Capitalizing on the Future

The past two years have seen more electric vertical take-off and landing (eVTOL) companies merge with special purpose acquisition companies (SPACs) than ever before. While SPAC listings offer a feasible way for budding manufacturers to make their mark in the advanced air mobility industry, other challenges such as certification and a lack of talent within the AAM sector still linger in the air.

When Joby Aviation went public on the New York Stock Exchange in August 2021, the company raised more money from the deal than any electric aircraft maker had ever done before.

The listing helped the company to raise USD$1.1 billion – more than the USD$857.6 million Archer Aviation pocketed from its listing and nearly double the USD$584 million Lilium netted in September 2021.

Joby Aviation, an electric vertical take-off and landing (eVTOL) aircraft developer, went public by merging with a special purpose acquisition company (SPAC), which is a shell corporation that is listed on a stock exchange that can merge with or acquire private companies.

There are many reasons why more and more companies are listing via a SPAC merger. SPACs, or blank-check companies, help early-stage but high-growth corporations to go public in as little as eight weeks, bypassing the often tedious traditional initial public offering process, which can take anywhere between six months to two or even three years. Investor capital is also relatively safe; SPACs generally have 18 to 24 months to find a private company to merge with or acquire, and failing to do so will mean that any sort of capital that investors have put in is returned to them. The limited time window also presents an opportunity for the owners of the target company to negotiate a lower price with the SPAC for the merger. Being acquired or merging with a SPAC – which is typically sponsored by prominent business executives – provides the target company with enhanced market visibility.

Though SPACs have been around for almost three decades, SPAC listings saw an explosion in popularity during the global pandemic in 2020 – with 248 SPACs listings to be exact – accounting for more than half of newly-listed U.S. companies, according to SPAC Analytics, a data provider. The year 2021 saw even more SPAC listings, with 613 SPAC IPOs, accounting for 63 percent of all IPOs in the US. Activity, however, has eased this year, with only 82 SPAC IPOs seen in 2022 so far.

Joby is one of six eVTOL aircraft companies that listed on a stock exchange through a SPAC merger in the last two years; eVTOL developers Vertical Aerospace, Blade and Eve Air Mobility also went public through SPAC mergers, raising more than USD$3.75 billion in total.

Rapid funding

SPAC mergers essentially help companies quickly raise a large amount of funds, which is crucial for an industry that is as nascent – and under pressure to succeed – as the advanced air mobility (AAM) sector. With some companies such as Archer Aviation, Lilium and Vertical Aerospace hoping to commence operations by 2024, having ready access to capital will enable eVTOL companies to ramp up production of aircraft and increase the likelihood of the company staying solvent, for example.

Lilium, which merged with a SPAC called Qell Acquisition Corp, is expected to use the funds raised from the SPAC to fund the launch of its seven-seater Lilium Jet. The company’s existing shareholders are reported to have rolled 100 percent of their shares into the combined company, according a press release Lilium issued following the merger.

Joby Aviation, on the other hand, plans to use to proceeds to fund its business through its commercial operations, including the certification of its aircraft and the development of manufacturing facilities. Or as JoeBen Bevirt, Chief Executive Officer of Joby Aviation, noted in the company’s press release following its listing: “Today’s transaction lets us look ahead to the next decade and provides us with the resources we need to bring our vision to life.”

SPAC listings, however, aren’t the only way for eVTOL companies to raise capital. German aircraft manufacturer Volocopter called off its plans for a SPAC merger in November 2021, citing an “unfavorable” environment for SPAC transactions at the time. The company also wanted to avoid the risk of seeing investors redeem shares instead of remaining invested, which would have decreased the company’s overall valuation (Joby and Lilium both saw shareholder redemptions of about 65 percent, while Archer managed to hold redemptions to 48.5 percent).

Volocopter has opted to raise money through investors, raising more than USD$579 million in equity from investors including automotive manufacturers Geely and Mercedes-Benz Group, real estate developer WP Investment, and investment management companies Intel Capital and BlackRock.

Regulatory hurdles

Beyond having enough capital to kickstart operations, another obstacle all eVTOL aircraft companies have to face is the Federal Aviation Administration’s certification process.

Two main types of FAA certification are required for any commercial aircraft – the first one is a type certification, under which the FAA agrees that the design of the aircraft meets all requisite safety and airworthiness standards, while the second one is an air operator’s certificate, which is when an aircraft operator receives approval from a civil aviation authority and is permitted to use aircraft for commercial purposes.

Though the AAM industry believed that eVTOLs would be subject to the same FAA certifications – under Part 23 of the federal code, which is used to certificate conventional commercial aircraft – the FAA announced in May 2022 its choice to define eVTOLs as “powered lift” vehicles, meaning that they have to be certificated under Part 21.17(b) special class rules. The changes take into account the need to train and certify pilots to safely operate eVTOLs and the overall safety of these new transportation vehicles.

A May 2022 study conducted by the US Government Accountability Office, a legislative branch that provides auditing, evaluation, and investigative services for the Congress into the AAM market also notes that pilots and maintenance technicians will need to be trained in skills related to automation and electric propulsion. The report, which surveyed 36 stakeholders, noted the need to address certain issues before operations can be widely implemented, such as approving new aircraft designs, fostering public acceptance of AAM, and developing new ground infrastructure.

The pressure on the FAA to quickly come up with new rules needed to kickstart commercial eVTOL operations is compounded by the fact that many eVTOL startups are backed by major airlines or other large companies: Toyota Motor Corp and Uber have a stake in Joby Aviation, Archer Aviation is backed by United Airlines – which in February 2021 reached a US$1 billion deal to buy Archer’s eVTOLs, and in September 2022, also agreed to buy 200 eVTOLs from Eve Air Mobility – and Stellantis, while Vertical Aerospace is backed by American Airlines Group and Honeywell International.

Financing tomorrow

The next 24 months will be critical for eVTOL companies, with some of the major players in the industry such as Joby Aviation, Wisk and Volocopter working towards ensuring their aircraft commence commercial operations in late 2024 or early 2025 – with Volocopter aiming to provide eVTOL services during the 2024 Paris Olympic games, which begin in July that year.

While there is currently no word on which eVTOL company will be next in line for a SPAC listing, it is clear that SPAC IPOs present a viable means for AAM companies – and even business aviation companies – to raise capital. Flexjet and FlyExecutive, for example, both announced plans for SPAC mergers in October 2022. However, the fact that the AAM industry is still well in its infancy relative to the commercial or business aviation sectors, coupled with its need for fundraising to finance projects and operations, could well mean that the SPAC trend for eVTOLs looks set to continue or even accelerate within the next few years.