By Treena Hein

Treena Hein is an award-winning technology, science, and business writer based in Ontario, Canada. She has almost two decades’ experience in outstanding content creation, and prefers to write about emerging technologies, how technologies and industries have evolved, and the intersection of technology with public perceptions, regulatory issues, and other factors.

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A close look at valuations approaches — and whether they are accurate

Like everything else in the advanced air mobility (AAM) industry, release of market valuations over the last three years has been fast and furious.

A Rolls-Royce and Roland Berger study was released last month on the AAM potential in the Asia-Pacific (APAC) region, which includes Australia, China, India, Russia, Iran, Iraq, Indonesia, and other countries.

A Rolls-Royce and Roland Berger study was released during the Singapore Airshow last month on the AAM potential in the Asia-Pacific (APAC) region, where eVTOL companies like Volocopter have plans to launch urban air mobility services. Volocopter Image

Like other market outlooks, the Rolls-Royce report is rosy. Among other predictions, it states that AAM activity could generate $36.9 billion in service revenue from 82,500 aircraft across the APAC region by 2050, with “the potential of over a thousand aircraft by 2030.”

The accuracy of market outlooks in any emerging sector is — and always should be — a matter of close scrutiny. Market valuations guide investors, governments, and sector players, and the numbers contained therein should always be taken with a grain of salt.

The first thing to consider is who authored a given report. Rolls-Royce is obviously a reputable global company with a long history in aviation. Its partner for the report, Roland Berger, is also reputable. We should be able to take the report to the bank, so to speak.

At the same time, however, it behooves companies that are hoping to have a large stake in this market to predict a bright future. Rolls-Royce, for example, is developing complete electric and hybrid-electric power and propulsion systems for eVTOLs and other electric aircraft supported by a specialized team in Singapore.

During spring 2021, a flurry of individual company revenue outlooks were released from Joby Aviation, Archer, and Lilium, providing the world with indirect insight into the predicted future of the entire sector.

By 2026, Joby and Archer each expect annual revenue in excess of $2 billion. Lilium expects to exceed that significantly, with $3.3 billion in profits in 2026. By the year after, Lilium anticipates nearly $6 billion in revenue, and by 2030, Archer expects to rake in over $12 billion.

Volocopter announced the release of its “Singapore Roadmap” last month, which states that its own urban air mobility (UAM) services will generate S$4.18 billion (US$3.1 billion) in cumulative economic value in Singapore by 2030.

But this number was too large to be taken even with a grain of salt for some in the industry.

Among other reactions on LinkedIn, Whisper Aero CEO Mark Moore asked, “Please can we in the UAM community do a reality check on these claims? As a community we need to have more realistic claims — the hype has just gone too far, especially for such slow, low efficiency, and low payload concepts. I wish all success, but this is too much.”

Often cited

Another valuation that has received attention, released also in spring 2021 by research firm Morgan Stanley, is entitled “eVTOL/Urban Air Mobility TAM Update: A Slow Take-Off, But Sky’s the Limit.” Addressing this report’s degree of objectivity, Morgan Stanley acknowledges that it “does and seeks to do business with” companies covered by its research, and may have conflicts of interest.

However, eVTOL.com revealed serious concerns over this report’s credibility last year, when editorial staff reported that it “also contains some incomplete, inaccurate and outdated information that raises questions about its authors’ understanding of the UAM landscape.”

If we look at Morgan Stanley’s outlook for the global UAM market, its first report in 2018 predicts this value would be $1.5 trillion in 2040. This particular number became a staple of investor pitches and has been cited several different times in filings with the U.S. Securities and Exchange Commission.

But the 2021 Morgan Stanley report moves that number down by $500 billion to $1 trillion, allowing, state the authors, “for a greater ‘margin of safety,’ given our understanding of the certification landscape in the U.S. and Europe.”

In addition, the 2021 Morgan Stanley report estimates the U.S. total addressable market (TAM) for 2030 at an amount that’s shockingly lower than that of the previous report, down from $45 billion to a measly $12 billion. Recall that this amount, as explained above, is just about what Archer alone expects to make that year.

At the global level, by 2050, Morgan Stanley predicts that the eVTOL market will be worth in the range of $9 trillion to almost $19 trillion — from 6% to about 12% of global gross domestic product (GDP).

Archer Experience Square
In its 2018 report, Morgan Stanley predicted the global UAM market would be valued at $1.5 trillion by 2040. This particular figure became a staple of investor pitches and has been cited several different times in filings with the U.S. Securities and Exchange Commission from eVTOL developers such as Archer Aviation. Will Guisbond Photo

The Rolls-Royce and Roland Berger report — a closer look

Rolls-Royce chose to team up with consulting company Roland Berger on the APAC report because its valuation approach was both realistic and sound.

“This is a credible ‘bottom-up’ analysis, which means it can be validated easily compared to a ‘top-down’ approach,” explained Stefan Breunig, head of strategy at Rolls-Royce Electrical. “In the APAC region, we see a high number of pre-orders for eVTOL aircraft from the likes of Vertical Aerospace or Eve Urban Air Mobility, and announced locations and routes, for example, in Singapore. This can be matched up with the forecasts of a bottom-up model.”

Manfred Hader, senior partner and global head of aerospace and defense at Roland Berger, added that the APAC region has the highest current AAM market growth rate of any global region, with more than half of the world’s AAM aircraft expected to be in commercial service there by 2050.

Of the “bottom-up” approach Roland Berger used to do the market forecasting, Hader said, “We focused in, in terms of use cases, on three areas of passenger transport: city taxi, airport shuttle service, and intercity flights. We also defined four ‘archetypes’ of cities associated with mobility needs and patterns and classified all cities over 100,000 people in the APAC region. Then, we analyzed what kind of route network and number of flights are needed to service each city, tying in population density, area size, per capita income and other factors. We also stayed fairly conservative but realistic.”

In terms of analyzing the accuracy of AAM market forecasts, Hader thinks that besides a close look at who did a valuation and the overall approach, it’s important to include the eVTOLs themselves. “We have to look at each company and their aircraft design, whether it’s smaller with shorter range or larger to carry more passengers over longer distances,” he said. “Is the aircraft expected to be certified and what is the business model and use case behind it, what kind of flight service and into what type of region?”

More insight

Sergio Cecutta at Arizona-based SMG Consulting explained that it’s difficult to say if all the numbers in various AAM valuations are accurate. “We don’t have access to the authors’ assumptions and there are so many pieces of a valuation,” he said.

Cecutta believes it’s more important in some ways to look at the level of investment in some of the sector companies to get a sense of how big the market will be. “We also have to realize that some of these valuations include all use cases — military, cargo, person — but also aftermarket and related income potential,” he explained. “I think the different ways of estimating use cases is important to look at. We should focus on how the various uses are likely to scale up in the future. The growth rate might matter more than a specific predicted value for a use case in a certain year.”

In Cecutta’s view, of all the use cases in the future AAM sector, cargo will be the fastest-growing initially — and regional (city to city) traffic will also grow quickly — compared to UAM. He thinks that cargo (middle mile, not last mile) should be considered by all in the industry to represent half the AAM market globally by 2030. (This somewhat aligns with the new Morgan Stanley report, which puts transport/logistics missions at 52% of the base case market by 2040 — up from a previously-estimated share of 28%.)

Looking further at use cases, Cecutta noted that there is both a “pull” demand and a “push” demand for AAM.

“The pull demand is a demand for a service or product that doesn’t yet exist,” he said. “This is the situation for cargo delivery. The demand for this by air, the middle mile, already exists. There is also existing regional transport demand, between cities, for passengers and cargo. This demand isn’t being completely addressed by airline companies in some regions because profitability isn’t there.”

“The push demand is demand that will come once eVTOLs are available,” he added. “I think once they exist, there will be UAM demand, especially business and tourist passenger demand. There’s a high potential for induced demand, once the vehicles are in the air.”

His parting advice to determine if a particular valuation is better than another?

“The more breadth and information that’s in a report,” he noted, “the surer we can be about the conclusions.”  

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2 Comments

  1. The top ten countries in the world have ~ 20,00 active Civil helicopters TOTAL. And frankly, the fleet growth rate is just above zero (losses and new acquisitions). The number one producer of Civil helicopters – Robinson Helicopter Company (great company by the way) has delivered ~ 12,000 in 40 years – or some 300 per year average. And these are at the lowest cost end of the market! As much as I like the AAM (eVTOL) idea, the numbers simply do not make sense. “Flying cars are 15-20 years in the future…and always will be.”

    1. The flying car comment cracked me up because it’s spot on. Mark my words, the salvation of AAM will be Part 23 e/hXSTOL systems for taxis services, etc., and eXSTOL LSA PAVs. The technical and regulatory obstacles to ubiquitous and profitable eVTOL systems may actually be insurmountable and the reason for AAM’s slow and stunted growth.

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