Archer Aviation Inc. (ACHR) Earnings Call Transcript & Summary

Hi. Good morning, everyone. My name is Austin Moeller. I'm one of the sustainability analysts here at Canaccord Genuity. Today, we're having an eVTOL webcast. And I'm joined by the management teams of Archer Aviation, Eve Air Mobility and Vertical Aerospace, so I think, just to start, if everyone could just introduce their company and talk about the technology and what they're working on. And then we can launch into our panel discussion here. So I guess, Mark, would you like to start?

Yes, sure. And thanks for convening this, Austin. It's a pleasure to be here with Eduardo and Michael. So I'm Mark Mesler. I'm the CFO of Archer Aviation. Archer Aviation is developing and manufacturing an eVTOL aircraft. It's a 12 tilt 6 technology. So that means that we've got a fixed wing, but we've also got 12 propellers on that wing, 6 of which transition forward to allow us to transition to forward flight. The technology has been demonstrated with our technical demonstrator, Maker. And we're in the process of transitioning into tests with our production aircraft which we call Midnight, and we unveiled that last fall here in our Palo Alto facility. We're focused on a very specific use case, which is the 10- to 50-mile missions, which are primarily in urban air mobility settings, so think of taking the typical 1, 1.5 hours journey that would -- from a terrestrial standpoint, would take you, sitting in traffic, those 1 hour, 1.5 hours. We can transition that, into the air, into like a 7- to 10-minute flight with a clearly much better customer experience than sitting in traffic. It's also clearly sustainable because it is all electric. And we are targeting pricing those trips sort of like a typical rideshare like an Uber Black, so this is something that will be offered to the general public. We don't want this to be a sort of a technology that's only available to the wealthy. This is a form of democratization of the sky with an electric aircraft. We're well on our way through our certification process, which I'm sure we'll get into later. And we're focused on getting to commercialization in 2025, and through commercialization, we are going to market with 2 separate go-to-market strategies. One is where we'll be selling the aircraft, and then the other is where we'll be also operating these aircraft in network. So that's Archer in a nutshell. And I look forward to the conversation today.

Excellent. And Michael, would you like to tell us more about Vertical Aerospace?

Yes, sure. So we're a British-based company, in fact based in the aviation cluster in Bristol; some similarities with Archer, some differences. I think this is one of the interesting things. We're definitely seeing some convergence in the space. So we've got, similarly, a winged vehicle, 1 pilot and 4 passengers. In our case, we have 4 tilting propellers at the front and 4 at the rear. I think, of all the eVTOL players, we've probably taken the strongest partnership approach on this, so Vertical is very clearly an OEM. We are developing the overall aircraft. We have particular expertise in the battery system and the propellers, but wherever possible, we've aligned really, I think, with the top aerospace strategic partnership with Tier 1 aerospace suppliers. So we've got Honeywell doing all the flight controls and avionics, everything the pilot deals with, Rolls-Royce doing the electric powertrain, Leonardo doing the fuselage, GKN doing the wing and electric wiring, Hanwha doing all the actuation systems [indiscernible] material, so the aim really is to leverage the -- not just the amazing technologies these companies bring but also the deep certification know-how and pedigree, the industrial capabilities and the aftermarket support capabilities. And then similarly, we're very clearly an OEM. We don't plan to operate the aircraft. We actually see 3 main use cases across all the customer base. There will be more over time, but the initial use cases are, firstly, that airport to city center and surrounding areas. So we've sold aircraft to the likes of American Airlines, Japan Airlines, Virgin Atlantic and the like. Secondly, actually, there's quite a lot of use cases where there are just gaps in the ground-based transport infrastructure. So whether there are hills in the way or lakes or rivers or just a lack of ground infrastructure. And then thirdly, tourism. And so we've sold about 1,500 aircraft but really to some of the top players in the world, so yes, the likes of American, Virgin and Japan Airlines; but also Bristow, the biggest helicopter operator; Avolon, biggest leasing operator. And so through that, we're getting really tremendous insights in terms of how these aircraft are going to be operated. We've flown 3 prototypes, so far. We've deliberately gone full scale. So we flew the first version of our wing prototype earlier this year. We've got a second and third aircraft of that standard coming online towards the end of this year and into next year, targeting certification in end of 2026. We will certainly get to talking about the certification regulations and the different approaches, but I think one of the other things I would say is this is really a global opportunity. So we've sold aircraft in North America and South America, Europe, Asia. U.S. is a really important market, but it's probably only 10%, 20% of the global potential, so we're working with a number of regulators and, I think, really pushing ideally for harmonization in the safety standards. So we will come on to this, but I think setting a really high bar in terms of the safety standards is going to be critical given lots of these aircraft are going to be operating in commercial passenger-carrying flights, in many cases over built-up areas, to offer really those kind of time savings that Mark was talking about. So a bit about Vertical. And I look forward to the discussion.

Excellent. And Eduardo, could you tell us a little bit more about Eve Air Mobility?

Yes, sure, Austin. Hello, everyone. I'm Edu Couto. I'm the CFO at Eve Air Mobility. Eve Air Mobility is a company fully dedicated to the development of the eVTOL. We also are investing not only on the eVTOL itself but on the ecosystem. So we have a development on the urban air traffic management, so we are developing softwares, right, to control and help the air traffic management of all those eVTOLs, so it's -- it goes beyond the vehicle and service and support. We also have this work stream about the urban air traffic management. We were born from Embraer, which is the third largest [ aerospace ] producer globally, so all the DNA of producing, developing and manufacturing airplanes or vehicles, we already have. The -- we have a vehicle that is a little bit different from Archer and Vertical. We don't have tilt rotors. We have 8 lifters for the takeoff and landing, right, for the vertical flight. And we have a pusher for the horizontal flights. So our rotors, they do not tilt. Our focus is also on the urban missions; the large cities, major centers; missions from downtown areas to airports, to the suburbs, to the downtown areas. So our focus is really urban missions. We do not intend to do regional flights. We have multiple operators, right, several partners. We also do not intend to operate our eVTOL. We have partnerships with several airlines, helicopter operators, lessors. We already have almost 3,000 letters of intent from different customers that now -- from now to the certification that we are expecting for 2026. We're going to be working closely with all those customers to firm those orders, right, and really have a plan to deploy the vehicles on specific cities for each specific customer. As I mentioned, we have all these DNA from Embraer that has already developed and certified multiple aircraft. And it's not only the DNA, but we have full access to the Embraer engineering team, which is -- I would say it's a big difference from Eve, to the other players, right? We don't have to bring hundreds of engineers to our structure. We have full access to the Embraer engineering team, and as they are working for Eve, we pay for them. Once the work is done, they go back to the Embraer engineering pool, so that makes our development extremely cost efficient. And we believe that it will be important to translate into a lower-cost vehicle, which means a lower-cost operation. And all of that will create this market, right? We believe, for the urban air mobility to be efficient, it needs to compete with ground transportation, so cost efficient is extremely important for us. That's another reason that we decided not to go for the tilt rotors, right? We decided to keep a configuration, the lift plus cruise, which is more standard, right, with less moving parts, which we believe will translate into a lower total operating cost to the operators. We're excited. We are -- we have already announced some big suppliers, right? We are finishing the selection of some others. And we also used the opportunity to bring some new suppliers, right? We believe, of course, the traditional aviation suppliers, they have a lot of experience. And they are very good, but sometimes they can be very expensive, so we see this new industry as an opportunity also to bring new suppliers or suppliers that are not traditional on the aviation industry, may bring them onboard and present them to the aviation world. And given all this expertise we have from Embraer, we believe we can do that, so -- and that could be important, as I said, for the total operating cost, so we're excited. We are moving ahead with our vehicle. And we're glad to be here with Archer and Vertical.

Fantastic.

So just the first question for me. For those in the audience that maybe aren't familiar, can you talk about the idea of urban air mobility and the value proposition for the use in major metro areas? And how close are we to making eVTOL travel a reality?

Sure. I can start, Austin, if -- and continue the order. So in terms of how close are we making it reality, I think we're very close. Everybody on this call talked about their time lines. Archer, when we started, we wanted to develop the most efficient path to market. 4 or 5 years ago, we looked around and thought that a lot of the work being done here was more like science project-based without a clear path to market, so we embarked on a strategy to take the most efficient path to market, where we were developing internally things that we thought were key differentiators. And we were using the existing aerospace defense supply base to help us with the other things. And that has helped create an opportunity to get us through certification and commercialization in 2025. So I think everybody on the call here is going to be talking about that '25, '26 time line. It's not just us. We've got really good partners that are helping us do that. We've partnered with United Airlines as a key not only customer but as an operating partner, help us figuring out things around routes and getting access to gates. Stellantis is a big partner for us in terms of thinking about manufacturing these aircraft at scale. They build 500,000 cars a month. And a lot of the work done with these eVTOL aircraft are closer to auto manufacturing. So in addition, I think the regulators are leaning forward as well in terms of trying to get the space to commercialization, so I think we're very close to getting to market. In terms of value proposition. The value proposition is quite large, if you think about some of the routes that Michael had talked about earlier. The city center-to-airport routes, that is a high-volume ability to pay route; and that's just one route within a city. So if you take a city like a New York City or an L.A. or other cities globally, each one of those routes could almost be like a market. So when you start doing the math in deploying a number of aircraft across those routes, charging it a rideshare price, I mean, you're starting to get into the billions and trillions of dollars of value proposition to a market, so -- and that's just the use cases we've defined here. There will be other use cases that will probably little -- sprout out of this that haven't really been discussed. So the market is large. And I think the industry is not far from commercialization.

So I think, just to add a bit: Why now? And we've gone through a bit of a hype cycle; lots of players coming up with some crazy renders that, if you've got half an aeronautical engineering brain, you can quickly realize don't work. And we're now at the sharp end of actually some serious players that have come through that. Part of the why now is just a tipping point that we've reached in the technology. We've all dreamt of flying over the traffic for decades, but we've -- in reality, the only mechanism of doing that has been a helicopter if you need to take off and land vertically. And that's really critical because you want to get into places where there's a lot of people around and therefore infrastructure is scarce. And the helicopters are amazing, but most of us never contemplate getting on a helicopter to avoid the traffic. They are noisy. They're not very safe. They're very expensive to operate, never mind the fact the pollution that they create, so really what we've seen in, frankly, the last 5, 10 years is a tipping point where batteries and motors; lightweight composites; miniaturization of the electronics, the brains of these aircraft, the flight-by-wire systems, have now reached a point where we can develop a commercially viable vehicle that can carry a reasonable payload of a pilot and up to 4 passengers and can do a useful mission. We're not talking about something that's going to take hundreds of people across the Atlantic. Unfortunately, batteries are not good enough, but that -- but we can start to do these useful missions. And so I -- actually I'd give a lot of credit to Uber for accelerating this, in the first place. If you go back 4, 5 years, they created a vision for this space. And they created, I think, a real interest, and that attracted quite a lot of investment and a lot of talent. And over time, we've therefore been able to build out really credible players, companies like Rolls-Royce, United, American Airlines, Virgin Atlantic, Japan Airlines, Honeywell. These are serious players that are taking this seriously because they can now see the opportunity. And we are seeing incumbents like Embraer and others also get into this space. And I think that's a really powerful signal that this is real and this is happening. We have some intrinsic advantages in the timescales. If you think about how long it takes to certify a big commercial aircraft, you have to certify the engine, first. And I spent 22 years at Rolls-Royce doing just that. I know how hard it is. And the lead times on some of those components are immense. And we have a really different type of aircraft that we're developing with an electric powertrain that just enables us to speed that up. And so I think the technology is there. The pace that some of these companies are moving at is just different for aerospace. Really important, Mark touched on regulation. Now we are seeing some differences in approaches, but I think what is definitely there is the regulators globally see this as a really important societal benefit. The fact that we can now create something that is not just for the rich and wealthy but enables people to sustainably travel in a much more efficient way, avoid the congestion actually paves the way to some of the broader sustainability opportunities in aviation. And so that's getting a lot of regulatory support. And then there is clearly a lot of customer support. We talked about the orders we've got. Well, we got those orders in about a 1-year period before we'd actually flown the prototype we've now flown. And these are really serious, credible players that did a lot of due diligence to really understand how they might use these aircraft, where they might use them economically that it's viable, so I think all these things are really coming together. And what I would say is this doesn't mean that we're going to see millions of these vehicles flying on day 1. There is going to be a gradual transition where we're going to start, as an industry, with a very small number of credible players that certify. It's not a winner takes all. We're going to be industrializing, I think, in the hundreds of aircraft a year in the first years. And then maybe towards the end of the decade, we start getting into the low 1,000s. This isn't like doing hundreds and hundreds of thousands, but there is a clear demand. And as Mark said, when you do the numbers, actually even for a start-up -- we've got customers that operate helicopters today. Bristow is a good example. Their view is about 3/4 of the helicopter market will get displaced by eVTOL simply because they are better at doing lots of missions. They're quieter. They're safer. They're more efficient and much lower cost. Well, the helicopter industry is a $50 billion industry growing at more than 10% a year, so even as a displacement, there's a huge advantage. And then when you think about a vehicle that is 100x safe or 30x quieter [indiscernible] operating costs, 0 emissions, you now start to see why this is not just a better helicopter. This is really disruptive for aviation.

Yes. I agree with most of what Michael and Mark said, right? We -- here at Eve, we believe this market is really, really big when we see all the challenges, right, that we have in terms of transportation on big cities. We really believe there's enormous opportunity. Of course, they're challenged. We also believe that this is going to be gradual. We're not going to have, from day to night, hundreds and -- of -- and hundreds of eVTOLs flying above big cities because even air traffic management will be a challenge, right? We need to improve the operations, the standards, but we're going to start gradually. And over time, the cities will have 200, 300, maybe 400 eVTOLs, depending on the cities. Regulators, also super in favor, right? We have constant interaction with FAA in the U.S. and also with the Brazilian regulators, right? Our idea is to do a -- what we call a dual certification, right, get certification in the U.S. and Brazil. Both regulators are proactive. They want to solve the pain points, right? They understand this is an industry that is coming and there is the need. Of course, there was enormous amount of money that was raised which also helps, right, the development. We had probably like -- we have like 5 or so companies that are listed. There are others that are private ones but are also capitalized, so the -- we had billions of dollars that were raised in this industry. And given the players that are coming together, the expertise of the companies, right -- as I mentioned, we have no other company -- aerospace company in the world that has certified as many aircraft as Embraer did in the last 20 years. So we have a lot of experienced players coming; and this market is going to happen 2025, 2026, right? There are different time lines, but they are converging around those dates; and we are excited. I think the opportunity is big. I think, once the market realize that those companies can value much more than what they are valued today, so -- and in my view, the investors, they need to be smart. I think right now it, in my view, seems is a good opportunity because, as the companies progress towards certification and entering into service, I believe the valuations and the opportunity, the market opportunities will be clear. And there could be a lot of upside for investors that enter now. So that's my two cents.

Great. Definitely sounds like a very exciting market that is being formed, and so we'll look forward to seeing how it builds out as some of the aircraft get certified, which leads me into my next question. Can each of you discuss your company's experience with your aircraft regulators, whether it's the FAA or EASA or the British Civil Aviation Authority or ANAC; and how your respective aircraft are tracking towards receiving a type certificate in that regulatory process?

Sure. Would you like me to continue the order, Austin?

Sure.

Yes.

So we've got -- clearly we're a U.S.-based company out of San Jose area, and we're focused on FAA certification. We've got some deep relationships there from the very beginning. We chose to engage early with the FAA and such that we would be certifying along with the FAA. We did not come up with a design and take it to the FAA to certify because it would have been out of compliance in a number of areas. We would have had gone back to the drawing board. So we actually have designed our aircraft alongside the FAA. I'd like to also acknowledge that we have hired a couple folks from the FAA, Dr. Michael Romanowski, who was their head of new programs at the FAA. And then recently, this year, we were fortunate enough to hire the former FAA administrator, Billy Nolen, to be our Chief Safety Officer. And so those relationships are helping us clearly navigate the FAA and understand the dynamic around that. Where we are in the process. For investors, it's one of these things. It's a -- I feel it's a little bit of a black box, but you can think of the certification process as 2 large parts. One is where you tell the administrator what you're going to do, and then you go out and test it. And so a lot of the industry and a lot of investors are focused on where are we in this administrative process because most of the or if not all of the players are still working with the administrators on defining what the rules of engagement are during the certification process. So loosely: The FAA has a -- what's called a G-1 or basis of certification, which we have received agreement with the FAA, and that is on file with the Federal Register. There are 2 additional parts to that, that you can work on in parallel. One is the means of compliance. The means of compliance is where you actually agree with the FAA on how you're going to comply with the certification basis that you just agreed on. And we're majority of the way through that. And then there are -- coming out of that and in parallel, you have to define the specific plans that you're going to use to certify your aircraft. Those of the FAA are called the subject-specific certification plans or area-specific certification plans. Archer has 18 of those. We've submitted 15 of the more difficult ones with the FAA and are working through getting those approved. So once we get those all agreed to with the FAA, both means of compliance and the SSCPs, that will allow us to begin testing aircraft next year. So beginning this fall and Q4, we will start manufacturing our first conforming aircraft. Our goal is to build 6 conforming aircraft which we'll be flying in our Salinas test facility next year to essentially execute all of those subject-specific certification plans that I just outlined. So we're pretty comfortable with where we are with the FAA. We work with them weekly meetings and so that we understand where we are in relationship to our goal to get to commercialization in 2025.

So perhaps I'll give a Vertical perspective. And I think the first thing I just want to touch on is the comment I made earlier around this is really a global market opportunity. And so we've taken the view from the outset that we want to meet the most stringent safety standards being set globally, and we see that there are lots of different market opportunities. And yes, the U.S. is a really important one, customers like American Airlines, Bristow, for us, but ultimately this needs to be a global market. And it's sort of interesting from a couple of perspectives. One, clearly, by accessing the global market, you access the biggest total addressable market. And ultimately that's what drives the ability to scale and get the economies that we touched on, but it also matters in terms of financing these aircraft, so one of our key customers is Avolon. Avolon is the second biggest leasing company in the world. You may or may not realize that actually a lot of the aircraft that are sold today are not sold directly to the airlines. They're financed by leasing companies, so depending which segment, somewhere between 40% and north of 50% of aircraft are bought by leasing companies. Leasing companies really care about the portability of the asset, so when the first customer is finished using the aircraft, what are the opportunities to deploy that aircraft elsewhere? And so one of the reasons Avolon chose us, Avolon as second biggest leasing company in the world, was around that certification approach where we aim to effectively certify to the most stringent standards set globally. At the moment, we are seeing some differences in approach. And I really hope that we get to the point where there is common harmonization. Certainly the 2 main certification bodies, EASA in Europe and FAA, are working together and talking together, but we do not yet have transparent open standards. We've seen some different approaches, so -- and yes, we're in the U.K., but effectively we are adopting, as a starting point, concurrent validation, so joint certification, with the U.K. Civil Aviation Authority and European EASA. And EASA has taken a very open-book approach to this, so if I give you an example: Yes, of course, there are a number of existing certification standards of current aircraft that are relevant to these vehicles, but some aspects to these vehicles are new and novel, batteries being a really obvious one. And so over a number of years, EASA has set up -- effectively we have a joint working group. Vertical, in fact, chairs it, but it sits with a number of eVTOL companies and regulators defining what are the means of compliance. And so we've got 5 main standards already issued. They're in the public domain. They've been accepted by EASA, another 3 ongoing. And so I think there's a real benefit to that transparent approach because it brings in not just Vertical's expertise or EASA's expertise, but you're getting other eVTOL companies, other incumbents, so there a number of companies contributing to this. And then the aim is that we really leverage that collective industry wisdom and we create a transparent and level playing field. We're certainly working with the FAA, with ANAC in Brazil, with JCAB in Japan and others. And the indications are, where we have established means of compliance that we've agreed with EASA, we can lift and drop those. So we don't have to create bespoke new standards elsewhere, but I do think we need across the industry an increase in the level of transparency. And some of that goes for the overall aircraft safety standards. So EASA has come from the perspectives that this will ultimately be a mass market. And we are going to be traveling. We're transporting lots of commercial fee-paying passengers over built-up areas. And when you do the numbers and the stats, you need to get towards transport category levels of safety, so this is what you would expect in the big airlines that you fly today that we all are comfortable to put our granny and our relatives, so on and fly them over big cities. Well, those are certified to "one in a billion" failure rates. And they're certified with the highest safety stringencies on things like the electronic software and hardware. And so we really believe that, that is the standard that we need to be striving for. And we need a cross-industry harmonization. One of the philosophies at Vertical is, a, to set that really high bar in terms of what we're aiming for; but also to be really transparent. So when we have instance, we want to share with the wider industry what we've learned from that because ultimately, if we have some high-profile instance anywhere in this space, it damages the whole industry. And I think we need to really strive for those higher standards. In terms of our actual approach. Well, a lot of the things that Mark talked about are being defined as an industry collective, so yes, there are some specifics on the exact details of the aircraft that we're working through with the authorities, but the standards need to be transparent and open. That lays out the equivalent of G-1, G-2, G-3s, in FAA parlance, so a lot of that groundwork has been already developed through EASA. Similarly, we'll build a number of conforming aircraft. And as I said, the target is end of 2026 for initial certification. We'll then do what's a very classical foreign validation, where essentially you take all the evidence from your initial cert and present it to other authorities. That's already a well-established aviation route. By certifying to the very high standards, that gives us the global reach. What you can't do in this space is certify to a lower standard and then go and ask for a sort of extension to a higher safety standard. You have to build that in right from the beginning. So we'll be building those aircraft in 2025. A lot of the flight testing will happen in 2026, and certification initially end of 2026.

Yes. Just in the case of Eve Air Mobility, guys: So first, we're trying to develop that the same way that development is certified, right; the same way that Embraer has done in several other programs, right, on business jets, on commercial jets. We are trying to make that as simple and smooth as possible, not creating something different. We also want to have our vehicle certified globally. As Michael mentioned, right, it's we are designing our vehicle to be able to certify regardless of the standard that the specific regulator is requiring. We would like to see a similar standard in the different regions. That would be helpful because, if that was the case, we could try to get the triple certification, right? As we get on the business jets -- Embraer get on the business jet, on the -- [ through on the ] commercial jets, right, they got certification at the same time in Brazil, U.S. and Europe, right, FAA, EASA and ANAC. As the way things are moving right now, there's still uncertainty if we're going to be able to get the triple certification. We are now more targeting, as I said, a dual certification, FAA and ANAC, right, Brazil and U.S. altogether; and depend on how EASA goes. We also have a lot of conversations with them. We may target EASA after getting U.S. and Brazil, and so -- but that's, the more standard we are able to get those certifications across the globe and the more aligned the regulators are in our view, the better. And we have been meeting with different authorities, especially U.S., Europe and Brazil. And the majority of our work will be initially done with the Brazilian authorities because they have those bilateral agreements, especially with the FAA, which means most of the work that is done with the Brazilian authorities is accepted by the American regulators, right? So in the end, if you certify in Brazil, you do like 80%, 90% of the work in Brazil. And you can only do an additional maybe 10%, 15% of validation in the U.S. And that will allow us to get the dual certification Brazil and U.S. So there's still a lot of discussions going on. I'm not the Chief Technology Officer, right? I'm the CFO, so I don't know all the details, but talking to my guys here, we feel confident with the dual certification. We would like to get the triple one, but there's still some difference between Europe and U.S. that at this point may not allow the triple certification.

Great. So for a new design-build aircraft like this, essentially a new category of aircraft that's using an electrified powertrain, what has been the most challenging part of flight testing for the type certificate process? Is it that full transition from vertical to horizontal flight? Or what is it?

I think Michael alluded to it earlier. I think, yes, in terms of -- and how you word it, Austin, was for certification. I think the crux of the testing will come about on things that the FAA or any regulator hasn't really seen before or hasn't a lot of experience with. And in this case, batteries for propulsion and electric engines, I think, are probably the ones. When you set up your test plans, there's going to be a lot of scrutiny around those, things like avionics and flight computers. And if you're using a strategy much like Vertical indeed where you're leveraging -- and Archer where you're leveraging the existing aerospace defense, those, the FAA or other regulators have seen those things; and so I think those are going to be less focus. So you're correct. I think the technical problem to solve with eVTOL is what does that transition look like, but I think, by the time you get to certification, you've -- your designs are fairly well figured out. You've done a number of tests. You've done a number of models, mockups and sims. By the time you get to for-credit testing with that, well, that will be one to see, I think. Hopefully, that's not as a heavy lift as you might think, just because there's been a lot of work done around that, but I do believe it's the batteries and the things that the regulators haven't seen before where we're going to be spending a lot of our time. And we have spent a lot of time, by the way, with the FAA and others on battery and getting them really familiar with our electric engines early on in the design process so they understand what we'll be addressing as we get through for-credit testing with them.

So I think [ helpful to add ]: I mean definitely batteries. And naturally, I think, one of the things that we've seen across this industry generally is a lot of OEMs are now aligning on owning their own battery system, quite a lot of us aligning on actually the cell type. So we chose Molicel, and then thereafter and -- others have followed suit. And one of the reasons we chose Molicel was it's already a cell that works in these vehicles. I think it's really important to have a cell that's in mass manufacture because you avoid all of the challenges of how do you scale it up, but just to give you a sense: By the end of this year, we'll have done about 2.5 million hours of cell testing. And so characterizing how the cell behaves not just in nominal missions but all of potential failure scenarios, et cetera. The challenge with aviation, rightly, is not to prove it works. It's to prove it doesn't fail, so we build redundancy into the aircraft, where we have to demonstrate to the regulators in all of these different scenarios, if something goes wrong, actually, you can keep flying. And so the inherent advantage of an electric aircraft is you can have multiple batteries. You can have multiple meters. You can have multiple flight control systems. You can build in that redundancy, but then you have to [ prove ] how it works, so actually to your kind of question on transition: Doing a straightforward transition is fairly -- that's something, certainly if you've got the likes of Honeywell behind you, you can do. One of the interesting questions is can you come in to land, when you're trying to slow the aircraft down, and cope with all sorts of different gust conditions and failure modes and still fly the aircraft and still have acceptable handling qualities and enable the pilot just to fly it as they would normally and get it down. So I think those are going to be some of the more challenging [ cert tests ]. Actually this is where I believe having tilt rotors gives us an advantage because, whilst it's mechanically a bit more complex, it just gives us a bit more levers to control the aircraft, but those are understanding how you do that through a flight test where you're coming in to land and maybe you have a battery failure or a mode failure. The regulator obliges you to demonstrate you can live with that, so those are probably the more challenging flight test ones, but absolutely the novelty around batteries and electrical powertrain -- the power distribution system is very, very different on these vehicles compared to an electric car. You have fault, and you have to isolate it. In a car, you just shut down power and you pull over to the side of the road. You can't do that in an aircraft, so how we ensure that we can contain faults and we can continue flying and we can get down safely, I think those are the challenges, rightly, that the regulators are going to expect us all to demonstrate.

Yes. In the case of Eve, I just -- I agree with what Archer and Vertical said, batteries, transition. In the case of the transition, at Eve we believe we have a big advantage, which is we're going to be using the closed-loop full fly-by-wire system that Embraer has developed for its business and commercial jets in the past. So this full fly by wire is, was 100% done and developed at Embraer. We wrote the whole code. It's something very difficult to do even for experienced suppliers. It's not only super expensive, right? If you go after a supplier and ask them to do your fly-by-wire system, they're going to charge you a fortune, but it's also difficult to do. We're going to be adapting this full fly-by-wire system, right, to our eVTOL, which will reduce a lot the payload, right, of pilots, the workload on pilots; and make this transition, right, very smooth. Because in the end, the eVTOL will kind of control itself, right? If there is a command that is not right, the full fly-by-wire system will adjust all the pilot commands automatically. And the vehicle will do the right path. So we are excited about that. We are working. Our engineers are working a lot of that and -- but definitely batteries, transition, all things that the others already mentioned are challenged. But as I said, we believe Eve is in a very good position using already validated technologies that are coming from Embraer and just adapting those to the eVTOL market, okay?

So here is an interesting question. Just given that eVTOLs are sort of a fusion of technologies from both the aerospace sector and the current automotive EV sector, do you think that it's more valuable to have a partner in the aerospace supply chain, or a partner in the automotive supply chain, going forward to develop a vehicle and get it to mass manufacturing?

Austin, we believe there is value in both actually. I mean, when I discussed earlier that our strategy has been to create the most efficient path to market: We believe leveraging the existing aerospace and supply base is a way to do that. We don't have to vertically integrate. We don't have to develop all of this technology in house, which would just put tremendous risk on getting to market if I had to develop my own flight computers, my own avionics, et cetera, et cetera, so what we've chosen to do is just to develop our powertrain internally. We've got some really bright leaders from Tesla to help us do that using the battery cells that Michael talked about from Molicel. So we think there is value within aerospace partners. And we've selected some of the best in the industry, the Honeywells, the Safrans, the FACCs, to help us do that, but when we think about scaling manufacturing, our position is that, because -- these aircraft are a lot simpler. I mean they're not a Boeing 777 or a Dreamliner or anything like that. These -- we feel the scale manufacturing of these themselves is more like an automotive manufacturing process, which is why we've partnered with 1 of the top 3 automotive manufacturers in the world, with Stellantis. These have carbon fiber. They've got electric engines. They've got batteries. They've got wiring and harnesses. It's very similar to an automotive manufacturing process, so we're actually leveraging the expertise of Stellantis' operating acumen to help us think about scaling manufacture of these. We have a factory that we've -- that we're building in Georgia. It will have capacity to produce up to 650 aircraft per year initially. We can expand that to 2,300 in the future, but we're actually working with Stellantis. And the goal will be potentially for them to eventually be like a contract manufacturer for us for these at scale. So we just believe that there is value in both of those areas to help build this business and industry.

So I suppose my sense is, firstly, it's a phasing question. Right now we're all trying to get through certification, initially quite low volumes of production. And I think aerospace partners are really well suited to do that. And that also extends to the manufacturing side, so the reality for us is we're probably all going to be constrained on the composite structures in terms of our ability to ramp up. And if you look at our suppliers, as a result of some of Boeing's troubles and the pandemic, unfortunately, the reality is there's quite a lot of spare capacity in the supply chain, so we're really clear at Vertical, yes, we're going to assemble the overall aircraft, but a lot of the manufacturing components and subsystem assembly is going to be done in the suppliers. And they've already got really suitable equipment to do that at the lower rates of production. That means they're not having to invest huge amounts of money in brand-new facilities. There will come a point towards the end of this decade where we go from maybe low hundreds of aircraft to 1,000 to 2,000 aircraft, and I think we're all talking kind of similar numbers. And that will require a degree of automation that is probably beyond what you see in traditional aviation approaches. I don't think it's quite the same as a sort of mainstream automotive company. So actually the interesting bit for me is we have a Chairman of our Board who is the former CEO of McLaren Automotive. He was hired by Ron Dennis of F1 fame to run McLaren Automotive, joined that company when McLaren was doing prototypes. And he retired from it in 2021, when they were doing about 4,000 fully composite monocoque cars a year. And McLaren actually started the classic approach of a small company trying to compete with the likes of Ferrari and Lamborghini and these sort of big auto owned companies, having to work with lots of suppliers as quite a small niche player and then actually gradually, over time, onboarded some of its own capabilities. So all the composites they do, they in-housed. And I'm not saying that's necessary to the strategy that Vertical goes through, but I think there's a lot of learning that Mike and people from maybe the high-end automotive industry bring in terms of how do you migrate from maybe a few hundred aircraft a year to a few thousand. So I think we see that as an opportunity to leverage over time, but on day 1, the chasm that we all have to cross is to certify a vehicle, to deploy it in the low hundreds of aircraft a year, to come up with a business strategy and a business model that enables us to make profitable money from doing that, to build up the credibility and then to gradually transition to higher volumes over time. But I don't think we suddenly get into tens of thousands or hundreds of thousands of vehicles. And therefore, the balance with all these things is, well, what is the right level of automation. Tesla actually, I think, learned, to their cost, that if you try and bring in too much automation too early before you really need it or are ready for it, then actually that trips you up, so I think having a sort of fairly staged approach. And then as technologies get better, we'll no doubt evolve the aircraft, so if you lay out a big factory footprint on day 1, well, you've probably come up with an enhanced version of the aircraft for when you actually need to go to higher volume, so you can then be prepared and do that all synchronized.

Yes. In the case of Eve Air Mobility, guys, I agree with the others, that during the development phase, it's pretty much an aerospace type of discussion, right? It's not a -- really automotive because regulators and all the design certification is really related to aviation. Of course, in terms of the manufacturing strategy, I think you need to already think about higher volumes, right? The aviation industry doesn't have the volumes that we are talking about here, so what we decided to do at Eve is we did a study with Porsche to understand, right, how the automotive industry works in terms of volumes. And our conclusion is that our manufacturing strategy will be based -- it's going to be modular, right? We're going to go [ pods ] and modules by models. And we can add around 200 eVTOLs per year in terms of capacity on those different models. And of course, as the demand grows, you add more capacity, but if the demand comes more gradually, you don't need to invest so much upfront. And that's our mindset, right? We're going to -- our initial facility, that will be in Brazil. It's actually an existing facility from Embraer. That will allow us to save a lot of CapEx and investments on the initial production, so maybe up to 300, 400 eVTOLs, our investments will be significantly reduced. We do not want to invest hundreds of millions of dollars upfront on a facility because we don't know exactly how the market is going to ramp up, right? It could take a little longer. It could be faster, so it's important that we have flexibility. And we decided to use this modular approach which reminds more the automotive industry, but in terms of the development, as I said, it's pretty much aerospace.

I think just one other thing to add. What we're all seeing, I think, is a really interesting cross-pollination of talent. If we look at our battery team -- I mean Mark has already mentioned he hired people from Tesla. Well, we're based in the U.K., so we hired people from Jaguar Land Rover. Dyson was running an electric vehicle program that they stopped. We've hired people from the European Space Agency. And we've melded them with some aerospace engineers. So batteries are a really good example, where you can't take an automotive battery system and put it in an aircraft. The safety requirements, the weight requirements, power requirements are fundamentally different, but there is a huge amount of expertise in how you develop battery systems in the automotive industry. And that includes how on earth do you make them on a repeatable, scalable manner. Anyone can make one battery system. Well, can you make them all the same? Can you deliver the same safety and quality in every single pack that's coming off the line? And so I think we're already seeing a real cross-pollination in particularly engineering and manufacturing talent that is going to really help.

If I just talk here about the different municipalities, major city centers that want to have eVTOLs to either reduce traffic congestion or carbon emissions in major urban areas. There's landing fees that are usually charged to helicopters to land at specific sites, especially in New York City where it's about $200, so do you think that -- if major cities want to be competitive and to deploy this technology, that they're going to have to be willing to lower those landing fees to be able to make the pricing of eVTOL tickets more attractive relative to like an Uber or a Lyft ride?

Yes. I mean clearly $200 in that specific municipality doesn't support, I think, support -- our targets for what landing fees would be. I also don't think there's a real standard around -- anywhere of what these landing fees should be. I mean they're generally driven by whatever the infrastructure is that's supporting the takeoff and landing operations, whatever the investment in that infrastructure was and the volume of throughput through those. I think you're talking about a different paradigm if you're having hundreds of flights per day land at a site versus a handful, so I think -- I mean my opinion is that these are all up for negotiation. It's also -- it is depending on the throughput. I think there'll be a lot of areas where municipalities won't even be involved. I mean, if one of these companies on this call decide to build our own infrastructure, our own vertiport somewhere like in Greenwich, Connecticut or some other area and we actually made the investment, the landing fees would primarily be around whatever it was to support the charging infrastructure; and what we decide to put in for ingress, egress, check-in, et cetera. So I do think that is an area -- if we all walk through our cost models -- I think we all probably have very good conviction around our BOM costs and costs to operate. And the landing fees are the greatest probably -- greatest ambiguity around them just because there's no real set standard, I think, at least in the U.S. or around anywhere. And I think we're going to have to help set that standard and what that cost will be as we continue to mature sort of networks in city and in other areas.

Yes. I think throughput is one of the key questions on here. And Mark is absolutely right: There is no single number. And actually I think one of the mistakes of the industry is to quote a dollar per flying hour because it varies. Pilot salaries are different around the world. And energy costs are different around the world. What we've taken, the approach we're doing is we've really leveraged the customer base that we've got. We've done a huge amount of cost modeling, economic modeling, route planning, so we've mapped out probably 1,000 different routes across all the different customers. Clearly, depending on the severity of the mission, the battery life varies as well, so that's another factor. It's -- interestingly, it's not massively sensitive to one individual thing, so it's not like, well, if you're slightly out on landing fees or the aircraft costs or the battery life, it all falls over. Actually there's a really good opportunity to make a compelling proposition because inherently these vehicles are going to be cheaper to operate, but I think -- I mean, if you take somewhere like London, there's one main heliport. And I wish it was GBP 200. It's even more expensive than that to land there because they are noise constrained. And so I think one of the real opportunities is, as we grow as an industry, we're not going to be flying thousands of vehicles on day 1, but we can start to demonstrate safety and low noise. And then we can start to demonstrate, even on day 1, we've got something where this isn't just about the billionaires flying over people's heads. And I think, if the public start to get behind, "This is something that is really useful to me as an individual," then suddenly you start to see an appetite for more and more utilization. And inevitably, more utilization will drive the costs down. You've got certain fixed costs. If you can amortize those across many more flights, then that's just going to bring the costs down, but it's going to vary a lot around different parts of the world.

And in the case of Eve, guys, we -- our operating partners, they have been approaching municipalities. They're approaching airports to explain the economics that make sense for them, right? They have been very clear not only about the economics but also even incentives, right, and things that municipalities and airport operators need to do in order for them to choose that certain area or pick that certain [ CD ] airport. Because if the economics do not work for them, they say they cannot operate, right? So I think we are using the -- all the experience that our operating partners already have with helicopters, with commercial jets, business jets so that they can explain to the authorities the importancy, right, of having the right economic. Because if the economics are not there, they are simply not operating. That's our view.

Great. Well, I think that brings up -- us up against the end of our time, but I just wanted to thank the panel again, Mark and Eduardo and Michael, for taking the time today just to inform investors a little more on the very exciting eVTOL and urban air mobility industry. So thank you again.

Thank you very much.

Thank you, Austin.

Thank you, guys. Have a good week. Bye-bye.

Thanks, everyone.