On The Radar
The prospect of special purpose acquisition companies (SPACs) leading the next wave of investment in the cash-hungry advanced air mobility (AAM) sector gained momentum this week when New Vista Acquisition Corp. filed an S-1 initial public offering (IPO) registration form with the U.S. Securities and Exchange Commission. The company is offering 20 million shares at $10 apiece in a bid to raise $200 million with which to acquire one or more companies in the aviation, aerospace, and defense industries.
In its S-1 filing, New Vista specifically highlights AAM as a core target area for its investment strategy, along with supporting technologies such as hybrid and electric propulsion, autonomous flight systems, artificial intelligence, and machine learning. The company also expresses an interest in businesses involved in logistics, communications, and space, giving it scope to cast its net beyond the obvious investment targets among eVTOL aircraft developers.
What really caught the eye of observers is New Vista’s leadership team, which is rich in aviation industry pedigree. Former Boeing president, CEO, and chairman Dennis Muilenburg is its chairman and CEO. Alongside him are co-president and COO Kirsten Bartok Touw, who founded the AirFinance venture capital group, and co-president and CFO Travis Nelson, founder of the Eclipse Investors group. Further evidence of New Vista’s intentions in the AAM space is provided by the presence among its advisors of Paul Eremenko, who founded propulsion systems start-up Universal Hydrogen and is a former chief technology officer with Airbus and CEO of its A-cubed innovation division.
Muilenburg’s tenure at Boeing ended in late December 2019 when the aerospace group’s board accepted his resignation in the wake of the long-running crisis caused by the grounding of the 737 Max airliner following two fatal accidents. However, under his leadership, the company created its HorizonX innovation division which through the Boeing NeXt technology incubator backed new ventures in the AAM field, including eVTOL aircraft developer Kitty Hawk (with which it established the Wisk joint venture), Aurora Flight Sciences, and AI-based air traffic management specialist SkyGrid.
AirFinance is active in advising numerous AAM companies on options for raising capital and has directly invested in cargo drone start-ups Elroy Air and Volansi. Bartok Touw has extensive experience in the business and general aviation sectors, having previously cofounded the XOJet private charter flight group and served as vice president for structured finance and corporate development with Hawker Beechcraft.
SPACs also go by the name "blank check companies" in reference to the fact that investors who subscribe to their IPOs do so without knowing what subsequent acquisitions they might make. Essentially, the corporate structure is a vehicle well suited to the goal of taking startups public through a form of a reverse merger in a process that has proved to be increasingly popular in other fast-growing sectors such as electric ground transportation and e-commerce.
In November 2020, aviation investors Kenn Ricci and Steven Rosen established a SPAC called Zanite Acquisition. It too conducted an IPO to join the Nasdaq exchange with a goal of raising $200 million through the sale of 20 million $10 shares and with the declared intention of investing in AAM and associated technologies.
In early January, Ricci dismissed as speculation media reports that Zanite is in talks about investment in German eVTOL startup Lilium. A few weeks later, Joby Aviation declined to comment on a Reuters report that it is the object of a proposed SPAC merger.
According to investment data analysis group PitchBook, 2021 will be another big year for investment in the AAM sector and it expects SPACs to be a driver of this trend. Last week, the company reported that large venture capital investment rounds in 2020 had generated around $1.3 billion for eVTOL aircraft startups, which it said represented an 84 percent increase on the funds raised in 2019.
“[This year], we see ourselves in a similar spot but on a bigger scale as many companies are coming up on about a year [since earlier funding rounds] and need more money,” said PitchBook mobility analyst Asad Hussain. He told FutureFlight that new technology fields, such as electric cars, have captured the imagination of public equity investors, and that this could spur support for new SPACs now targeting aviation technology.
According to Hussain, the SPAC path could be attractive to AAM startups because it is more straightforward than having to initiate an IPO themselves, with all the burdensome regulatory obligations this entails. He suggested that the IPO experience of ride-hailing groups like Uber and Lyft could discourage others from following this path. “They didn’t live up to their valuation expectations and then [after going public] their stock performance was lackluster for these very capital-intensive, money-losing businesses,” he commented.
However, Hussain cautioned that there can be some “reputational risk” for companies acquired by SPACs as some are skeptical about the perceived relative lack of transparency over company valuations. “They need to consider how possible future partners might look at it,” he said.
Nonetheless, Hussain does see SPACs as a significant new source of capital for AAM companies. “It’s more than just chatter and I think [deals like this] will happen because it makes sense for many startups and I would expect to see at least two major companies do SPAC deals in the first half of 2021,” he predicted.
From the perspective of the PitchBook mobility team, this year could also see some more significant consolidation and realignment in the sector as investors reassess when and how the return on investment will come. “If we are now at the top of the hype cycle, then the reality will start to set in and the timeline expectations will set in and the tail end of the market [meaning weaker startups with inadequate funding] will go away,” concluded Hussain. In his view, sustained return on investment from the mass adoption of this new mode of air transportation will not materialize before the end of the 2020s, compared with the aggressive projections being made by several eVTOL startups about full commercialization around the middle of this decade.
In its latest Q1 2021 Analyst Note on the mobility sector, PitchBook assesses the state of several AAM companies including Lilium, Joby, and Blade (see pages 36-39). It claims that Lilium is already in the process of preparing a merger with an undisclosed SPAC.