PARIS --- Over the last ten years, the development of an Urban Air Mobility landscape has become an important trend in the air transportation industry. Unlike the jetliner market, historically oligopolistic (or even duopolistic), these small electric aircraft are at the center of a fierce battle involving hundreds of new players, themselves often with adjacent partners in industries like automotive, 3D printing, innovative batteries, completion centers and others.
In spite of this considerable fragmentation, money from investors has been flowing into the industry. According to McKinsey analysts, as of the end of February 2022, the eVTOL industry had benefitted from a total known equity funding of $12.8bn since 2010. The reasons for this hype are multifold. In a report issued in 2018, the consultancy Roland Berger argued that “as urban sprawl increases and road traffic congestion worsens, several distinct technological advances are putting the long-held dream of escaping from all this madness and taking to the air within our reach.” Said innovations have achieved varying levels of maturity so far, and notably include electric propulsion, autonomous flight technology and the implementation of 5G communication networks.
What is more compelling for investors than technological prowess, though, is to look for a not-too-risky cash cow and bet big bucks on it. EVTOLs, like many technological innovations before them, are benefitting from a strong support from state institutions: in 2019, the White House included eVTOLs into its R&D budget priorities. Then, in November 2021, the US House of Representatives passed the Advanced Air Mobility Coordination and Leadership Act, aiming to “coordinate efforts related to the safety, infrastructure, physical security, cybersecurity and federal investment necessary to bolster the AAM ecosystem, particularly passenger-carrying aircraft, in the United States.”
It is difficult to know for sure how much government money was injected into this flourishing industry to date, but reports indicated that as of March 2021, the US federal government had invested more than $130mn —a figure which does not include early investments in infrastructure. So, are eVTOLs the new cash cow? Maybe. Only in this case, they could well turn out to be fool’s gold for investors.
Misleading investment forecasts?
Whilst analyses focusing on the eVTOL industry blossom, there is no single figure generally agreed on as to the size this market is likely to reach. UAM enthusiasts generally tend to think that Urban Air mobility will be a trillion-dollar business by 20 or 30 years’ time. According to Morgan Stanley, the global eVTOL market could be worth $1 Trillion in 2040 (a figured concurred by Nexa Capital Partners)… and $2.3Trillion to $18.9 Trillion by 2050.
Quite a wide discrepancy! Other analysts, less forward-looking, are somewhat less bullish: the Indian firm Fortune Business Insights for instance anticipates a $23.2 billion global market by 2028. Morgan Stanley’s estimate for 2040 also contrasts with the Aerospace Industries Association’s, which sees the market reaching $325 billion by then.
In 2018, Porsche Consulting was estimating the worldwide vertical electric market worth $74 billion by 2035, of which passengers only traffic (intra-city or city-to-city) would represent $32 billion. For its part, BIS research, anticipates the global eVTOL market to be worth approximately $524million by 2025 and is projected to reach $1.9 billion by 2035, a much more careful projection to say the least. The truth is, making assumptions beyond, say, a 10-year horizon is quite risky, if not misleading.
Lessons from the VLJ air taxi bubble.
For some observers, the excitement surrounding eVTOL probably recalls the fuss about very light jet air taxis in the 2000s. Numerous models were competing to get their fair share of the money going into such projects, promoted by many brand-new operators. Bill Gates notoriously invested in Eclipse Aviation; the car manufacturer Honda launched the Honda Aircraft Company to produce its HondaJet; and smaller, ambitious players like Adam Aircraft boasted their advance compared to their rivals.
By 2009, Eclipse and Adam Aircraft had gone bankrupt, like many of their competitors; Honda only got its jet certified in 2015 (though it proved to be a success since then). Cessna’s Citation Mustang and Embraer’s Phenom were pretty much the only ones to firmly stay in business after this hype.
Sure, the financial crisis played a part in these multiple failures. But some elements are quite familiar to the challenges faced by the eVTOL industry, not least air traffic management issues, the long path to certification. Let’s also mention the risks associated with an over-reliance on non-binding orders coming in the form of a letter of intent or memorandum of understanding. The eVTOL industry as a whole has just reportedly passed the 5.000 “orders and commitments” threshold, including 4700 just over the last twelve months. We’d be happy to know the break-up between firm and conditional orders, as well as amount of the deposits actually paid so far…Those order intents are certainly made in good faith, but what will happen in case technical failures – God forbid – claim casualties? Finally, the UAM business model is not immune to exogenous risks and economic shocks, such as inflation, raw materials shortages, or even a future financial crisis… EVTOLs may well be protected from variations in oil prices, but a significant hike production and operating costs would be enough to jeopardize the promises of eVTOL journeys affordable for the many.
The road to certification, an uphill battle
eVTOL players are generally optimistic about the timeline leading to the entry into service of those new air taxis. The numerous provisional orders surely give reasons for optimism, with Embraer’s Eve having recorded orders for 1,785 units to date, and Vertical Aerospace for 1,350 units, by way of illustration. Another reason for optimism came from the European Aviation Safety Agency itself, estimating that the first eVTOL commercial services could start in 2025 at the latest.
In the US, Joby Aviation recently got its first certificate for commercialization from the U.S. Federal Aviation Administration (FAA) —though a Type Certificate as well a Production Certificate are yet to be obtained. Another illustration for this optimism: In view of the 2024 Olympics, the Paris Transportation Administration plans to fly the first air taxis in the sky of the French capital.
But such a tight calendar will obviously cause tradeoffs, probably scrapping off much of the promises made by eVTOL promoters. First, while eVTOLs have been marketed as way less noisy than helicopters, their inability to fly at high altitudes means the cruel laws of physics may well be an obstacle. As argued by Bloomberg’s David Fickling, “Noise corresponds a lot to distance, making an eVTOL quieter the higher its cruising altitude. But climb higher, and you’re using more fuel again. It’s almost impossible to be energy-efficient and noise-efficient at the same time.”
Should certifying authorities augment the current threshold in aircraft noise regulations, this would inevitably create problems of public acceptance as a result. Second, and this is another consequence of eVTOLs’ low flying altitudes, air taxis will often be caught in tough weather conditions. An eVTOL ride will not be a smooth ride, as the clean lines of their designs and the blue skies of the promotional videos would have you believe.
Third (last but not least), it is clear that the first air taxis will not be autonomous. With one or two pilots onboard, the aircraft operating cost will inevitably go up, in turn casting doubt on the business case for eVTOLs, largely based on the extra room for passengers or cargo enabled by autonomy. This further brings the question of pilot certification: it is unclear for now under which category or type rating will they need to be certified to fly these aircraft.
Even having a single pilot onboard is a major change for regulating authorities, as much of the functions usually fulfilled by the co-pilot would now be part of the embedded autonomous systems. More generally, the FAA has stated that its current regulations are not tailored for power-lifted vehicles “which take off in helicopter mode, transition into airplane mode for flying, and then transition back to helicopter mode for landing.”
Inherent safety concerns.
Obviously, full autonomy as well as the use of embedded autonomous systems in complement to a single pilot raise significant safety interrogations, especially for aircraft meant to fly above densely populated areas. Although manufacturers and regulation authorities alike are showing a great commitment to ensuring high safety standards, statistics hardly lie. While commercial jetliners must comply with standards of one failure per million flight hours (10-6 reliability), the EASA is requiring a 10-8 reliability for “catastrophic failures” on eVTOLs with 2 to 6 passengers. With 100,000 passenger drones operating worldwide (as Roland Berger envisions by 2050), each flying 3,000 hours per year (a scale envisioned by many eVTOL proponents), it would still equate to three catastrophic failures a year…
Although this would result in less casualties than commercial jetliners overall, it is unsure whether such a rate of accidents could be accepted by the public in urban areas. More hypothetically but also more worryingly, eVTOLs could be targets of malicious acts, be it from hijackers or cyber attackers, given the numerous electronics embedded and high degree of connectivity of such aircraft.
Ground infrastructure will not develop overnight
The last source of uncertainty is the great challenge of developing a proper ground infrastructure. Obviously, with airport shuttling being likely to be the main use for the first eVTOLs in service, airports are already reflecting upon the adaptations they should bring to their existing infrastructure in order to host fleets of air taxis. Using helipads is another possibility. This will not be sufficient, however, for eVTOL manufacturers to be able to follow their business plans. The common image of air taxis landing on rooftops is yet another illusion for the short and mid-term, considering the safety and logistics issue it would actually bring.
Therefore, developing so-called “vertiports” will be instrumental to the success of urban air mobility. Their development, however, will not start before eVTOLs get final certification from regulating authorities, as acting otherwise would be foolishly risky for investors. Even once these efforts could get kick-started, it will take a lot of efforts —and money— to get the land and clearances to build such infrastructures within (or close to) densely populated areas. As explained by Charles Alcock, Senior Editor at Aviation International News, the perfect vertiports site would need an unobstructed airspace, a large square footage, no zoning limitations, and favorable local wind patterns... Not a piece of cake!
Lastly, the greater challenge to achieving the establishment of the necessary infrastructure perhaps lies in the air traffic management of skies filled with thousands eVTOLs at any given moment. During a recent webinar, Volocopter’s new CEO and former Airbus Defense & Space Chief executive Dirk Hoke emphasized that point, saying future air traffic management systems will need to include a great deal of digitalization, in order to support humans who would otherwise quickly be overwhelmed. Such changes in air traffic management systems will take years to unfold and mature.
EVTOLs may or may not end up crowding our skies, due uncertain public acceptance and other potential adverse circumstances. What seems clear, however, is that such uncertainty should discourage anyone a) willing to cash out quickly, and b) slightly concerned about technological ventures ending up in bubbles (like VLJ air taxis).
In spite of an intense engineering and marketing activity worldwide, the age of the Electric Air Taxi for all has not yet begun...