Clouds or clear skies? Prospects for future air mobility

The future air mobility (FAM) industry, which includes electric vertical takeoff and landing (eVTOL) vehicles, surveillance and delivery drones, sustainable aviation, and supersonic and hypersonic aircraft, made substantial progress in 2023. Hundreds of companies pressed forward with ambitious plans to create exciting new technologies, vehicles, service offerings, and business models. New guidelines and regulations continued to emerge, early commercial drone deliveries increased around the globe, and some OEMs broke ground on new manufacturing sites and other infrastructure.

These developments helped keep optimism high in 2023 and encouraged continued FAM funding, surprising some industry experts who expected more modest gains. But progress must continue to maintain investor interest. In particular, the industry must try to resolve big questions that persist about the pace of technology advances, public acceptance, regulatory approval, and—perhaps most important—the overall economics of these new forms of mobility. With so much uncertainty about whether FAM might continue to see steady progress or follow a different trajectory, it is a good time to examine the industry’s greatest achievements in 2023 and look ahead to 2024.

Despite concerns, investors continued funding and the industry achieved major milestones in 2023

With economic and political uncertainties looming large in 2023, the FAM sector had a mixed year but still showed its resilience (exhibit). Investors signaled their continued interest by funneling $4.5 billion in disclosed funding into the market, bringing the cumulative total to $22.2 billion since 2004. Although this figure was 9 percent below the $4.9 billion raised in 2022, there were 151 funding deals within the FAM industry, more than double the number of 2022.

Future air mobility demonstrated steady progress in 2023.

The inflow of funds—albeit a lower amount—was critical for many air-mobility startups because development and early operations are commonly cash-flow negative, as expected in any nascent industry. For example, one recent McKinsey analysis revealed that the cash balance at the five Western publicly traded eVTOL companies would only last between less than one year for some and slightly more than three years for others based on their current and projected cash burn rates and revenues.1

While overall funding was steady, investor interest shifted among FAM market segments. For instance, disclosed funding for the sustainable aviation segment (which includes hydrogen, electric and hybrid powertrains and highly efficient aircraft configurations) totaled just $320 million in 2023—a 47 percent decrease from the $598 million reported 2022.2 Similarly, the eVTOL segment received only half the funding it did in 2022. On the other hand, cargo, delivery, and surveillance drones saw funding rise to $2 billion in 2023, which is twice the record $1 billion recorded in 2021.

The number of aircraft orders, including options and letter of intent, also trended lower in 2023 but remained above historical levels. New orders totaled 4,800, with an estimated value of $22 billion, which represents a 32 percent decrease from the approximately 7,100 orders, representing $46 billion in value, reported in 2022. The open order backlog, which was already high, now involves 21,300 aircraft worth an estimated $118 billion. It is expected that some orders will not be delivered, however, given that agreements in this segment are less binding, the industry is at an early stage, and there is much uncertainty about many of these programs.

Other notable FAM trends and milestones from 2023 include:

  • Increased scale and breadth of drone delivery operations. Across all regions, over 1 million commercial drone deliveries were estimated to have occurred in 2023, up from 875,000 in 2022. Some favorable regulatory developments encouraged this growth. In the United States, the Federal Aviation Administration (FAA) granted 120 waivers to allow Beyond Visual Line of Sight (BVLoS) operations for both delivery and inspection in 2023. This includes broader exemptions for drone delivery players, including UPS Flight Forward, Wing, and Zipline, and represents a 65 percent increase over 2022, when 73 waivers were granted. BVLoS operations allow drones to fly further, with less costly oversight from nearby pilots or visual observers, making expanded operations possible and the economics attractive.
  • Expanded flight testing. Flight testing activity ramped up in 2023, especially in the manned AAM segment. Seven leading companies have recorded over 8,000 cumulative disclosed flight hours through the end of 2023. Much of this flight activity involved aircraft that are non-conforming to the final production design, but it still helped organizations gain valuable insights about aircraft performance under real-world conditions.
  • Growth of the supplier base. An increasingly sophisticated set of suppliers is supporting FAM players. To date, there have been 975 deals or relationships announced between FAM players and suppliers, which include existing aerospace companies, startups, energy specialists, and a few automotive suppliers. In 2023 alone, there were 375 publicly disclosed supply-chain deals or relationships within the FAM industry, which represents a 17 percent increase from 2022. Our recent analysis indicates incumbent aerospace suppliers are increasingly active in FAM, including 80 percent of the top 25 companies. That represent an increase of 15 percent from one year ago. A strong supply base helps bring aerospace subsystem expertise, such as that related to batteries or avionics, to the market, as well as the expertise required to certify these systems. Aircraft manufacturers will not typically strike deals with suppliers until their designs and requirements are mature, so the growth of the base shows that many more companies now fit into this category.
  • Continued regulatory progress. Globally, regulators continued to refine their perspective on FAM. Beyond the progress on BVLoS exemptions in the United States, one major milestone occurred when Ehang, which was among the few to fly conforming aircraft in tests, became the first company to receive an aircraft-type certification in 2023 from the Civil Aviation Administration of China. This development moves the industry closer to commercial operations in China, although questions remain about the regulatory requirements that the Ehang 216 had to meet for certification.
  • New manufacturing facilities. In 2023, companies took steps forward with production facilities. For instance, Beta Technologies and Volocopter opened manufacturing plants in 2023, and several others announced plans to follow suit or signed leasing and development contracts. These include, Archer Aviation, which has already begun construction, and Eve Air Mobility and Joby Aviation, which have both announced site-specific plans.

Looking ahead: Cautious optimism—and reason for even greater vigilance in 2024

FAM could see continued momentum in 2024, but much uncertainty remains about every critical area, including technologic advances, public acceptance, regulatory approval, and economic feasibility. Some optimism is justified, especially since funding remained stronger within FAM than other industries, but signs suggest that some obstacles may arise. Among the FAM segments—eVTOLs, surveillance and delivery drones, sustainable aviation, and supersonic and hypersonic aircraft—some may see stronger growth than others, leading to different trajectories in 2024.

Uncertain investment trends

While FAM still attracts investors, the funding rounds for 2023 did show some signs of a slowdown. What’s more, funding requirements are likely to increase in 2024 based on current cash reserves and spend rates. It is still uncertain whether investors will provide enough funding to meet these requirements. Some debt vehicles may also become available as companies mature, but most FAM companies will struggle if funding slows.

The potential for certification

As companies meet new technical milestones, the European Aviation Safety Agency (EASA) and/or the FAA may issue the first certification for an eVTOL in a Western market in 2024. This milestone will depend on whether aircraft OEMs can agree on “means of compliance” with regulators and then deliver the evidence to support the compliance, including data obtained through expanded flight testing. Novel propulsion companies are also seeking increased clarity on regulations and are pursuing the first certifications as they attempt to develop sustainable aviation aircraft and propulsion systems.

We are encouraged by the regulatory progress FAA and EASA have made in working with FAM stakeholders in recent years and are excited about permanent leaders appointed in 2023 at both agencies. If companies can get certified aircraft delivered to their operating locations, 2024 might see the first commercial eVTOL operations. China could be the first country in which they occur, given eHang’s recent aircraft-type certification in the manned AAM category, and the city of Guangzhou has proposed a start date of 2024 for eVTOL flights. In the Western world, national and local regulators are reviewing plans to experiment with eVTOL operations in Paris during the 2024 Olympics.

Closer alliances, consolidation, and potential closures

As in other new sectors with many early entrants, the FAM industry is likely to become more concentrated as it matures, with the hundreds of players that now exist declining in number because of mergers, acquisitions, and closures. This decrease could occur within various product categories beginning in 2024, especially since many businesses now have no revenue or a very limited amount because they have not ramped up production. Others might engage in vertical integration. Other factors will also accelerate the consolidation of people and ideas in 2024. For instance, many highly skilled talent might gravitate to the healthiest organizations, or companies might share more best practices in aircraft design and manufacturing.

Ramp up of manufacturing capacity as part of long-term plans to drive efficient production

Production has been limited to a few early aircraft prototypes but it must scale beyond this to keep FAM on a growth trajectory. The new facilities that some OEMs and suppliers are building may help bring them closer to this objective in 2024. Manufacturers are also improving the chances of scale-up by taking steps to make production more efficient, which will enable more rapid production of serial aircraft and aircraft systems at lower cost.

Expansion of FAM infrastructure

If FAM expansion continues, stakeholders could support the industry by funding and building more infrastructure, including charging facilities, landing sites, and hydrogen generation and distribution stations. For example, if commercial eVTOLs get the approvals required for commercial flights, the supporting infrastructure will have to be built. It will likely consist of a mix of greenfield and brownfield sites, with the choice depending on both local conditions and available infrastructure. For novel propulsion aircraft, such as those in the hydrogen, hybrid, or battery-electric categories, an early buildout of charging and refueling infrastructure is essential in the districts where these smaller regional aircraft are most likely to operate. Given the long lead times for FAM infrastructure, OEMs and others may take the first steps forward in 2024, such as requesting permits.

Accelerated growth for drone deliveries

Drone deliveries are likely to continue to accelerate across uses cases and geographies in 2024. This is particularly true within industries, such as retail and prepared food, which can scale their operations more easily, and for deliveries involving critical products, such as blood or medicine. During ramp up, companies can refine their operations, search for strategies that reduce the cost per delivery, and build public acceptance, especially among their target customers. If they succeed in bringing costs down, they can compete more effectively with ground transportation and other alternatives. In addition to progress in the small drone category, we also expect to see progress in the larger drone segment. Such drones are used in different missions, such as middle-mile journeys that typically involve moving goods among or from distribution centers.

Solid, consistent progress. That description may sound a little bland, but it characterizes 2023 for FAM. It was a time when the industry continued to attract continued funding—though perhaps not as much as expected in some areas—and more prototypes took to the skies. The industry also benefitted from some regulatory and technological advances, and stakeholders were optimistic enough to undertake multiple infrastructure projects. While there were no major breakthroughs, such as widespread certification of eVTOLs, the industry’s momentum was encouraging. The question, however, is whether 2024 will bring continued progress or introduce additional obstacles. The latter is certainly possible because setbacks and delays are common within aerospace, especially in nascent sectors such as FAM. With so much uncertainty, stakeholders must be vigilant about monitoring developments and quick to adapt as the landscape evolves.

Axel Esqué is a partner in McKinsey’s Paris office, Tore Johnston is a knowledge expert in the Denver office, and Robin Riedel is a partner in the San Francisco office.

The authors wish to thank Jan Baier, Saskia Boeck, Stephan Lidel, and Sarina Mahan for their contributions to this article.

1 Estimates based on reports at the end of the third quarter of 2023.
2 This amount does not include nondisclosed funding by major aerospace companies.

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