargo delivery.

“There will likely be two or three winners where 20 or 30 are aiming at the same mission,” Sigari predicted. “But there’s some pretty significant companies that have gotten pretty significant funding that have pretty strong management teams and have enough runway to last a while. The real question will be, when those companies that are leading the way come up for the next fundraise, who will be there to take them to the next round?”