Would-be manufacturers of aircraft in what is broadly defined as the advanced air mobility (AAM) sector advance their cheerleading efforts with a relentless flow of sales commitments for products that remain anywhere between the drawing board and type certification. The deals announced are variously described as “orders” or “letters of intent,” but almost without exception, it is next to impossible to assess the solidity of these supposed transactions due to a lack of transparency by the companies announcing them.
In a new report, the McKinsey consulting firm has tried to quantify the prospective backlog of orders in what it chooses to define as the future air mobility sector. This category includes the attention-seeking eVTOL models, as well as planned supersonic aircraft, cargo drones, and what the authors broadly describe as sustainable aviation (presumably anything powered by something other than a fossil-fuel-only powertrain).
According to McKinsey’s number crunchers, as of June 9, more than 18,000 orders had been placed for aircraft in these categories with a total provisional value of $111 billion. This sum, they concluded, is more than the total global backlog for commercial airliners of 16,500 aircraft (including 14,300 firm orders and 2,200 options).
Hurrah, but as McKinsey is quick to note, the 1,400 orders received in almost the first six months of 2023 represented a 67 percent decrease from the 4,400 reported in the second half of 2022. But, more profoundly, the report concluded, “some, or possibly most of those orders may not pan out.”
Smoke, Mirrors, and Future Air Mobility Orders
This somewhat begs the question as to why the announced deals should be reported as orders at all. In the stringent financial reporting environment inhabited by air transport industry leaders Airbus and Boeing, the exact contractural status of these agreements has to be fastidiously recorded, with public announcements making it clear what constitutes a binding order (backed by meaningful deposits) as opposed to options or looser letters of intent. Not so much in the AAM world where a brief meeting over coffee by an eVTOL sales executive and a hypothetical operator of an aircraft not yet approved for commercial service can be reported with all the solemnity of an impending royal wedding announcement.
Nonetheless, the McKinsey study—entitled, "The growing order backlog for future air mobility aircraft"—does provide some interesting detail on the reported sales commitments. Of the orders for 18,000 aircraft logged to date, 9,400 are accounted for by eVTOL vehicles, with 5,300 covered by other sustainable aircraft, 3,300 cargo drones, and a handful of supersonic jets. The dominance of eVTOL types in the sales ledgers this year has somewhat diminished in favor of the other aircraft. Market interest in the broader category of “sustainable aircraft” is clearly rising, confirming expectations that AAM/FAM, or whatever we’re calling it this month, signifies the dawn of a more profound change in air transportation than that heralded by short-range urban air taxis alone.
Over the past 12 months, airlines have placed almost a quarter of new orders and now account for 29 percent of the total. The same period has seen an uptick in orders from business aircraft operators (14 and 11 percent), and aircraft leasing groups (9 and 10 percent).
McKinsey’s report on aircraft orders comes hot on the heels of its assessment on funding for future air mobility. This recorded something of a bounceback in funding for companies in the sector after a generally lackluster year in 2022. As of mid-June, McKinsey’s analysts had tallied $2.5 billion in the year-to-date funding pipeline, which was up by 15 percent over the same period in 2021.
“This is lower than the record funding levels of 2021 but still noteworthy given the challenging fundraising environment,” the report concluded. During a briefing at the Paris Air Show, McKinsey executives told reporters that the increasing cost of capital could become a significant factor in thinning out the crowded future air mobility pack this year. They also noted that most of the significant new funding has gone to a tight group of already well-resourced players, potentially widening the gaps between the haves and the have-nots or the winners and the losers.