SPACs are striking in their herd mentality. Once one decides to take a new type of business public, then a whole bunch of similar firms do the same. This happened with electric vehicles and related technology, and now it's the turn of flying taxis.
This week Vertical Aerospace Group Ltd, a British manufacturer of what's technically known as electric vertical take-off and landing aircraft or eVTOLs, revealed plans to go public. It will do so via a merger with Broadstone Acquisition Corp., a blank-check firm set up by entrepreneur Hugh Osmond, the founder of pub operator Punch Taverns Ltd.
Rivals Joby Aviation, Archer Aviation Inc. and Lilium GmbH have already agreed to SPAC deals and a blank-check transaction involving Embraer SA subsidiary Eve Urban Air Mobility is reportedly in the works. Chinese eVTOL manufacturer EHang Holdings Ltd. went public the traditional way. If aircraft aren't your thing, there's Blade Air Mobility Inc., which plans to operate heliports for these new contraptions. I've no doubt there'll be more such listings.
Those who fear the City of London is losing out on technology listings will take no comfort from Vertical's plans to list on the New York Stock Exchange. However, for those whose dream of flitting around the skies like the Jetsons, the huge amounts of capital flooding into this space is very encouraging. Plus, eVTOL makers promise they'll be safer than regular helicopters. And they'll be much cleaner and quieter too.
Going by their regulatory filings, these manufacturers expect to be wildly successful. They have all made rosy financial forecasts — a handy yet controversial feature of going public via a SPAC. But with so much competition — not to mention the massive technological, regulatory certification and social acceptance challenges at hand — the reality is that some of them probably won't succeed. The battle has already turned ugly: Archer and rival Wisk Aero LLC, are slugging it out in the courts in a dispute over the alleged theft of trade secrets.
To avoid disappointing neophyte public market investors who flock to futuristic ventures, it would be better if they had remained private for longer. But once one raises a big gob of capital, the others fear competitive disadvantage unless they quickly do the same. Developing an aircraft is hugely capital-intensive: The $394 million that Vertical is raising looks pretty underpowered compared to the $1.6 billion Joby is generating from its SPAC deal.
Still, the $1.8 billion enterprise valuation attributed to Vertical is pretty punchy when you consider the first test flight of its VA-X4 aircraft won't happen till later this year and it won't begin deliveries until 2024, a similar timeline to rivals. That's almost one-quarter of the enterprise value of Leonardo SpA, one of the world's largest helicopter manufacturers. The Italian company is expected to generate 14 billion euros ($17 billion) of revenue this year. Right now Vertical has zero.
In fairness, Vertical has some experienced engineers and financial backing from big firms like Microsoft Corp., Rolls-Royce Holdings Plc, American Airlines Group Inc. and Honeywell International Inc. (The latter is hedging its bets: Honeywell announced an investment in Lilium this week.)
Vertical has nabbed 1,000 pre-orders and options from American, Virgin Atlantic Airways Ltd. and lessor Avolon Holdings Ltd., which it says are worth as much as $4 billion. Payments are conditional, though, on it achieving various milestones. That's fortunate as the pandemic forced Richard Branson's airline to financially restructure and American's balance sheet remains weighed down by a massive debt pile.
Flying taxis are no longer just a pipe dream, but Vertical still has much to prove. With SPACs disgorging so much cash, it's entering increasingly crowded skies.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.
Disclaimer: This opinion first appeared on Bloomberg, and is published by special syndication arrangement