Foley Warns of Slowing Investments in General Aviation Technologies

 - October 11, 2022, 12:27 PM
SPACs have provided investments for emerging aviation companies, but share prices are falling and financial firms are becoming increasingly wary of the risks involved. (Stock photo)

Financing firms are slowing their investments into young aerospace companies as the economic climate becomes more uncertain, industry analyst Brian Foley of Brian Foley Associates reports.

“Until this year, aerospace fledglings had their best chance in well over a decade to secure outside investment,” Foley said. “Suddenly, the new economic-financial climate has made fundraising an ever more difficult challenge for those needing outside capital and poses an outsized challenge to simply keep the lights on.”

Investors long were wary of emerging general aviation opportunities after the collapse of Eclipse Aviation and losses that top $1 billion. However, Foley surmised that “the passage of time and changing of the guard erased much of the financial community’s tribal knowledge and long memories of this event”

Aviation became attractive again as investors were looking for new opportunities, particularly with emerging technologies. “The sector became a new shiny thing for the investment community, with bedazzling Jetson-like flying cars, Uber-like private aircraft charter, Concorde-like supersonic jets, and Star Trek-like green propulsion systems (minus the dilithium crystals),” Foley said, adding that special purpose acquisition companies (SPACs) enable some of these nascent companies to skip traditional intermediate fundraising steps.

But, he maintained, “Today, the jig is up. Rising interest rates have made other investments outside of aviation more attractive. When coupled with an economy in flux, it creates a more defensive investor posture as it relates to risky early aviation ventures.”

He added that billions already poured into the sector are now at an “acute risk,” with casualties mounting. “The 2021 shutdown of the Aerion supersonic passenger jet program should have served as the canary in the coal mine for others.” He noted how the Kittyhawk flying car startup also “just threw in the towel.”

With an estimated 300-plus eVTOL aircraft proposed, the risk has increased. In addition, SPACs in the general aviation market have already seen values fall.  He noted that Archer, Lilium, and Joby have seen shares fall to the $2 to $4 range, from an average of $10 stock issuances, while Wheels Up is just above one dollar.

“The dominos have begun to fall for early-stage aviation companies and will further accelerate for the foreseeable future. There will be far more losers than winners,” Foley predicted. “The clear losers will be those who lost money on these ventures.”

However, large venture capital and private equity firms will not suffer as much since these losses can represent a decimal point to them. “The less obvious and most unfortunate loser will be the general aviation industry itself. Hopeful game-changing ideas could now be stifled for years to come as investors once again tap the brakes and become more wary of the sector.”