The Future of Advanced Air Mobility

On The Radar

Finance Community Sees Opportunity in Advanced Air Mobility, But Also Risk

In the advanced air mobility sector, 2021 has been the first year to see significant numbers of sales commitments for new eVTOL and eSTOL aircraft. While the solidity of these largely provisional order commitments remains in question, it has been eye-catching to witness major airlines including United, American, Virgin Atlantic, Japan Airlines, SkyWest, Azul, Gol, and Republic Airways signaling their intention to incorporate new aircraft carrying just a handful of passengers into their fleets. What’s more, leasing groups like Avolon, Marubeni, Rose Cay, and Amedeo have also come to the party, signing their own agreements with manufacturers.

Aviation consultancy Alton sees a significant opportunity here for the industry’s financiers to fuel growth in planned electric air taxi and cargo services. What that will mean in practice, and how the emerging trend dovetails with the mainstream air transport industry, are topics addressed in Alton’s new white paper on the subject.

Through the end of October, Alton tracked a total of 6,400 sales commitments in the AAM sector, while acknowledging that only 460 of them could be classified as firm orders, with the vast majority likely not being backed  by any kind of meaningful deposit. This number has increased throughout November and December.

In Alton’s view, traditional sources of aviation finance will likely only kick in as the new aircraft get closer to type certification, giving lenders greater peace of mind about the risks associated with the new technology being promised by start-ups with little aviation pedigree, beyond that of recent additions to their teams. “Capital participation will evolve with the technology maturity of the sector,” Alton director Joshua Ng told FutureFlight. “Today, without a certified vehicle, we do not expect significant volumes of financing or operating lease-type transactions. However, some earlier adopters have decided to put in equity into the companies themselves, more akin to venture capital or private equity money.”

Alton expects the outlook for the sector to become more transparent now that several of the eVTOL frontrunners have gone public with Wall Street stock flotations. They now face the challenge of delivering on very optimistic pledges to investors that their aircraft will be ready to start commercial operations in less than 36 months, during 2024. Despite the tough timeline, Alton believes that as long as type certification goals are met as projected, there should still be time for new commercial operations to get fully established.

The new white paper suggests that the risk equation around both the aircraft themselves and their neophyte manufacturers is still not fully understood and that finance providers, as well as insurance companies, are going to need to have a far more complete picture before they make larger and more lasting commitments to the sector. “Assumptions about the useful life and liquidity of this type of asset financing should be carefully considered,” they suggest.

“As the sector matures and certified aircraft are in commercial operations, technology risks are reduced, and we should expect greater participation in the sector through asset-backed financing,” Ng concluded.