Not necessarily, but caution is prevalent among suppliers, particularly concerning capital investment.
OEMs will need to support supplier investment for production ramp-up.
The supply chain is already stretched thin from ongoing disruptions—post-COVID ramp-ups, Boeing supply chain issues, IAM strikes, etc.
Selecting OEMs with substantial cash reserves (~3x annual spending) and/or offering advance payments or milestone payments will be critical.
The Advanced Air Mobility (AAM) sector is currently experiencing what’s often termed the “slope of enlightenment” phase of the Gartner Hype Cycle. The “peak of inflated expectations”—bolstered by impressive renderings and presentations—is now behind us. As anticipated, some companies, like Lilium, have faced bankruptcy, creating a ripple effect across the supply chain and raising concerns about who might follow. Unfortunately, the outlook is particularly precarious for Europe, with companies like Volocopter and Vertical Aerospace potentially at risk.
AAM remains a burgeoning industry, but Europe's political and economic climate poses challenges, especially when it comes to raising risk capital. The decision not to support Lilium, despite it having raised approximately $1.4 billion USD, may reflect this caution—particularly given that the company struggled to deliver a flying prototype. Comparatively, Archer, Joby, and Beta have been far more prudent with their expenditures. For example, Archer operates with a leaner engineering team of around 700 people compared to Lilium's 1,100, suggesting a more resource-efficient approach.
It was surprising to see a Lilium mock-up on display at the National Business Aviation Association (NBAA) conference in Las Vegas the same week as their bankruptcy announcement. There’s a German proverb, “Klotzen statt kleckern” (roughly, “go big or go home”), or as Silicon Valley would say, “fake it till you make it.” While AAM is now being positioned as part of the business aviation sector, only two players—Lilium and Joby—showcased their vehicles at the NBAA. Joby, in particular, raised an additional $200 million USD shortly after Toyota's $500 million USD investment, underscoring CEO JoeBen Bevirt’s understanding of the importance of runway capital, given the lengthy path to revenue generation.
On a positive note, there are bright spots in AAM's progression, such as the recently signed “Powered Lift Special Federal Aviation Regulation (SFAR)” during the NBAA conference demonstrates regulatory advancements. Every emerging industry experiences hype cycles, and now is an exhilarating time for AAM’s supply chain as it transitions from concept to manufacturing. Although digital twins and simulations aid in the design phase, scaling production is a whole new challenge. We need only look at Boeing’s recent struggles with the 777X to understand the hurdles.
Leading players like Archer, Joby, and Beta are preparing their high-rate manufacturing facilities and anticipate similar investments from suppliers, though Joby’s vertical integration means they largely self-finance. Suppliers, however, face significant challenges in financing these expansions given that many production facilities may remain underutilized initially.
Consequently, OEMs will likely need to step in to support these investments. Many Tier 1 suppliers cannot shoulder these financial risks independently, particularly as they grapple with legacy business strains and residual effects from Boeing's supply chain issues. Though IAM’s strike may be resolving, the impact on production will likely extend for another month or two.
In conclusion, if you’re a supplier in the AAM industry, it’s worthwhile to either enter the market now or maintain your commitment if already involved.
However, mitigate your financial risk:
Be selective with OEM partnerships: Look for those with a solid cash runway, as well as measurable progress in technology and certification.
Position as a certified technology partner rather than financial risk-sharing investor: Avoid shouldering excessive financial risk, unlike the capital-heavy demands placed on suppliers during Boeing 787 and Airbus A350 development.
While there’s clear value in OEMs using certified aerospace suppliers, companies should avoid the extensive risk-sharing initially proposed by companies like Vertical Aerospace. Recent moves from players like Rolls-Royce, who have backed out, and indications from GKN Aerospace suggest they are wary of overextending financially, despite being strongly committed to the market.
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