Air taxis may still be a decade away—but investors and dealmakers are already vying for a share of the market.
Much as the internet disrupted retail, urban air mobility (UAM) looks poised to be a rare growth opportunity for aerospace manufacturers. KPMG forecasts that demand in the global UAM market could grow by 18 percent a year, to $119 billion by 2040—promising rich rewards for early and patient investors. There are four segments where M&A is expected to play out: vehicle manufacturing, passenger operations, urban air-traffic management, and service and support.
M&A transactions have been small to date but promises to grow over the next five years, as the technology for light, electric aircraft moves closer to commercialization.
"Manufacturers and operators in this new industry have already moved beyond the conceptual stage and are now seeking certification of prototype vehicles."
Initial deployment is anticipated in 2025, with the development of autonomous vehicles achieved by the turn of the decade. Rapid growth of the market is expected in the late 2030s.
Research and development have, thus far, focused on electric vertical take-off and landing (eVTOL) vehicles with various wing and rotor configurations—all meant to supersede helicopters and small aircraft in terms of cost, noise abatement, and safety.1
Aerospace companies do not have a monopoly on this market: automakers have been entering the fray, as there are partial overlaps with the EV sector. Boeing and Hyundai are among the large, established manufacturers that are developing UAM solutions. However, eVTOLs present challenges for both industry participants: production is likely to run in the thousands of units—much more than in aerospace, but much less than what automakers are used to. Technical, regulatory, and safety specifications will be as rigorous as for commercial flight operations.
In these early stages, much of the M&A focus is likely to be in manufacturing. (Although for example in December 2021, Eve, a UAM business created by Embraer S.A., announced that it would form a business combination with Zanite Acquisition Corp, developing air-mobility solutions that would include service and support, fleet operations, and air-traffic management, as well as vehicle production.2)
There are more than 100 companies designing and making eVTOLs. Many of these firms will merge or be taken over by larger manufacturers entering this market. Some of the leading original equipment manufacturers (OEMs) in the field—Joby Aviation and Archer of the US, Lilium of Germany—have partnered with either automotive or aerospace companies. They are also publicly traded. In August 2021, Joby merged with SPAC Reinvent Technology Partners that generated $1.6 billion in cash, putting the company’s post-money valuation at $6.6 billion3. Archer Aviation merged with Atlas Crest Investment for $857.6 million4, and Lilium merged with SPAC, Qell Acquisition Corp., to generate $584 million in gross proceeds.5
Other companies are likely to merge with SPACs, as manufacturing gathers pace and players seek to raise billions in capital funding. With many eyes on this new market, deal makers with deep pockets are likely to be rewarded by careful, thorough preparation and quick reflexes.
- Source: Getting mobility off the ground, KPMG U.S. 2019.
- Source: “Eve, an Embraer company, to List on NYSE Through Business Combination with Zanite Acquisition Corp,” Eve media release, December 21, 2021.
- Source: Brian Garrett-Glaser, “Joby Aviation raises $1.6 billion in SPAC merger at $6.6 billion valuation,” evtol.com, February 24, 2021
- Source: “Archer Aviation Announces Closing of Business Combination with Atlas Crest Investment Corp. to Become A Publicly Traded Company,” Archer Aviation, 16 September, 2021
- Source: “Lilium closes business combination with Qell Acquisition Corp., will begin trading on Nasdaq under the symbol "LILM" on September 15,” prnewswire.com, September 14, 2021.