Urban Air Mobility faces pressing cash constraints: McKinsey & Company report
The advanced air mobility (AAM) industry is grappling with an increasingly challenging funding landscape as venture capital for new electric aircraft and propulsion technologies continues to dwindle.
A recent report by management consulting firm McKinsey & Company highlights that this decline is hitting the urban air mobility (UAM) sector especially hard, as numerous electric vertical take-off and landing (eVTOL) aircraft manufacturers approach commercialisation.
According to the report, disclosed funding for future air mobility (FAM) peaked at $6.8 billion in 2021 but has since declined significantly.
By 2023, total FAM deal values dropped to $3.9 billion, with projections for 2024 anticipated to reflect a similar downward trend.
Furthermore, as of August 2024, approximately $2.5 billion in funding had been announced, reflecting ongoing challenges for companies nearing critical phases in their development.
Impact on UAM/eVTOL companies
“The decline in funding for urban air mobility and eVTOL aircraft comes at a particularly bad time for companies in this segment,” the report notes.
For instance, Joby Aviation and Archer Aviation are among those planning to launch their eVTOL aircraft as early as 2025, while others, including Lilium and Eve Air Mobility, are targeting service entry in 2026.
Achieving type certification for eVTOL aircraft—a crucial step toward commercialisation—typically requires capital between $1 billion and $2 billion.
The high financial demand doesn’t stop there; eVTOL developers must also secure funds for manufacturing infrastructure and fleet development.
“Aircraft-manufacturing programmes tend to be both margin- and cash-negative for many years post-certification, so the industry-wide funding decline spells a major challenge for eVTOL players,” McKinsey analysts explain.
Funding shift and market focus
Historically, UAM and eVTOL projects have accounted for most of the funding within the broader FAM ecosystem, which also includes surveillance and cargo drones, supersonic aircraft, and regional air mobility (RAM).
However, there has been a notable shift in this funding pattern in recent years, with drones—both for cargo and surveillance—now sharing the spotlight with UAM.
In fact, UAM/eVTOL aircraft and drones collectively represent nearly 80% of all publicly disclosed FAM funding so far in 2024.
Filling the funding gap
The funding decline has left many UAM players scrambling to secure additional capital as they seek to bridge the gap to commercialisation.
For aircraft manufacturers, new orders—particularly those involving pre-delivery payments — could serve as a “crucial lifeline.”
However, the report cautions that orders alone won’t resolve the financial hurdles.
Companies need to invest in full-scale production capabilities and, in some cases, partner with established players in the aerospace or automotive sectors to reduce production costs.
Furthermore, as the FAM industry matures, McKinsey analysts predict a shift in primary funding sources.
“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,” the report states.
The expectation is that investment will become increasingly selective.
Funding will flow toward companies that can clearly demonstrate a pathway to certification, production, and a secure customer base.
Those companies able to “derisk their future cash flows” by achieving these milestones are likely to capture investor interest moving forward.
Source: Bridging the gap: How future air mobility can adapt to decreased funding– McKinsey & Company