The nascent advanced air mobility (AAM) industry is facing an increasingly challenging funding environment with an ongoing decline in venture capital for new electric aircraft and propulsion technologies, according to a <a href="https://www.mckinsey.com/industries/aerospace-and-defense/our-insights/future-air-mobility-blog/bridging-the-gap-how-future-air-mobility-can-adapt-to-decreased-funding">report</a> published October 1 by global management consulting firm McKinsey &amp; Company. In the blog post, McKinsey consultants spelt out the implications of the current funding environment and offer some strategic advice for AAM companies looking to “close the funding gap” as they near commercialization.&nbsp;&nbsp;&nbsp;&nbsp;
As McKinsey’s analysts note, the decline in funding for urban air mobility (UAM) and eVTOL aircraft “comes at a particularly bad time for companies in this segment,” as a handful of manufacturers are “getting close to commercialization.” For example, <a href="https://www.ainonline.com/company/joby-aviation">Joby</a> and <a href="https://www.ainonline.com/company/archer-aviation">Archer</a> are planning for service entry of their respective four-passenger eVTOL aircraft as early as 2025. Several other eVTOL developers are targeting service entry in 2026, including <a href="https://www.ainonline.com/company/lilium">Lilium</a> and <a href="https://www.ainonline.com/company/eve-air-mobility">Eve</a>.&nbsp;
Funding for future air mobility peaked in 2021, when the total value of disclosed aircraft and propulsion system deals amounted to about $6.8 billion, according to McKinsey. In 2023, only $3.9 billion worth of deals were disclosed, and McKinsey projects a similar total for 2024.&nbsp;
McKinsey breaks down what it calls “future air mobility” (FAM) into five categories: UAM/eVTOL aircraft, surveillance and cargo drones, supersonic aircraft, regional air mobility, and the broader ecosystem. From 2019 to 2022, the UAM category enjoyed the majority of FAM funding, but since 2023 it has been closely tied with drones. UAM/eVTOL aircraft and drones combined account for close to 80% of the deals made so far in 2024.&nbsp;&nbsp;
<h2>More Cash Needed By Many Start-ups</h2>
Most eVTOL developers will need to raise more money before they can complete the type certification process, which typically requires between $1 billion and $2 billion in capital, according to McKinsey. And that’s just the beginning—setting up manufacturing capabilities requires significant funding, too.&nbsp;
Prospective eVTOL operators will also need capital to build their fleets, “particularly in the beginning, when the aircraft are still unproven and thus unsuitable for the asset-backed financing frequently employed for established aircraft models,” McKinsey’s analysts wrote. For aircraft developers, new orders backed by pre-delivery down payments could “provide a crucial lifeline,” but “new orders alone will not solve all financial needs for FAM players,” they noted.&nbsp;
“As FAM companies mature, primary funding sources will transition from venture capital to growth or traditional private equity and will eventually involve retail or institutional investors through the public markets,” they said. “Investor funding will likely grow increasingly concentrated in FAM players that can derisk their future cash flows by demonstrating a clear path to certification, full-scale production, and customer demand in key early launch markets.”
Read the full report from McKinsey: <a href="https://www.mckinsey.com/industries/aerospace-and-defense/our-insights/future-air-mobility-blog/bridging-the-gap-how-future-air-mobility-can-adapt-to-decreased-funding">“Bridging the gap: How future air mobility can adapt to decreased funding”</a>

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