Revolution.Aero Uplift: ‘Additional funding might drive consolidation’
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Sounds of the crowd grow louder. Dust rises from the arena. Players enter the ring one by one. We have all witnessed the turbo-charged confidence with which advanced air mobility (AAM) has surged forward this year, as firms compete for capital. The frenzy of deals has somewhat passed and it seems as though the dust might be settling to reveal a more consolidated playing field.
Additional funding in AAM – which is helping create some larger players in the market – is likely to drive consolidation in the space, Brian Schettler, MD of Boeing HorizonX told Revolution.Aero.
Schettler’s comments are against the backdrop of the recently-announced partnership between his company and private equity firm AE Industrial Partners. He will become a partner and lead the new AEI HorizonX team.
AEI HorizonX intends to expand Boeing’s existing venture capital portfolio investing in “mobility, space and connectivity, industrial tech and enterprise digital solutions, with a broader emphasis on sustainability”.
Schettler says there is great opportunity in each of the areas the company will focus on. “Given the amount of capital that is flowing, the innovation that we are seeing and the operational expertise that is all falling into place.”
According to him, more capital in this space can bring a positive shift to an industry whose players have been fragmented. “I think it is helping to propel the market forward, however, I still have concerns with how fragmented the industry has remained. If anything, the additional funding, which is helping create some larger players in the market, might start driving some consolidation. We also need to see how this funding evolves over the coming years given the high costs associated with getting these platforms certified around the world,” he says.
And, as many will confirm, not all of the players will win. The “huge dollars needed to certify a new platform” which will lead to “associated pain” arising from this fragmentation, according to Schettler.
Robin Riedel, partner at McKinsey & Company, takes a similar view about the potential for capital. He told Revolution.Aero: “Overall, I am very excited about the increase and professionalisation of the investment interests in this space, as that will create additional thoughtfulness and provide money to the most promising players.”
Boeing launched its venture capital arm HorizonX in 2017 to do just this. It now supports about 40 early-stage companies, which will move over to the AEI HorizonX platform. AEI’s $3.5bn aerospace portfolio includes companies like Global Jet Capital, Columbia Helicopters and Triman Industries.
David Rowe, managing partner at AEI, said: “AEI HorizonX will provide us with a foundation to build out a new investing pillar focused on transformative businesses and technologies critical to the evolution of our target markets and their impact on the environment.”
According to AEI HorizonX’s Brian Schettler, more capital in AAM can bring a positive shift to an industry whose players have been fragmented. Courtesy: SMG Consulting
Speaking of SPACs (special purpose acquisition companies), AEI HorizonX’s Schettler believes that they are a valuable tool to take a company public at the right level of maturity.
“I think we have seen the peak in terms of erratic behaviour,” said Schettler. However, he thinks as SPACs fail and succeed, “it will also flush out those sponsors that truly have a good eye, philosophy and value add to the companies they decide to take public”.
Boeing will continue to be a long-term strategic investor in AEI HorizonX and remains the anchor investor for the current fund and AEI HorizonX’s first standalone fund planned for 2022.
Schettler says there will be a pool of capital for follow-on investments in the existing portfolio, but “also dedicated capital for new company investments as well”.
He concludes: “We envision subsequent funds to keep doubling down on our focus on these markets.”
Whether it is Morgan Stanley’s market size prediction of $1.5trn (by 2040), Citi Group’s $17bn (by 2030) or Porsche Consulting’s $20-30bn in 2035, more capital in AAM will mean more consolidation.
And, perhaps after the dust has settled, a united front of companies will greet the next stage.
