Advanced air mobility: Achieving scale for value realization

Aligning AAM aircraft scaling plans with market needs

Sustainability in AAM aircraft production is contingent on two main factors for demand: availability and economics. An OEM’s ability to scale up production with aerospace-level quality could serve as the key to unlocking both. By achieving economies of scale, AAM OEMs can reduce their prices and help foster sustained demand in the market.

To date, the AAM industry has received over 13,000 orders of eVTOL aircraft, with more than 400 companies developing over 900 eVTOL aircraft designs and concepts.⁴ However, a significant portion of these orders are options and nonfirm,⁵ which carries a risk of cancellation if the technology faces challenges during the certification or development process.

Orders in the industry also often hinge on the per unit price of eVTOL aircraft. Current expected per unit prices of eVTOL aircraft range from US$1.2 million to over US$4 million.⁶ This is more than 10 times the cost of many luxury cars (often used for premium ride-share or taxi services) and on par or lower than many helicopters.⁷ For instance, the major traditional four- to five-seater helicopters (for example, Airbus’ H125 and H130 or Bell’s B407) typically fall within the price range of US$2.5 million to US$3.5 million.⁸

Further, an Avionics International survey reported that 20% of respondents expressed interest in switching from their current mode of transportation to AAM in the near future.⁹ The demand for AAM aircraft in the market could be promising; however, uncertainty in orders can leave OEM executives facing a question: What production volumes should we plan for?

Currently, AAM OEMs are developing prototypes and performing various tests to help meet their next major milestone of aircraft certification anticipated in 2024.¹⁰ These OEMs are aiming for production of aircraft by the end of 2024 (or early 2025), and 19 of the major 25 AAM OEMs are targeting entry into service within the next three years.¹¹ One of the largest OEMs plans to complete initial production of aircraft by the end of 2024. It has follow-on plans to produce 250 eVTOL aircraft by 2025 and 650 by 2027.¹²

Despite these plans for production, OEMs have various projections on the actual eVTOL aircraft demand. Aviation Week has projected the potential cumulative deliveries of eVTOL aircraft at around 1,000 aircraft by 2030, 10,000 aircraft by 2040, and up to 30,000 aircraft by 2050.¹³ A firm figure likely depends on demand and the economies of scale in both manufacturing and operations.

AAM OEMs could target reaching production levels and possibly expect demand comparable to conventional helicopters as an initial goal. In 2022, the helicopter industry saw the shipment of about 1,072 helicopters.¹⁴ In the first half of 2023, 451 helicopters were shipped, which is 30% more in comparison with the same period in 2022.¹⁵ One approach for AAM OEMs to consider could involve initially scaling production to approximately 1,000 aircraft annually, mirroring the traditional scale of the helicopter industry. Subsequently, as demand continues to rise, AAM OEMs can further scale up production to approach levels akin to the automotive industry.

A three-category approach to help meet future market demand and scale

AAM companies will likely have to remain nimble in the years ahead. Their production should not outpace demand, but they should remain at the ready to scale and meet a rapid rise in market interest. At low-rate initial production levels, process-focused and lean improvements can help drive capacity and economics. As AAM OEMs scale to automotive production levels, they will likely need to focus on a few factors to achieve aerospace-level quality. A three-category approach, centered on team, technology, and capital, can help them solidify their present and future strategies and operations (figure 1).

Team: Talent and collaboration are expected to be the backbone of the ecosystem

The team is defined as not just the leadership team and employees, but also the relationships that can shape the ecosystem in ways that inform policies, mitigate market risks, and increase supply chain agility. Relationships will be important in lining up funding, ensuring technology transfer, and providing supply chain visibility. Customers, whether individuals or fleet companies, can be critical in driving acceptance of AAM and potentially influencing demand trends. 

The right talent and leadership can help AAM OEMs scale to meet future demand

Following type certification, AAM OEMs could potentially transition from startup size to mid size to handle commercialization and early operations. To meet broad demand, these OEMs will likely then become large-scale companies for volume manufacturing.

Along this journey, it is also important to have the right talent, with advanced technical skills, to meet manufacturing quality requirements. To ensure the highest standards of safety and quality, AAM OEMs are likely to manufacture aircraft through a heavy reliance on digital technologies. OEMs may, therefore, look for talent to handle digital technologies like model-based systems engineering and other new technologies such as 3D printing. These new digital skills would sit on top of employee experience in aerospace or automobile manufacturing.

Having a strong board (i.e., founders, executives, and investors) can also drive companies from prototype to low-rate initial production. To completely scale from postcertification to full-scale production, OEMs should find experienced talent for critical managerial roles (i.e., the C-suite). AAM OEMs are already recruiting from aviation administrations and big aerospace and automobile companies.¹⁶

However, the aerospace and defense industry is still facing talent shortages. The introduction of AAM has the potential to intensify competition for highly skilled jobs within an already competitive landscape. To address this, the AAM industry may need to collaborate with institutions or work with investors to develop local talent for manufacturing and operating AAM aircraft. AAM companies should also focus on attracting a diverse workforce to drive product development and better understand the nuances of communities to drive public acceptance.

AAM OEMs can leverage relationships and collaboration to scale up aircraft manufacturing

Regulatory bodies are working to ensure the development of robust aircraft, manufacturing plants, and infrastructure. They will set the standards for manufacturing, pilot certification, vertiport design, and integration into existing airspace and transportation networks. To scale at speed and navigate evolving regulations, AAM OEMs should collaborate with these regulatory bodies. Collaboration throughout the product development phase can help information exchange and, thus, speed up the certification process.

For instance, the Federal Aviation Administration (FAA) “regulate[s] aviation safety and the efficient use of the airspace by aircraft.”¹⁷ In the United States, AAM OEMs should engage the FAA to understand how evolving regulations may impact their value proposition. Currently, the FAA is collaborating with NASA to review the existing regulations to enable the development of new entrants, including AAM.¹⁸ This can help OEMs develop technical knowledge and optimize designs to align with future regulations.

Further, the AAM ecosystem has benefited from relationships with traditional aerospace companies, automotive companies, technology companies, and significant funding partners. This cross-industry collaboration can leverage the strength of each company to scale up AAM aircraft manufacturing and operational capabilities. One US AAM OEM is working with aerospace suppliers for eVTOL aircraft components.¹⁹ This is expected to streamline manufacturing and the assembly process to enable high throughput production.

Similarly, working with established aerospace and automotive companies can be beneficial for AAM manufacturers as they try to produce at scale in a highly regulated environment. Archer is working with Stellantis as a contract manufacturer to mass produce eVTOL aircraft. This relationship is intended to contribute to the advanced manufacturing technology, experience, talent, and capital that can be essential for the growth of aircraft manufacturing.²⁰

Automotive companies can assist the AAM industry in adopting production technologies and supply chain strategies to achieve manufacturing at scale. Traditional aerospace companies can help AAM OEMs meet regulatory requirements, obtain type certification, attract investments, establish a robust supply chain, and build confidence in the market.

AAM OEMs may explore new approaches to get closer to the customer

AAM companies will likely rely on infrastructure owners and operators to reach the average commuter. These entities are expected to be responsible for integrating vertiports into their transportation infrastructure portfolios. AAM companies may need to work closely with them to ensure that proper infrastructure is available to support AAM operations.

Further, OEMs may forward integrate into air taxi and charter services.²¹ For AAM OEMs, owning and operating the fleet, or even franchising it, might provide significant value. Such ownership would likely allow AAM companies to be more proactive in defining and shaping the AAM ecosystem.

Technology: Using strategies and technologies to get from parts to products

An eVTOL aircraft requires far fewer critical parts for manufacturing as compared to its traditional engine counterpart. Additionally, as compared to traditional aircraft, eVTOL aircraft are simpler to build, maintain, and service, and often faster to produce.²²

Building a resilient supply chain for scaling AAM aircraft manufacturing

As AAM OEMs near production-ready prototypes, they should seek to maximize supply chain agility and resilience. Agility can allow OEMs to optimize cost and scale, while resilience can allow OEMs to withstand unforeseen circumstances (for example, supply chain interruptions due to geopolitical tensions). They may do this through a diversified supply chain and address critical parts and components (e.g., batteries for eVTOL aircraft). This can be especially important for critical material and critical component sourcing.

Being part of a nascent industry, AAM OEMs have an opportunity to build greenfield manufacturing plants and engage existing facilities across the supply chain. This could allow AAM OEMs to avoid the hassle associated with brownfield retooling and start right from factories of the future. The greenfield plants may also provide an opportunity to leverage known process improvement techniques and digital capabilities and could remove organizational and operational bottlenecks.

Standard parts and processes plus digital technologies can streamline operations and reduce costs

Globally, there are more than 900 eVTOL designs and concepts.²³ As AAM OEMs settle on design concepts, they will likely find value in standardizing their processes and parts to move from engineering or limited production to full-scale production. Standardization may help avoid a fragmented supply chain and reduce the cost of manufacturing parts and components. Standardized assembly processes can lead to shorter production times, and standardized parts can be sourced from multiple suppliers. Standardization could also address key aspects such as safety and reliability to help ensure that the highest standards are maintained. Further, standardizing parts and components can make it easier to train maintenance technicians and operators. The AAM industry could benefit from embracing standardized manufacturing practices to facilitate the scaling of production and operational processes.

Digital technologies will likely allow companies to both realize cost reductions and ensure high quality standards. AAM manufacturers offering cost-effective aircraft can drive more aircraft into operation, potentially resulting in less operational cost and enabling competitive pricing for passengers. As companies grow, the systems that support manufacturers during their developmental phase may not be suitable or scalable for high-volume production.

During scaling, companies often face challenges in optimizing or removing bottlenecks such as smoothing the engineering-to-production information exchange. Model-based systems engineering approaches, used in conjunction with digital twin technology, can help AAM OEMs optimize this interface. Digital twins and digital prototyping²⁴ can expedite the testing and iterative design process, achieving cost savings and faster development of new products and services compared to traditional approaches. Those manufacturers who adopt digital twins could realize a 30% reduction in time to market for new products and services.²⁵

While traditional manufacturing processes may not pose significant challenges during the proof-of-concept stage, adopting a smart manufacturing ecosystem can help make plants connected, optimized, transparent, proactive, and agile for full-scale production. With the rise of smart factories, AAM companies can create first-of-a-kind systems at both speed and scale. Converging operational technology and information technology systems employed by smart factories can monitor and enhance the quality of manufactured parts and components. These digitally enabled factories can collect and offer data to help ensure high quality standards are met, while supporting expedited qualification and certification processes at scale. These factories can help bring products to market in a shortened timeframe.

The AAM industry can scale smart factory initiatives at four levels, starting from maximizing the performance of a single asset to ultimately connecting manufacturing sites, supply chain, and product development cycle in real time (figure 2). AAM OEMs likely have an opportunity to optimize both process principles and smart manufacturing capabilities with production assets at the shop floor level, extending seamlessly to the entire factory network. The smart manufacturing capabilities could also help AAM manufacturers with product customization and demand flexibility without incurring excessive costs. Even though OEMs may have to spend more dollars in establishing smart manufacturing plants, they could recognize more benefits in the long run.

Capital: Ensuring profitability through funding, revenue generation, and cost optimization

To achieve full-scale production, AAM manufacturers should establish advanced manufacturing facilities with sufficient capacity to meet potential demand. AAM OEMs may embrace upfront factory spending to reap long-term benefits. When AAM OEMs transition from prototyping to scaled manufacturing, they will likely have a choice between either purchasing and upgrading an existing brownfield factory or building a new greenfield site from the ground up.

Brownfield facilities may enable faster startup to production; however, OEMs may find that existing and outdated infrastructure could act as growth limiters. Further, ongoing brownfield factory augmentations can be costly in the long run. Conversely, a greenfield approach could provide a clean slate to optimize site location, supply chain resilience, workforce availability, and production processes, but may require greater upfront investment and development time.

Developing such infrastructure often requires significant capital investment. To manage upfront expenses, AAM OEMs could possibly prioritize strategies around capital to maximize their investments and ensure investor patience and satisfaction. For many AAM OEMs, it may take more than a decade for platform ROI to materialize due to exhaustive R&D and certification stages. Maintaining transparency and engagement may be crucial for investors in building confidence in a company’s progress and enhancing its financial stability to support successful scaling efforts.

AAM OEMs may need to seek ways to bridge the funding gap as they move from certification to commercialization and can adopt some forward-thinking approaches during the certification process to help unlock funding.

1. Collaboration: Work with local authorities, explore innovation grants, maximize government incentives, and diversify use cases for infrastructure and aircraft.
2. Predelivery payments (PDP): Target PDP for aircraft orders to secure cash flow for facility development and aircraft manufacturing. For instance, a German eVTOL OEM has announced plans to receive approximately 40% of the total purchase as a PDP from commercial airlines, spread ahead of delivery. The company believes that PDP is crucial in commercial deals.²⁶
3. Strategic collaborations: Build alliances with established aerospace, automobile, or technology companies to access additional funding. For instance, Toyota invested around US$400 million in Joby Aviation.²⁷

Lessons learned: A look at the electric vehicle market to see into the AAM future

The automotive industry’s recent focus on electric vehicle (EV) propulsion, together with the supporting infrastructure and regulatory dynamics for EVs, offers a variety of lessons for the nascent AAM industry. At its start, the EV market faced challenges similar to those the AAM market is facing now. These included a lack of preorders, high production costs, production delays, scaling manufacturing issues, and regulatory hurdles. Approximately a decade after the first sale of EVs, the market is rapidly evolving and realizing reduced cost profiles, and quickly approaching cost parity with conventional vehicles.²⁸ Without knowing it, EV companies laid the groundwork for a framework to help thrive in nascent hardware industries that realize value with growth.  

1. Team: Automotive manufacturers have established critical supply chain relationships for resources like lithium, engaged in infrastructure collaborations such as electric utilities, and government or regulatory relationships. Leading EV OEMs have partnered and invested in charging infrastructure.²⁹ In the AAM industry, achieving such seamless operations may be challenging, as vertiports require specific infrastructure for aircraft operations. However, the AAM sector may consider focusing on standardizing global procedures to scale operations and stimulate market demand. AAM OEMs can learn from these experiences to shape their commercial strategies, providing guidance for vertiport operators on prudent investments.
2. Technology: In the transition to EVs, traditional automotive companies have faced challenges with new products from pure-play EV companies. In the process, both pure-play and traditional companies have raced to shuffle their supply chains (for example, building battery factories), secure raw materials (for example, lithium), and optimize their manufacturing processes. (In many cases, pure-play EV companies build EVs in their greenfield factories, whereas traditional internal combustion engine companies have explored a mix of brownfield and greenfield options for building EVs.) Like many EV companies, AAM OEMs should secure their supply chains, prioritize optimized manufacturing processes, and carefully monitor the capability to fully scale operations economically (all while maintaining an eye on battery technology).
3. Capital: AAM aircraft manufacturers should secure capital for establishing manufacturing plants. During their growth operations, one pure-play EV company secured a US$465 million loan from the Department of Energy to produce EVs and develop a manufacturing facility.³⁰ AAM OEMs may explore similar government opportunities or incentive programs to minimize their greenfield costs. Many national and local governments are aggressively seeking to boost employment and economic growth.³¹ AAM OEMs would be wise to maximize government incentives and, thus, maximize the overall ROI calculus for their first significant factory investment.

AAM companies may expand on the foundations set by EV companies and adopt a three-category approach to scale to help realize value. By focusing on their team, technology, and capital sources, AAM companies may move from proof of concept to reality in the next couple of years.