Advanced Air Mobility (AAM): Realizing value at scale
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1. Collaborate: Work with local governments to explore innovation grants, maximize government incentives, and expand diverse use cases for infrastructure and aircraft.
2. Aircraft Pre-Delivery Payment (PDP): Target PDP for aircraft orders to obtain cash flow for facility development and aircraft manufacturing. For example, a German eVTOLOEM has announced plans to obtain approximately 40% of the total purchase amount from commercial airlines as PDP, payable in installments prior to delivery. The company considers PDP to be crucial in business transactions.
3. Strategic cooperation: Establish alliances with well-known aerospace, automotive or technology companies to obtain additional funds. For example, Toyota invested approximately $400 million in Joby Aviation.
Lessons learned: Looking at the future AAM industry from the perspective of the electric vehicle market
The automotive industry's recent focus on the advancement of electric vehicles (EVs), as well as EV supporting infrastructure and regulatory dynamics, provides a variety of lessons for the emerging AAM industry. In its infancy, the EV market faced similar challenges that the AAM market faces now. These challenges include lack of pre-orders, high production costs, production delays, manufacturing scaling issues and regulatory hurdles. About a decade after EVs were first sold, the market is evolving rapidly, achieving cost reductions and quickly approaching cost parity with conventional cars. Unknowingly, EV companies have laid the foundation for a framework to thrive in the emerging hardware industry and realize value through growth.
1. Team: Automakers have established key supply chain relationships for resources such as lithium, involvement in infrastructure collaborations (such as electric utilities), and relationships with governments or regulators. Leading EV OEMs are already collaborating and investing in charging infrastructure. Achieving such seamless operations can be challenging in the AAM industry, as VTOLs require specific infrastructure for aircraft operations. However, the AAM industry can focus on standardizing procedures globally to expand operations and stimulate market demand. AAM OEMs can draw on these experiences to shape their business strategies and provide VTOL operators with informed investment guidance.
2. Technology: In the process of transition to EV, traditional automobile companies face new product challenges from pure EV companies. In the process, both pure-play EV companies and traditional companies are scrambling to adjust their supply chains (such as building battery factories), secure raw material supplies (such as lithium), and optimize their manufacturing processes. (In many cases, pure-play EV companies produce EVs in their new factories, while traditional ICE vehicle companies explore a mix of older and newer factories to produce EVs.) Like many EV companies, AAMOEM should ensure their supply chain, prioritizing optimized manufacturing processes and keeping a close eye on the ability to fully and cost-effectively scale operations (with a focus on battery technology).
3. Capital: AAM aircraft manufacturers should obtain capital to establish manufacturing plants. During its growth operations, a pure-play EV company received a $465 million loan from the Department of Energy to produce EVs and develop manufacturing facilities. AAM OEMs can explore similar government opportunities or incentive programs to minimize their new build costs. Many national and local governments are actively seeking to promote employment and economic growth. AAM OEMs should take advantage of government incentives to maximize overall ROI on their first major factory investment.
AAM companies can expand scale based on the foundation laid by EV companies and adopt three types of methods to expand scale to help realize value. By focusing on its team, technology and capital sources, AAM companies may move from proof-of-concept to reality in the coming years.
This article is compiled from the Deloitte report for industry reference.
1. Collaborate: Work with local governments to explore innovation grants, maximize government incentives, and expand diverse use cases for infrastructure and aircraft.
2. Aircraft Pre-Delivery Payment (PDP): Target PDP for aircraft orders to obtain cash flow for facility development and aircraft manufacturing. For example, a German eVTOLOEM has announced plans to obtain approximately 40% of the total purchase amount from commercial airlines as PDP, payable in installments prior to delivery. The company considers PDP to be crucial in business transactions.
3. Strategic cooperation: Establish alliances with well-known aerospace, automotive or technology companies to obtain additional funds. For example, Toyota invested approximately $400 million in Joby Aviation.
Lessons learned: Looking at the future AAM industry from the perspective of the electric vehicle market
The automotive industry's recent focus on the advancement of electric vehicles (EVs), as well as EV supporting infrastructure and regulatory dynamics, provides a variety of lessons for the emerging AAM industry. In its infancy, the EV market faced similar challenges that the AAM market faces now. These challenges include lack of pre-orders, high production costs, production delays, manufacturing scaling issues and regulatory hurdles. About a decade after EVs were first sold, the market is evolving rapidly, achieving cost reductions and quickly approaching cost parity with conventional cars. Unknowingly, EV companies have laid the foundation for a framework to thrive in the emerging hardware industry and realize value through growth.
1. Team: Automakers have established key supply chain relationships for resources such as lithium, involvement in infrastructure collaborations (such as electric utilities), and relationships with governments or regulators. Leading EV OEMs are already collaborating and investing in charging infrastructure. Achieving such seamless operations can be challenging in the AAM industry, as VTOLs require specific infrastructure for aircraft operations. However, the AAM industry can focus on standardizing procedures globally to expand operations and stimulate market demand. AAM OEMs can draw on these experiences to shape their business strategies and provide VTOL operators with informed investment guidance.
2. Technology: In the process of transition to EV, traditional automobile companies face new product challenges from pure EV companies. In the process, both pure-play EV companies and traditional companies are scrambling to adjust their supply chains (such as building battery factories), secure raw material supplies (such as lithium), and optimize their manufacturing processes. (In many cases, pure-play EV companies produce EVs in their new factories, while traditional ICE vehicle companies explore a mix of older and newer factories to produce EVs.) Like many EV companies, AAMOEM should ensure their supply chain, prioritizing optimized manufacturing processes and keeping a close eye on the ability to fully and cost-effectively scale operations (with a focus on battery technology).
3. Capital: AAM aircraft manufacturers should obtain capital to establish manufacturing plants. During its growth operations, a pure-play EV company received a $465 million loan from the Department of Energy to produce EVs and develop manufacturing facilities. AAM OEMs can explore similar government opportunities or incentive programs to minimize their new build costs. Many national and local governments are actively seeking to promote employment and economic growth. AAM OEMs should take advantage of government incentives to maximize overall ROI on their first major factory investment.
AAM companies can expand scale based on the foundation laid by EV companies and adopt three types of methods to expand scale to help realize value. By focusing on its team, technology and capital sources, AAM companies may move from proof-of-concept to reality in the coming years.
This article is compiled from the Deloitte report for industry reference.
Why is scaling an economic necessity? Just as Henry Ford's automobile made the dream of driving a reality for many, one of the potentials of advanced air mobility (AAM) is its ability to make private or charter flights accessible and affordable to the masses. Over the next decade and beyond, the AAM industry is expected to transition to a ride-sharing or taxi-like model. AAM can improve the efficiency of current transport networks by reducing travel times and democratizing sustainable flying with zero carbon emissions. In addition, AAM's service scope is not limited to urban air traffic, but also includes cargo transportation and regional air traffic services.
AAM operators should strive to offer travel prices that are lower than traditional helicopter charters and competitive with high-end ground taxi services, a reality that a recent Deloitte study suggests is possible. The AAM industry is primarily considering electric propulsion aircraft as the most suitable product option to achieve this goal. A US helicopter operator claims that the initial cost of a 16-mile trip from JFK Airport in an electric vertical take-off and landing (eVTOL) aircraft can be reduced by 14% compared to taking a traditional helicopter. The operator expects further cost savings of 10% over time due to improved aircraft utilization and lower maintenance costs, mainly due to advances in battery technology.
In addition, eVTOL cost savings in maintenance could be huge, with maintenance costs as a percentage of operating costs potentially being 50% lower than those of traditional helicopters. Despite these cost advantages, if there are only one or two AAM aircraft operating on a route, it is difficult to offer prices competitively with the ground transportation network, so a fleet of aircraft operating at maximum utilization is required. .
The success of AAM original equipment manufacturers (OEMs) depends on related demand. Indeed, demand for AAM aircraft is expected to gradually grow over the next decade as operators mature. To meet future demand, AAM manufacturers will likely need to achieve near-automotive-scale production with aerospace-grade quality.
Align AAM aircraft scaling plans with market demand
The sustainability of AAM aircraft production depends on two main demand factors: availability and economics. The ability of OEMs to scale production while maintaining aerospace-grade quality may be the key to unlocking these two factors. By achieving economies of scale, AAM manufacturers can lower prices and help foster continued market demand.
To date, the AAM industry has received orders for more than 13,000 eVTOL aircraft, and more than 400 companies are developing more than 900 eVTOL aircraft designs and concepts. However, a large proportion of these orders are optional and non-deterministic, with the risk of being canceled if the technology faces challenges during certification or development.
Orders in the industry are also often closely tied to the unit price of each eVTOL aircraft. Current expected unit prices for eVTOL aircraft range from $1.2 million to more than $4 million. That's more than 10 times more than the cost of many luxury cars (commonly used in premium ride-sharing or taxi services) and on par with or less than the price of many helicopters. For example, major traditional four- to five-seat helicopters (e.g., Airbus' H125 and H130 or Bell's B407) are typically in the $2.5 million to $3.5 million price range.
Additionally, a survey by Avionics International revealed that 20% of respondents expressed interest in switching from their current mode of transportation to AAM in the near future. Market demand for AAM aircraft may be promising; however, uncertainty about orders may leave OEM executives facing a question: How many aircraft should we plan to produce?
Currently, OEMs are developing prototypes and conducting various tests to help achieve the next major milestone of aircraft certification expected in 2024. These OEMs aim to start aircraft production by the end of 2024 (or early 2025), with 19 of the 25 major OEMs planning to enter operations within the next three years. One of the largest OEMs plans to complete initial production of the aircraft by the end of 2024. The company's follow-up plan is to produce 250 eVTOL aircraft by 2025 and 650 by 2027.
Despite these production plans, OEMs have various forecasts for actual eVTOL aircraft demand. Aviation Week predicts that potential cumulative deliveries of eVTOL aircraft will be approximately 1,000 by 2030, 10,000 by 2040, and as high as 30,000 by 2050. The number determined is likely to depend on demand and economies of scale in manufacturing and operations.
AAMOEM may set an initial goal of achieving production levels and demand comparable to conventional helicopters. In 2022, the helicopter industry will ship approximately 1,072 helicopters. By the first half of 2023, shipments will reach 451 aircraft, an increase of 30% compared with the same period in 2022. One approach AAMOEM could consider is to initially scale up production to about 1,000 aircraft per year, comparable to the size of the traditional helicopter industry. As demand continues to grow thereafter, AAMOEM can further expand production scale to approach levels similar to those in the automotive industry.
Three types of methods that will help meet future market needs and scale
In the coming years, AAM companies may need to remain flexible. They should not produce more than demand, but they should always be ready to scale up production to meet rapid growth in market interest. At low-speed initial production levels, process-focused lean improvements can help drive throughput and economics. As OEMs scale up to automotive production levels, there are factors they may need to focus on to achieve aerospace-level quality. A three-category approach centered on teams, technology, and capital can help them solidify their strategies and operations now and into the future.
Team: Talent and collaboration will become the backbone of the ecosystem
The definition of team includes not only the leadership team and employees, but also the relationships that shape the ecosystem in various ways, such as informing policy, mitigating market risk and improving supply chain flexibility. Relationships will play an important role in raising capital, ensuring technology transfer and providing supply chain visibility. Customers, whether they are individuals or fleet companies, are critical in driving AAM acceptance and potentially influencing demand trends.
The right talent and leadership team can help AAMOEM scale to meet future needs
After type certification, AAMOEM may transition from start-up scale to mid-scale to handle commercialization and early-stage operations. Then, to meet widespread demand, these OEMs are likely to become large companies for volume manufacturing.
In this process, it is also important to have the right talent with advanced technical skills to meet manufacturing quality requirements. To ensure the highest safety and quality standards, AAMOEM is likely to manufacture the aircraft through extensive application of digital technology. As a result, OEMs may seek talent with digital skills such as model-based systems engineering and other new technologies such as 3D printing. These new digital skills will build on employees' experience in aerospace or automotive manufacturing.
Having a strong board of directors (i.e. founders, executives, and investors) can also propel a company from prototype to low-speed initial production. To scale from the post-certification stage to full production, OEMs should find experienced talent for key management roles (i.e., C-suite). AAMOEM is already recruiting talent from aviation regulatory bodies and large aerospace and automotive companies.
However, the aerospace and defense industry still faces a talent shortage. The addition of AAM is likely to intensify competition for highly skilled jobs in an already competitive field. In order to solve this problem, the AAM industry may need to cooperate with academic institutions or cooperate with investors to cultivate local AAM aircraft manufacturing and operating talents. AAM companies should also work to attract a diverse workforce, drive product development, and better understand the nuances of the AAM industry to promote public acceptance.
OEMs can leverage relationships and collaborations to scale aircraft manufacturing
Regulators are working hard to ensure the robust development of aircraft, manufacturing plants and infrastructure. They will set standards for manufacturing, pilot certification, VTOL design and integration into existing airspace and transportation networks. To scale quickly and respond to evolving regulations, OEMs should work with these regulators. Collaboration throughout the product development phase facilitates the exchange of information, thereby speeding up the certification process.
For example, the U.S. Federal Aviation Administration (FAA) "responsible for regulating aviation safety and the efficient use of airspace by aircraft." In the U.S., OEMs should work with the FAA to understand how changing regulations may impact their value proposition. Currently, the FAA is working with NASA to review existing regulations to support the development of new entrants, including AAM. This can help OEMs accumulate technical knowledge and optimize designs to comply with future regulations.
In addition, the AAM ecosystem has benefited from partnerships with traditional aerospace companies, automotive companies, technology companies and key funding partners. This cross-industry collaboration leverages each company's strengths to expand AAM aircraft manufacturing and operating capabilities. A U.S. OEM is working with aerospace suppliers to produce eVTOL aircraft components. This is expected to simplify the manufacturing and assembly process and enable high-throughput production.
Similarly, as AAM manufacturers strive to achieve scale production in a highly regulated environment, it may be beneficial for them to partner with established aerospace and automotive companies. Archer is working with Stellantis as a contract manufacturer to mass-produce eVTOL aircraft. This partnership is designed to provide advanced manufacturing technology, experience, talent and capital that are critical to the growth of aircraft manufacturing.
Automotive companies can help the AAM industry adopt production technologies and supply chain strategies to achieve large-scale manufacturing. Traditional aerospace companies can help OEMs meet regulatory requirements, obtain type certification, attract investment, build strong supply chains, and build confidence in the market.
OEMs can explore new ways to get closer to customers
AAM will likely rely on infrastructure owners and operators to reach regular commuters. These entities are expected to be responsible for integrating VTOLs into their transportation infrastructure portfolios. AAM companies may need to work closely with them to ensure that appropriate infrastructure is in place to support AAM operations.
Additionally, OEMs can perform forward integration with air taxi and charter services. For OEMs, owning and operating a fleet, or even franchising, can bring significant value. This ownership may enable AAM companies to more proactively define and shape the AAM ecosystem.
Technology: Use strategies and technologies to achieve goals from parts to products
Compared with aircraft using traditional engines, eVTOL aircraft require far fewer critical components during the manufacturing process. In addition, eVTOL aircraft are simpler to build, maintain, and service than traditional aircraft, and are often faster to produce.
Establishing a flexible supply chain to expand AAM aircraft manufacturing scale
As AAMOEM approaches production-ready prototypes, they should look to maximize supply chain flexibility and resiliency. Flexibility allows OEMs to optimize cost and scale, while resiliency allows OEMs to respond to unexpected situations (for example, supply chain disruptions due to geopolitical tensions). They can do this by diversifying their supply chains and addressing key components such as batteries for eVTOL aircraft. This is especially important for the procurement of critical materials and critical components.
As part of an emerging industry, AAM OEMs have the opportunity to build new manufacturing facilities and collaborate with existing facilities throughout the supply chain. This will allow AAMOEM to avoid the hassles associated with retrofitting existing facilities and start production directly from the factory of the future. Greenfield plants can also provide opportunities to leverage known process improvement technologies and digital capabilities, with the potential to eliminate organizational and operational bottlenecks.
Standard parts, standard processes plus digital technology can simplify operations and reduce costs
There are currently more than 900 eVTOL designs and concepts worldwide. As AAM OEMs finalize design concepts, they will likely find value in standardizing their processes and parts to transition from engineering or limited production to full production. Standardization can help avoid fragmented supply chains and reduce the cost of manufacturing parts and components. Standardized assembly processes can reduce production time, and standardized parts can be obtained from multiple suppliers. Standardization can also address key issues such as safety and reliability to ensure the highest standards are maintained. Additionally, standardizing parts and assemblies makes it easier to train service technicians and operators. The AAM industry can benefit by adopting standardized manufacturing practices to facilitate scaling of production and operational processes.
Digital technologies are likely to enable companies to achieve cost reductions while ensuring high quality standards. AAM manufacturers that offer affordable aircraft can push more aircraft into service, potentially reducing operating costs and offering passengers competitive pricing. As a company grows, systems that support manufacturers during the development phase may not be suitable or scalable to high-volume production.
As they scale, companies often face the challenge of optimizing or eliminating bottlenecks, such as the smooth exchange of information from engineering to production. A model-based systems engineering approach used in conjunction with digital twin technology can help AAM OEMs optimize this interface. Digital twins and digital prototypes can accelerate the testing and iterative design process, resulting in cost savings and faster development of new products and services compared to traditional methods. Manufacturers using digital twin technology can reduce the time to market of new products and services by 30%.
While traditional manufacturing processes may not pose significant challenges during the proof-of-concept stage, adopting a smart manufacturing ecosystem can help keep factories connected, optimized, transparent, proactive, and flexible for full-scale production. With the rise of smart factories, AAM companies can create systems that are unique in speed and scale. The converged operational technologies and information technology systems used in smart factories can monitor and improve the quality of manufactured parts and components. These digitally enabled factories can collect and provide data to help ensure high quality standards are met while supporting rapid qualification and certification processes at scale. These factories can help bring products to market in less time.
The AAM industry can scale smart factory initiatives on four levels, starting with maximizing the performance of individual assets and ultimately connecting manufacturing sites, supply chains and product development cycles in real time. AAM OEMs are likely to have the opportunity to optimize the process principles and smart manufacturing capabilities of production assets at the shop floor level and seamlessly extend to the entire factory network. Smart manufacturing capabilities can also help AAM manufacturers in terms of product customization and demand flexibility without incurring excessive costs. Although OEMs may need to spend more money to build smart manufacturing factories, they may reap more benefits in the long term.
Capital: Ensure profitability through financing, revenue generation and cost optimization
To achieve full-scale production, AAM manufacturers should establish advanced manufacturing facilities with sufficient production capacity to meet potential demand. AAM OEMs may invest in upfront factory expenses to reap long-term benefits. When AAM OEMs transition from prototyping to large-scale production, they are likely to face two choices: purchase and upgrade existing aging factories, or build new factories from scratch.
Older factories may be able to start production faster; however, OEMs may find that existing and outdated infrastructure may become a limiting factor to growth. Additionally, continuing to retrofit older plants can be costly in the long term. Conversely, building a new factory can provide a fresh start to optimize site location, supply chain resiliency, labor availability and production processes, but may require more upfront investment and development time.
Building such infrastructure typically requires significant capital investment. To manage upfront expenses, AAM OEMs may be able to prioritize capital-related strategies to maximize investment and ensure investor patience and satisfaction. For many AAMOEMs, it can take more than ten years to realize a return on investment in the platform due to the exhaustive R&D and certification phases. Maintaining transparency and engagement can be critical to investors as it builds confidence in a company's progress and enhances its financial stability to support successful scaling efforts.
AAM OEMs may need to seek ways to bridge funding gaps as they move from certification to commercialization, and there are some visionary approaches that can be taken during the certification process to help address funding issues.
1. Collaborate: Work with local governments to explore innovation grants, maximize government incentives, and expand diverse use cases for infrastructure and aircraft.
2. Aircraft Pre-Delivery Payment (PDP): Target PDP for aircraft orders to obtain cash flow for facility development and aircraft manufacturing. For example, a German eVTOLOEM has announced plans to obtain approximately 40% of the total purchase amount from commercial airlines as PDP, payable in installments prior to delivery. The company considers PDP to be crucial in business transactions.
3. Strategic cooperation: Establish alliances with well-known aerospace, automotive or technology companies to obtain additional funds. For example, Toyota invested approximately $400 million in Joby Aviation.
Lessons learned: Looking at the future AAM industry from the perspective of the electric vehicle market
The automotive industry's recent focus on the advancement of electric vehicles (EVs), as well as EV supporting infrastructure and regulatory dynamics, provides a variety of lessons for the emerging AAM industry. In its infancy, the EV market faced similar challenges that the AAM market faces now. These challenges include lack of pre-orders, high production costs, production delays, manufacturing scaling issues and regulatory hurdles. About a decade after EVs were first sold, the market is evolving rapidly, achieving cost reductions and quickly approaching cost parity with conventional cars. Unknowingly, EV companies have laid the foundation for a framework to thrive in the emerging hardware industry and realize value through growth.
1. Team: Automakers have established key supply chain relationships for resources such as lithium, involvement in infrastructure collaborations (such as electric utilities), and relationships with governments or regulators. Leading EV OEMs are already collaborating and investing in charging infrastructure. Achieving such seamless operations can be challenging in the AAM industry, as VTOLs require specific infrastructure for aircraft operations. However, the AAM industry can focus on standardizing procedures globally to expand operations and stimulate market demand. AAM OEMs can draw on these experiences to shape their business strategies and provide VTOL operators with informed investment guidance.
2. Technology: In the process of transition to EV, traditional automobile companies face new product challenges from pure EV companies. In the process, both pure-play EV companies and traditional companies are scrambling to adjust their supply chains (such as building battery factories), secure raw material supplies (such as lithium), and optimize their manufacturing processes. (In many cases, pure-play EV companies produce EVs in their new factories, while traditional ICE vehicle companies explore a mix of older and newer factories to produce EVs.) Like many EV companies, AAMOEM should ensure their supply chain, prioritizing optimized manufacturing processes and keeping a close eye on the ability to fully and cost-effectively scale operations (with a focus on battery technology).
3. Capital: AAM aircraft manufacturers should obtain capital to establish manufacturing plants. During its growth operations, a pure-play EV company received a $465 million loan from the Department of Energy to produce EVs and develop manufacturing facilities. AAM OEMs can explore similar government opportunities or incentive programs to minimize their new build costs. Many national and local governments are actively seeking to promote employment and economic growth. AAM OEMs should take advantage of government incentives to maximize overall ROI on their first major factory investment.
AAM companies can expand scale based on the foundation laid by EV companies and adopt three types of methods to expand scale to help realize value. By focusing on its team, technology and capital sources, AAM companies may move from proof-of-concept to reality in the coming years.
This article is compiled from the Deloitte report for industry reference.