Analysis: Lilium's fall throws spotlight on air-taxi cash crunch

Lilium NV

25/11/2024 17:46

(Adds detail on Joby fundraising efforts, details on Vertical's
agreement, paragraphs 21 and 24)

        * 
      Annual investments into the sector have fallen from 2021
peak  
    

        * 
      More eVTOL makers may file for bankruptcy, analyst says
    

        * 
      Firms may need to tweak models, explore mergers, analysts
say
    

  
    By Abhijith Ganapavaram, Shivansh Tiwary
       Nov 25 (Reuters) - The race to become the first Western
air-taxi company to carry passengers lost a high-profile
competitor this month when Germany's Lilium  5KD.F  succumbed to
a cash crisis, throwing a fresh spotlight on a major hurdle for
the fledgling industry.
    Almost halfway into the decade in which air-taxi makers have
promised investors the first commercial flights, the demise of
Lilium shows how dwindling cash balances threaten to delay the
sector's aim to revolutionise urban travel.
    Makers of electric vertical take-off and landing aircraft
(eVTOL), commonly known as air taxis, have raised roughly $13
billion since 2019, but the pace of annual investments has
fallen after peaking in 2021, according to data from Alton
Aviation Consultancy.
    Despite marquee investors such as U.S. carrier Delta Air
Lines  DAL.N , and automakers Stellantis  STLAM.MI  and Toyota
 7203.T , analysts say billions more will be needed to achieve
certification, large-scale aircraft production and
profitability.
    "We are starting to see the weaker players fall by the side
... there will be more to follow," said Brian Foley, founder of
aviation consultancy Brian Foley Associates.
    EVTOL makers have raised $2.3 billion so far in 2024,
compared with $1.5 billion in 2023, $3.4 billion in 2022 and
$4.3 billion a year earlier, according to Alton data, while
profits have remained elusive as companies invest in setting up
operations and securing certification.
The companies including Archer Aviation  ACHR.N , Joby Aviation
 JOBY.N , Embraer backed-Eve Holding  EVEX.N , Lilium and
Vertical Aerospace  M000.F  tapped in to the blank-check firm
merger craze at the beginning of the decade, going public at
multibillion-dollar valuations.
    That was before they even had a product - a stage where most
companies prefer to stay private and depend on venture capital
funding.
    Archer, Joby and UK-based Vertical had estimated they would
launch commercial service in 2024 after they went public,
according to company statements and a 2021 Bernstein analyst
note.
    That timeline is certain to be missed, as regulations are
still evolving in the United States and Europe. Some eVTOL
companies have stopped making public predictions about approvals
from the U.S. Federal Aviation Administration, which regulates
the world's biggest market.
     
    MIDDLE EAST OPPORTUNITIES 
    Regulatory delays, an uncertain economic environment and
simmering global tensions have weighed on the sector's
fundraising and progress.
    "We don't have these companies getting to profitability
until late into the decade," said Raymond James analyst Savanthi
Syth.
    Some eVTOL makers are exploring other markets.
    Archer is planning to launch commercial flights in the
United Arab Emirates as early as the fourth quarter of next
year, and Joby plans to launch commercial service in Dubai by
early 2026.
    Analysts say Middle East regulators may devote more manpower
to certification and create a safe environment for eVTOLs as
their rulers try to attract future technologies.
    It is also easier to build infrastructure in the Middle East
than in Europe and the United States, said Stephan Baur, partner
at consultancy Roland Berger.
Industry experts say Archer, Eve and Joby are among the
best-positioned to continue operating long enough to at least
reach certification. Eve recently reached a loan agreement with
Brazil's National Development Bank.
    The three companies, and Vertical, are expected to burn a
combined amount of least $1 billion this year, which should
continue for the next two to three years, said Syth, who
predicted the first eVTOL would be certified to carry passengers
in late 2026 or early 2027 in the United States.
    Joby burned through $863.3 million in cash between 2021 and
2023, according to LSEG data, the most among the four eVTOL
makers, as its business model calls for both manufacturing and
operating the aircraft.
The company, which ended the third quarter with $710 million in
cash and short-term investments, has since raised $222 million
through an equity offering and announced a separate agreement
with Toyota, under which the automaker is expected to invest
$500 million in two tranches.
    Archer, which has more than $500 million in cash and cash
equivalents, told Reuters it had sufficient cash for the
foreseeable future.
    Eve said it had raised $236 million in equity and debt since
the end of the second quarter, which puts it in a "very
comfortable financial position" for the next few years.
Vertical has a lower cash balance compared with the rest, though
its operating model burns less cash. The company on Monday
announced a tentative agreement under which debt holder Mudrick
Capital Management will take part in an equity round and convert
$130 million in debt to equity, which is expected to settle a
default notice the investor had served to the company.
    The transactions extend Vertical's cash into the fourth
quarter of next year. Vertical had expressed doubts about the
company as a going concern when it reported half-year results in
September.
    Analysts say eVTOL companies must consider production-only
business models to cut their cash burn, and advances towards
certification may bring in pre-delivery payments. Mergers may
also be needed.
    After certification, they will need to ramp up production
while reducing eVTOLs' cost so they can compete with high-end
taxis. Analysts say it will be crucial to keep battery and
infrastructure costs under control.
    Though these difficulties have led to analyst scepticism
over eVTOLs dominating intra-city transport, some expressed
optimism. 
    Last week, Needham analysts initiated coverage of Joby and
Archer with "buy" ratings, saying they saw a $3 billion early
stage global air taxi revenue opportunity.

(Reporting by Abhijith Ganapavaram and Shivansh Tiwary in
Bengaluru; Editing by Gerry Doyle, Emelia Sithole-Matarise and
Matthew Lewis)
((Email: Abhijith.G@thomsonreuters.com; Mobile:
+91-9019785574;))