Podcast: AAM—Time To Put Up Or Shut Up

The advanced air mobility market is at a critical juncture—and the hard work is just beginning. Listen in as expert guests Sergio Cecutta and Kirsten Bartok Touw join Check 6 to discuss the latest developments and what comes next.

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Rush Transcript

Joe Anselmo:    

Welcome to this week's Check Six podcast. I'm Joe Anselmo, Aviation Week's editorial director and editor-in-chief of Aviation Week & Space Technology Magazine. The advanced air mobility market, or air taxis, as some people would call it in shorthand, is at a critical juncture. Multiple ventures have moved from conceptual drawings to flying prototypes and we could see the first AAM service launched in time for the 2024 Paris Olympics. But the clock is ticking. Companies are burning through cash at a rapid rate and with private equity investment having dried up, it's not clear if many of them can raise the money needed to see their projects through to certification and service. On top of all that, we have a lot of new developments in this ever-shifting landscape.

Joining me to break this all down are Graham Warwick, Aviation Week's executive editor for Technology, Sergio Cecutta, founder and CEO of SMG Consulting and a specialist in the emerging AAM market, and Kirsten Bartok Touw, co-founder and managing partner of New Vista Capital, a strategic advisory venture and private equity firm. Graham, let's start off with you. You've been writing about these AAM ventures for more than five years, but it seems like the sector is really at a do or die phase and as I noted, we've got a bunch of news both good and bad just recently.

Graham Warwick:   

Yes. So I've just finished putting together our kind of mid-year report on AAM, and so we were putting the thing to press and literally as we were putting it  to press, we were having to make probably about half a dozen changes to what I'd written because the sector is so dynamic. We've seen good news, bad news, and sort of good and bad news. Good news is that Joby's now flying the first prototype that has come off of a real production line, a properly managed, safety managed, quality managed production line. And that prototype, although it's not suitable for certification testing, is going to go to be operated for the US Air Force, which will be the first customer to be able to get its hands on an eVTOL and see how these things work.

Bad news, UK startup Vertical Aerospace, its technology demonstrator crashed in the UK during flight testing. Now we should note it was a demonstrator, not a prototype or a production airplane. It's able to be piloted, but it was flying uncrewed at the time of the crash, so nobody was hurt and it was in flight testing. This is what flight testing is all about. Joby lost a prototype last year, again in-flight testing, pushing the envelope, seeing what's going on. Vertical was testing the aircraft with a motor failed to see how it would maneuver and it crashed. The problem for Vertical is it's the least well funded of all of the publicly traded eVTOL companies, so it's clearly an issue for them going forward. So that's bad news.

And then the weirdly good/bad news is that the long-running intellectual property theft lawsuit between startup Archer Aviation and Wisk, which is now a 100% subsidiary of Boeing, that was resolved basically by Archer giving Wisk $70-something million in warrants for stock. Boeing taking a small stake in Archer and Archer agreeing to use Wisk's autonomy technology when and if they decide to go from a piloted aircraft to an autonomous aircraft. At the same time, Archer also announced some new funding. How much of it is new, I'm not entirely sure. They also announced a contract from the US Air Force's Agility Prime program similar to the one that Joby has to deliver aircraft for operational testing by the Air Force. I think there's another contract coming for Beta sometime soon.

So those are all the news, that was literally all happening while this midterm review was going to press. And in the background we've had some more FAA activity. They've put out their implementation plan for initial AAM, so everything's moving. I decided not to redo a ranking of the AAM leaders at this middle point of the year because everybody has really got their noses to the grindstone trying to get to certification. And it didn't seem to me to be useful to sort of re-rank people. We'll take another look in January and see where people go. It's entirely feasible that the runners and riders may have changed by January a bit. So that's where I think we stand at the moment.

Joe Anselmo:     

Sergio, Graham has my head spinning here with all of that, but you do a lot of ranking of the cash position of all these ventures and as you noted at our AAM conference at the Paris Air Show, they're going through cash really quickly, aren't they?

Sergio Cecutta: 

Definitely, their spend really depends on each OEM, but absolutely. We're talking hundreds of millions of dollars. And I think another point to make that I think is interesting is I think Graham just published an article on production. And we think that production, it's the next big mountain that these OEMs need to climb. And if the automotive industry is any indication, this cash burn are going to probably triple even more and go even higher when it comes to have a work in progress, inventory, et cetera, et cetera.

If we look at the top OEMs, Joby's cash position now stands at close to $1.2 billion. I think it's fair to say it should be fine to get them to certification. However, Joby has another challenge that maybe some of the other companies don't have is they chose a business model in which they want to operate their own aircraft. So they need that cash also to finance this trough of revenue because again, they're bringing in $300 a ticket, not $4-5 million an aircraft. And so a larger amount of cash is actually needed and probably not even sufficient.

When it comes to our friends at Archer, I think their latest cash injection is going to put them at $675 million remaining. If you look at their cash burn it should be almost enough to get them to certification. Probably they will need a little more money, but probably less than $100 million. However, again, the majority of these cash burns are all predicated on everything going well. And we know that in aerospace, one of the constant things is that we're always late. I don't think I remember a program where we've ever been on time.

And unfortunately, as Graham was saying, it's a new industry and many times even the most experienced players have some mishaps, like for example, the one with Vertical. And I have to say, even looking at the picture of Vertical, in the negative I see the positive because yes, the wings seemed to have failed, but at the same time the fuselage was intact and it's supposedly a fall of 20 feet. So, let's say it's better than what happened to the NASA [eVTOL] cabin prototype.

So, it's interesting, as Graham was saying, this next year is the famous year of, allow me the French, of put up or shut up because once you start working towards flight testing, there is nothing else that you can say. And then last but not least, I would like to add one more point. When we look at milestones, we've seen that they've introduced, we call it the pre-production. Some people call it production conforming, some people call it ... whatever you want to call it. It's not yet an airplane that is conforming, but it comes from the production line. I think one other thing that we need to keep in mind is the famous TIA, the [FAA] type inspection authorization. That is really when the clock starts running for the flight test for credit with FAA, and that's basically the last milestone before the FAA gives you your type certificate. So, looking forward to seeing how the OEMs do in the coming year.

Joe Anselmo:         

Kirsten, I wanted to ask you to give us the investor's point of view. Obviously private equity has dried up everywhere, the SPAC [special purpose acquisition company] market crashed. Does this represent an underlying loss of confidence in AAM, or will we see that come back when the market conditions improve overall?

Kirsten Bartok Touw

Great question, Joe. I don't think it's a loss of confidence. I think perhaps it's an injection of realism, which many of us have always been discussing in that we are all very excited and enthusiastic about what the future of AAM brings, but that it probably isn't going to happen as quickly as maybe everyone thought in 2021. And now we're seeing some more realistic timeframes and some cost outlines.

I would agree with your earlier comment that, look, we're about to hit the testing. Do you have your right artifacts in with the FAA? Do these aircraft perform as expected? That'll be a difficult challenge, but not one that is insurmountable. And then the second one will be the production certificate, which is a follow-up after the type certificate, which will also be something that none of these companies have done before and has held up other groups to make sure that your processes are conforming, that they are consistent and consistently break out a piece.

So, I think the other part I would say is, and to hit just a couple of topics, so I think investors believe in this long term. You're certainly seeing from an industrial infrastructure approach that people think this is an opportunity and they're taking the right approaches. And you're also seeing the government say, which we can talk about further, that advanced air mobility and the US retaining capabilities in this area is important. And you've watched the DOD step in with additional orders with Archer as well, and I think they're consistently, and almost Congress more so than the DOD is taking an interest in this sector and saying this is an important place for the US to continue to have preeminence.

I will go back and just add a couple points in. I think we've all talked about the Vertical prototype [crash]. They have two prototypes, so that's good news. We'll talk about later, I'm sure, which of the groups are vertically integrated versus outsourcing some of their components. But the good news I heard from the Vertical perspective is that it was a nominal failure. They were testing flying with only one engine, which is what you do. They were learning a great deal. And that the wing broke off at the right point. So, in that sense, this is the type of things you want to happen when you're doing testing early because you learn so much from it. So it’s important for people to realize and investors especially that this is part of the process.

Graham Warwick: 

Yeah, I want to jump in here. I was at an industry sort of round table dinner recently during the FAA UAS/AMM symposium in Baltimore, and in fact the dinner was intended to kind of respond to that government initiative. They have this inter-agency working group, which I don't think I've seen for a long time anything like this. It may be a bit like where we were in the early days of NextGen when they formed the JPDO, but this is all of the government agencies have come together to try and decide what strategies, policies, whatever, are needed to encourage AAM. That's a big thing. You've got Congress and all the branches of the government working in your favor here.

So the organizers wanted the people around the table to talk about what they wanted from this working group. It actually became a very wide-ranging discussion. But one of the problems with this industry is it's trying to do everything at once. It's trying to build vehicles, build infrastructure, create airspace, find a market, make money, and it's all trying to happen in very short term. So one [participant], I won't give any names, it was Chatham House rules, but one of the people around the table eventually broke into the conversation and said, “We need to just calm the [expletive] down." And his point was, we're piling all this stuff on top of AAM and in reality it's going to be threaded through.

If you look at Joby, if you look at Archer, they're finding a way through the challenges. They're operating within the existing system, airspace system, route system. They're operating within the existing infrastructure. They're building vehicles that can be certified with existing rules. Joby's vehicle has the 30 minute reserve built in to the design. They're not expecting to get any relief from that. So, they have deliberately chosen a path where they will get to service. They’ll have to subsidize that service for a period of time. They will have to have the money to be able to sustain that service, but they will do what we need everybody to do, which is prove there is a market.

And then the same person said, "Once they prove there's a market, the investment will come in." He said the infrastructure people are all saying, 'Why do I go in now before anything's even flying?’ As soon as we prove this is going to go, the infrastructure guys, they'll see money. The energy guys, the power guys will see money. The vertiport guys will see money, they will come, but we've got to prove it works first and that's why we've got to see the way through the trees rather than wall of trees that's the forest that we tend to look at at the moment with this industry because we are looking at so many challenges at the same time.

Kirsten Bartok Touw

Graham, if I can echo that, I liked your article last week with Nikhil from Archer where he pointed out the Tesla Roadster. And I don't know if any of you rode in the Tesla Roadster, but it was not a great car. It was plastic. You were like, this is never going to win anything. But what it did show was the first prototype, it was the MVP, it got out to the market, it trusted things. And I think what you're hearing from these OEMs is that's what we're going to see with these aircraft.

Don't expect that these vehicles that are going to be introduced into service are going to be the vehicle that is going to win in the end. It's going to be an iterative process. And what we're going to have to do as an industry is learn how to do STCs [supplemental type certificates] faster, work through the process in the FAA, but we are going to evolve as things come on, whether it's autonomy, whether it's battery improvements, whether it's motor improvements, which candidly I think that is the surprise to most of us in the industry that it's the lack of a powerful motor. That is one of the key things that is holding this innovation back. So batteries, motors, everything else is kind of there, but then as you see those evolve, we will get to second level and third level eVTOLs.

Joe Anselmo:         

Kirsten, you just mentioned autonomy. There are a number of people who believe that this sector just can't scale as long as you have pilots in the cockpit. The business case just doesn't close.

Kirsten Bartok Touw

And I think the point is we don't need the business case to close for a few years and people have to be realistic about that. This is a grow slowly, try out the roots, let it demonstrate capabilities, let us extend those aircraft capabilities. And yes, are we all looking towards autonomy in 10 years? Absolutely. Is it on the roadmap? And I think there are good companies out there, we don't talk about them as much, who are working on autonomy with the FAA and integrating those into the current mass as we see it. And those are going to be good test cases. You can talk about the new emerging companies on the autonomy side or you can also talk about the people who are doing pilot assist and removing tasks. They really do meet in the middle as to how much you can take away from pilot and how much you can automate.

The only thing that I would go back to with frustration, and Graham, to you, I'm positive inclined, I remember Steve Dixon, former FAA administrator saying, "FAA can't do this alone. It needs to be an all of government approach." But I don't understand what took so long because this technology motor, a battery electric is key to so many different industries. It's the basis for a lot of what we do in aerospace, which is one of our strongest long term. And this is fundamental technology that we need to keep in the US and we're not supporting it enough. So, a lot of you were probably back in the meeting at 2019 with NASA and the FAA. They laid out plans for all of this, and they've just been so preoccupied with other things that we haven't seen as much advancements as we'd all hoped in 2019.

Sergio Cecutta:  

If I may, if you look at this [idea that] you need autonomy to close the business case. I think it's a little bit of a misnomer. I think you need to have autonomy in order to bring down the costs to what we have put as this very aspirational target of ultimately being cheaper to fly than to drive. However, there are a lot of steps in between. Can these airplanes be competitive with an UberX at day one? Absolutely not. Are they going to be competitive with a helicopter? Absolutely, yes. And so really I understand that we want to serve this wider public as possible. However, we have a very good history in technology of serving these early adopters that are willing to pay a higher price and then with their help being able to make enough money to build a second version and then et cetera, et cetera, and continue this development that brings the cost down.

So if you look at this aspirational $3 a mile per seat, very good number. I think it's easier to stomach one of those fares in Europe than in the US because our distances are bigger. So, in a certain sense we have the tyranny of distances that makes the prices higher. However, I think slowly the bigger numbers are coming out. Adam from Archer has been talking about $3-$8 depending on where we're flying. So really $8, $10, even helicopter is about $12-$15. It's actually probably the number that we're seeing. However, it's going to be an exclusive service.

But, as we were mentioning, there are many way to make anything expensive disappear. The participation of many of these airlines in the market makes bundling something that they can do. And so, considering that business class fares are now almost normally, especially on flights between continents, a five- digit expense, adding another $300-$500 is really not that big of a deal. It kind of disappears in more than $10,000. And the other part is we say there is the subsidies. The reason that we flocked to Uber at the beginning was, oh my God, it's so much cheaper than taxi. Well, it was artificial. We were subsidizing. And now that it's not subsidized anymore, it's actually not that cheap. It's convenient but not the cheapest thing in the world.

So, I think we need to also look at that and again, not seen as a negative. Because we're like, well, we can introduce another service for rich people. But that is how many things happen in aviation. And if you remember when we go back to the famous golden days of aviation, in the 1960s very few people could fly. That's why you had all these people very well-dressed in airplanes. These were the wealthiest people of the time. And now we have made flying something that is accessible to the entire population. So, the time is coming also for this industry to get there. And as both Kirsten and Graham said, it's not going to be tomorrow. I think the 2030s is the decade where we will see these prices coming down, but it's coming.

Joe Anselmo:       

And where's it going to come first? For our listeners, if they want to go get on one of these, where should they fly to? Who's going to be out of the gate first?

Kirsten Bartok Touw

You'll see it in major metropolitan areas and primarily on routes to airports. The most important thing in any flying, whether you're commercial or business, is that you get throughput. You need that iterative, you need it to go back and forth to show that the model works and therefore the obvious choice is staying within the mast in a controlled route in an infrastructure is back and forth to the airport in major cities. So yes, that will be the place in which we see it, and it'll be places in which the weather is decent. You don't have to deal with freezing, you don't have to deal with winds. So, we've got all of those issues, but it'll be the major metropolitan areas and you're already seeing them talk about the rollouts.

Graham Warwick:        

We've already had announcements about New York, Chicago, San Francisco, and if you do, back to what Adam at Archer says, he said, "All we really need to do initially is have maybe 20 or 30 airplanes in each of a couple of major metropolitan markets proving that this business works." He said, "And then other cities will then step up and said, 'We want that as well.'"

So what you'll see is if we can prove this in two or three major metropolitan areas with two or three operators operating relatively small fleets, there will then be a bit of a momentum will start to build because cities will see that this is something that they want or the travel option they want. Whether it's strictly to serve their airports or whether they have a longer view about it becoming part of an overall transportation system. We need to prove it. We can't prove it in a rural area. We've got to prove it in a metropolitan area. And if we prove it, build it, and they will come. They will come. If we prove it works in New York, if we prove it works in Chicago, if we prove it works in San Francisco, Paris, Rome, wherever we go, they will come.

Sergio Cecutta:   

Paris next year. It's actually interesting for two reasons. Number one Volocopter is talking about five vehicles. So there is really not a lot of throughput, but at the same time, I think there is an advantage to be a first to market because there is a lot of things that these guys will learn, and then slowly it's going to just trickle down to as many large metro areas as we have in the world of which there is more than 670, over a million [people].

Joe Anselmo:     

Well guys, we are out of time, but I wanted to thank you all for joining us. And this is moving so quickly we're definitely going to have to have you all back soon to do another one of these because things are going to change. That is a wrap for this week's Check Six podcast. A special thanks to our podcast editor in London, Guy Ferneyhough. Thanks to Sergio and Kristen, and thank you to our listeners for your time. Have a great week and stay safe.

Joe Anselmo

Joe Anselmo has been Editorial Director of the Aviation Week Network and Editor-in-Chief of Aviation Week & Space Technology since 2013. Based in Washington, D.C., he directs a team of more than two dozen aerospace journalists across the U.S., Europe and Asia-Pacific.

Graham Warwick

Graham leads Aviation Week's coverage of technology, focusing on engineering and technology across the aerospace industry, with a special focus on identifying technologies of strategic importance to aviation, aerospace and defense.