The future air mobility (FAM) industry made significant headway over the past year.1 Several electric vertical take-off and landing (eVTOL) players have made progress toward type certification, record numbers of drone deliveries now take place each day, and sustainable aviation companies are conducting test flights and hitting technical development milestones. Supporting this progress is a funding pipeline that continues to flow, with $2.5 billion raised year to date (YTD) in 2023, up 15 percent from the first six months of 2022 (exhibit). That is lower than the record funding levels of 2021, but still noteworthy given the challenging fundraising environment.
We have recorded $4.8 billion in disclosed funding over the last 12 months and $19.8 billion raised over the last decade. The FAM funding pipeline is outperforming the broader venture-capital (VC) funding flows, which are down more than 50 percent for the first five months of 2023, compared to the first five months of 2022. In contrast to VC, broader equity markets are improving, up 12.6 percent in 2023 after being down 19.6 percent in 2022.2 The most active segments for FAM investors continue to evolve, moving recently to surveillance and cargo drone players, which have accounted for 51 percent of funding in 2023 but represented less than 15 percent in previous years.
Complicating a potential recovery in FAM funding are the realities of cash reserves among companies. The public eVTOL3 companies have an estimated ten to 33 months of cash remaining, based on current spend levels and cash on hand. Some companies could reach certification with their current cash reserves, yet they could still need additional capital to fund the subsequent production phase. Further, it will take time for companies to ramp up operations to full scale, limiting revenues from passenger tickets. Finally, program delays are highly common in new aircraft programs; multiple FAM companies have already announced such delays and more are likely to follow.
These risks are reflected in the equity markets. Public FAM companies have seen their valuations fall by 58 percent since the peak in September 2021 and 17 percent in the last 12 months.4 Share price degradation in itself brings challenges, including equity dilution if companies need to issue additional shares to raise capital. There is also company risk of ceasing operations due to bankruptcy, which can occur in a variety of financial situations.
Though the current fundraising environment remains challenging, there are reasons for optimism. An increasing number of Letters of Intent and orders include some form of pre-delivery payments or deposits. Companies are also finding new sources of funding, such as military contracts or public partnerships. Additionally, partner agreements with strong manufacturing players—like we have seen with Archer Aviation and Stellantis—could help to spread capital investment costs. Another reason that funding could continue to flow is that FAM companies are part of a broader push to decarbonize the air travel industry—which is challenging given its technical complexity, certification rigor, and legacy infrastructure.
It is still early days in the industry and we expect growing momentum as the FAM value chain is built out and OEMs bring new models to market. Technology and economies of scale will improve products and reduce production and operations costs as the industry matures. The industry is not without risk, but we see many reasons to be positive about its future.
Saskia Boeck is a consultant in McKinsey’s Munich office, where Ann-Sophie von Gaisberg is a consultant and Stephan Lidel is a senior capabilities and insights analyst; Sarina Carter is a consultant in the Waltham office; Tore Johnston is an expert in the Denver office, and Robin Riedel is a partner in the Bay Area office.
1 The FAM industry includes eVTOL, sustainable aviation, delivery/surveillance drones, and super/hypersonic aircraft.
2 S&P 500.
3 Includes Archer Aviation, Eve Air Mobility, Joby Aviation, Lilium, and Vertical Aerospace.
4 Comparing companies publicly listed at the beginning of the period. Archer Aviation, Blade Air Mobility, Drone Delivery Canada, DroneShield, EHang, Joby, Lilium, and Workhorse Group were included in the analysis of September 2021 to present. Eve and Vertical Aerospace were also included in the analysis of the past 12 months.