On The Radar
As a venture capital group with an appetite to invest in start-ups in the drone and air mobility sectors, Levitate Capital did not give much credence to available market research and so in mid-2020 it set about conducting its own investigation. The result of this effort is a new white paper published on December 21: The Future of the Drone Economy: a comprehensive analysis of the economic potential, market opportunities, and strategic considerations in the drone economy.
Drones (aka unmanned aerial vehicles) constitute the substantial part of the 150-page report. However, the Levitate team have also factored into the mix passenger-carrying eVTOL aircraft that, it is assumed, will begin operations with pilots on board (the Passenger section of the document runs to 11 pages). They also address in some detail technical challenges such as autonomous operations and the limitations of electric powerplants.
The headline takeaways cover the scale of the market, with an over-arching prediction that the “global drone economy” will grow from a current value of $15 billion to $90 billion by 2030, representing a six-fold increase in just nine years. Through 2024, the largest segment will be defense (worth $17 billion by 2030), but this will be overtaken by what the California-based company defines as “enterprise” in the second half of the 2020s (to reach $29 billion). By enterprise, Levitate’s researchers mean applications in the following areas: construction, building inspection, agriculture, commercial counter-drone services, oil and gas, real estate, utilities, mining, and professional videography.
Enterprise is expected to be the fastest-growing segment until the end of 2025, at which point logistics roles for drones will be in the ascendant (with a $33 billion value). Passenger-carrying aircraft are projected to generate just $2 billion in sales by 2030, by comparison with “public safety” and “consumer” applications at $5 billion each.
Largely driven by its muscle-bound military spending, the U.S. is expected to remain the largest market for aerial drones when defense-related demand is included in projections. However, when defense is excluded, it is the Asia-Pacific region that is expected to be the largest part of the market geographically.
By 2040, Levitate says that passenger services could become a dominant market segment. At that point, it expects available seat mile costs to drop significantly, having been very much a premium customer experience in the early years. The 11-page section of the report on passenger-carrying operations provides a detailed breakdown of the company’s expectations for how this business model will develop.
Levitate’s envisaged regulatory timeline is also of interest. It is based on an assumption that in the U.S. the FAA will maintain, “a steady regulatory progression.”
By contrast with some of the more bullish projections from the leading pack of eVTOL aircraft developers, the Levitate research team believes it will take at least until 2026 before passenger-carrying electric VTOL aircraft are approved for commercial use. The report predicts that it will take until late 2025 for aviation authorities to establish guidelines for beyond visual line of sight operations without waivers for long-range and urban applications of autonomously-flown aircraft. It sees a network of vertiports to support eVTOL operations taking shape in 2027.
“Passenger drones are the riskiest opportunities in the drone economy,” concluded the white paper’s author, Dario Constantine. “Although the segment could become the largest market for drones in the 2030s, it is the farthest away from generating meaningful revenue and will require the most capital. The most attractive companies in this space are those that are closest to certification with global regulators and those making significant progress in extending range, minimizing noise, and reducing system complexity.”
According to Levitate, the business model for the passenger sector will likely morph as the range of eVTOL aircraft extends beyond the confines of what has been defined as urban air mobility to routes as long as 200 to 300 miles. At that point, if not before, the company does not see aircraft manufacturers operating fleets themselves, but rather leasing, selling, or otherwise transferring the equipment to other entities.
Levitate's investment portfolio includes aircraft developers Volocopter and Elroy Air, as well as vertiport pioneer Skyports, and several start-ups active in the drone space, such as Skydio, Matternet, Chargepoint, and Dedrone.