Why SPACs are dominating the aerial mobility investment landscape
The aircraft have been here for years. Now, so is the money to drive them forward through full scale production and operation.
The technology that will allow an air taxi to operate safely with paying passengers on board is becoming increasingly old news. Now that the engineering challenges of designing, building and flying eVTOLs have been conquered, the discussion has shifted toward certification processes, production decisions, infrastructure development, and investment structure to accelerate innovation within the industry.
Over the past week, the industry has vaulted from an exciting demonstration of the commercial air travel technology of 2030 and onward to an industry on the verge of an acceleration of expansion. Proposed or actual aerial mobility investments and instruments committed to advancing the industry have totaled almost $2 billion USD. While commercial aviation continues to feel the squeeze from reduced air travel, with many opting for private or semi-private alternatives, the concept of democratization of aviation that eVTOLs and aerial mobility aircraft would provide is of such interest that investors are becoming creative in acquiring the necessary capital to move the industry forward.
While each of three landmark recent deals have varying flavors, they share a key theme: innovative fundraising and a mix of public and private capital to achieve massive investment scale much less risk than a conventional investment approach would. We examine three key deals made over the past two weeks that support the massive commitments these institutions are undertaking to drive aerial mobility forward at an even faster pace.
February brought with it multiple novel applications of the increasingly common SPAC business structure used as an instrument for aerial mobility investment. To the financially uninitiated, SPAC’s are unique in that they exist as an entity to take over another company through merger and acquisition deals — and fundraise using an IPO — hence the colloquial term “blank check company”. Firstly, Atlas Crest Investment Corporation, among other commitments from firms Stellantis and Putnam, focused their fundraise towards Bay Area eVTOL maker Archer. The IPO was joined in part by an announcement from United Airlines to purchase up to $1 billion USD in aircraft from Archer, which is the largest publicly disclosed eVTOL order to date. While this is the first such eVTOL order from a major airline, other airlines have been on the fringe of the eVTOL sector for some time: jetBlue Innovation ventures is no stranger to the aerial mobility or enabling technology investment, though they have not publicly joined or invested in any of these companies at time of writing.
Second, Reinvent Technology Partners, headlined by respective LinkedIn and Zynga founders Reid Hoffman and Mark Pincus, took aim at eVTOL magnate Joby Aviation, with a $690 million USD IPO providing the necessary funds to begin the merger process with Joby. The resultant company will maintain approximately $800 million USD in disclosed funding to date. This just recently after RTP targeted Hippo in a separate blank check takeover.
Third, and finally, ex-Boeing CEO Dennis Muilenberg led New Vista Acquisition Corporation’s SEC filing indicates a $200 million USD raise from their proposed IPO. It’s not readily clear which company New Vista Acquisition Corporation will target, but trends would indicate that a company such as Volocopter, Lilium, or EmbraerX to be of interest to the Chicago based, recently established blank check firm.
While none of these investment numbers single handedly reach unicorn status, their magnitude is indicative of trust that many of these institutions place within emerging eVTOL companies. Further, they represent a nimble implementation of fundraising approaches to accomplish an end goal that may have not been possible with conventional methods in a cash-strapped industry emerging from a pandemic. Both SPAC’s feature leadership teams that have either previously been involved within the technology industry or that have substantial experience leading aerospace companies.
It’s important to point out that the mechanics of these fundraising techniques substantially offload risk for blank check companies, since their disclosures to potential investors include multiple notices that they have no profits and no current operations. However, the ability for such companies to successfully raise the necessary funds is telling in its own right.
Why it’s important: Aerospace companies require huge capital investments to complete certification and initial production and delivery requirements. The expenses incurred with these types of business activities thereby require sizable investments from outside entities for financing, and the current economic status of commercial aviation is cash sparse. Those with sizeable enough reserves are investing at a low, while others who understand the unique opportunities of this timing are seeking alternative fundraising means to accomplish the same goal. While the ink is not dry for all of the SPAC deals outlined, they foreshadow the trend of future progress toward certification and initial commercial operations, but also indicate increased awareness of the apparent risks of long term mobility investments. However, without a large enough sample size for comparison, it’ll be at least a year in time before the physical manifestation of these mergers can adequately be compared and contrasted with a more conservative approach toward development.
