Hop to it — Vertiports as an asset class (A Reed Smith blog by Ashleigh Standen)

By Ash­leigh Standen, Reed Smith’s Trans­porta­tion Indus­try Group. 

The sums invest­ed in the devel­op­ment of eVTOL air­craft have been well pub­li­cised. It seems that not a week goes by with­out a new part­ner­ship announce­ment, a new SPAC com­bi­na­tion, or anoth­er large invest­ment being report­ed in the press – such as the addi­tion­al $450 mil­lion being invest­ed by Boe­ing in Wisk, announced at the end of last month.

The Finan­cial Times recent­ly referred to a McK­in­sey find­ing that ‘investors have bought into the dream, pump­ing more than $7 bil­lion into such projects, main­ly through spe­cial pur­pose acqui­si­tion vehi­cles (SPACs) list­ed on US stock mar­kets,’[1] .

The arti­cle goes on to note that ‘while all kinds of vehi­cles are planned, from car­go planes to sur­veil­lance drones, almost 75 per cent of the mon­ey went to com­pa­nies devel­op­ing manned elec­tric ver­ti­cal take-off and land­ing (eVTOL) craft.’[2]

It is much hard­er to find fig­ures report­ing where the oth­er 25 per cent goes, or on invest­ment in the phys­i­cal infra­struc­ture (in addi­tion to air traf­fic man­age­ment sys­tems, insur­ance prod­ucts, etc.) that will enable peo­ple to actu­al­ly use these air­craft when avail­able – this infra­struc­ture being pri­mar­i­ly ver­ti­ports and charg­ing sta­tions.

On this basis there seems to be a gap between invest­ment in the air­craft and invest­ment in the air­craft sup­port net­works, sug­gest­ing that there is a risk that even if eVTOL air­craft are devel­oped and cer­ti­fied for pas­sen­ger trav­el from 2023, the infra­struc­ture to enable them to be used will be sev­er­al years behind. This weak­ens the use case for eVTOL air­craft them­selves, reduces the like­li­hood of pub­lic accep­tance build­ing demand for the prod­uct, and makes them a less attrac­tive invest­ment propo­si­tion over­all.

But what are ver­ti­ports?

Like air­ports, ver­ti­ports will be a con­gre­ga­tion of cus­tomer and mod­el-agnos­tic elec­tric air­craft and advanced air mobil­i­ty sup­port ser­vices, from tick­et­ing, board­ing and load­ing to charg­ing and main­te­nance. McK­in­sey describes three main vari­eties of ver­ti­port as:

·         ‘Ver­ti­hubs’, being the largest and most com­plex vari­a­tion, as a stand­alone struc­ture includ­ing mul­ti­ple spaces for take-off, land­ing and park­ing, main­te­nance and poten­tial retail facil­i­ties, cost­ing an esti­mat­ed $6 mil­lion – $7 mil­lion to con­struct and $15 mil­lion – $17 mil­lion annu­al­ly to oper­ate;

·         ‘Vert­ibas­es’, which could be new­builds or fit­ted onto exist­ing rooftops, and would have about three spaces for take-off, land­ing and park­ing and main­te­nance. These would cost an esti­mat­ed $500,000-$800,000 in con­struc­tion and $3 mil­lion – $5 mil­lion annu­al­ly to oper­ate; and

·         ‘Ver­ti­pads’, being the small­est of the vari­eties. Like vert­ibas­es these could also be new­builds or retro­fits, with a sin­gle take-off and land­ing space and lim­it­ed space for park­ing or main­te­nance. These are esti­mat­ed to cost $200,000 – $400,000 in con­struc­tion and $600,000 – $900,000 annu­al­ly to oper­ate.[3]

A rea­son­able amount of lead time will be need­ed to estab­lish loca­tions for these infra­struc­ture mod­ules, par­tic­u­lar­ly where they are to be retro­fit­ted onto exist­ing build­ings (such as urban rail­ways sta­tions, res­i­den­tial build­ings, car parks, shop­ping cen­tres, office tow­ers, etc.), even if the con­struc­tion can be com­plet­ed rel­a­tive­ly swift­ly.

Whether ver­ti­ports are con­sid­ered assets or lia­bil­i­ties by land­lords will depend on the noise eVTOL air­craft ulti­mate­ly gen­er­ate, whether changes are need­ed to make the facil­i­ties more acces­si­ble to new users of the prop­er­ty, the effect on local traf­fic, the sophis­ti­ca­tion of air traf­fic man­age­ment sys­tems, and so on – so there is a sub­stan­tial ‘social­is­ing’ process to be worked through here to ensure ver­ti­ports are accept­ed with­in the com­mu­ni­ties they are intend­ed to serve.

An attrac­tive asset class…?

Ver­ti­ports might well be attrac­tive invest­ments because, as co-founder and CEO of Sky­ports, Dun­can Walk­er, has observed, while the eVTOL air­craft them­selves will either suc­ceed or fail based on whether or not they receive cer­ti­fi­ca­tion, mod­el-agnos­tic infra­struc­ture is not depen­dent on a sin­gle piece of tech­nol­o­gy: ‘Com­pa­nies sup­port­ing the ecosys­tem are attrac­tive invest­ment propo­si­tions with­out sin­gle tech­nol­o­gy bets, which may give them greater poten­tial for suc­cess’.[4]

As Electro.Aero’s CTO Josh Port­lock described on the ‘eVTOL Insights’ pod­cast, we have the oppor­tu­ni­ty in elec­tric avi­a­tion to design out prob­lems aris­ing in exist­ing indus­tries, from dif­fer­ent plugs being used in dif­fer­ent coun­tries, vari­a­tions in the pow­er avail­able from local grids, the acces­si­bil­i­ty of charg­ing units for vehi­cle of dif­fer­ent wing spans or rotor blade heights, etc.

For exam­ple, learn­ing lessons from the expe­ri­ence of elec­tric cars in par­tic­u­lar, the SAE AE-7D Air­craft Ener­gy Stor­age and Charg­ing Com­mit­tee is devel­op­ing stan­dard AS6968, which ‘ensures that elec­tric air­craft can be charged by one con­sis­tent inter­na­tion­al­ly-accept­ed stan­dard, with­out the region­al and brand-spe­cif­ic incom­pat­i­bil­i­ties seen in the auto­mo­tive indus­try’.[6] 

This means stan­dard-com­pli­ant hard­ware will have to be incor­po­rat­ed across all eVTOL air­craft mod­els, charg­ers and ver­ti­ports. Col­lab­o­ra­tion between ver­ti­port, charg­er and air­craft man­u­fac­tur­ers at the design and devel­op­ment stage will there­fore be crit­i­cal to ensure that all three are com­pat­i­ble ready to go to mar­ket at the same time – which means that invest­ment is need­ed across these cat­e­gories, not just into air­craft devel­op­ment.

Mon­ey in motion

It seems inevitable that invest­ment in ver­ti­port and sup­port­ing infra­struc­ture will ulti­mate­ly be made, despite any cur­rent lag behind invest­ment in the air­craft them­selves. Walk­er fore­casts move­ment in the next 12–18 months, pre­dict­ing that ‘pri­vate equi­ty investors will come first and once the infra­struc­ture proves its steady rev­enue streams, low­er risk investors such as pen­sion funds will come into play in a very big way’.[7]

With pur­pose-built ver­ti­ports able to accom­mo­date local options for green pow­er gen­er­a­tion (such as solar and wind) to cre­ate the elec­tric­i­ty need­ed to charge the air­craft, be retro­fit­ted to exist­ing struc­tures, and cre­ate new jobs in a more sus­tain­able avi­a­tion indus­try, it is easy to see the appeal – pro­vid­ed cus­tomer demand mate­ri­alis­es in due course – to investors of these assets.

And with pow­er­ful voic­es like the Chair­man and CEO of Black­Rock urg­ing action in the deploy­ment of cap­i­tal­ism to achieve sus­tain­abil­i­ty,[8] it is to be hoped that momen­tum in ver­ti­port finance will build to ensure that eVTOL air­craft and their sup­port­ing infra­struc­ture are ready to meet the mar­ket togeth­er.

[1] https://www.ft.com/content/d12b3b28-5472–4905-bc4e-4e116b2ff498

[2] https://www.ft.com/content/d12b3b28-5472–4905-bc4e-4e116b2ff498

[3] https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/to-take-off-flying-vehicles-first-need-places-to-land

[4] https://www.rolandberger.com/en/Insights/Publications/Vertiports-The-fundamental-service-provider-to-the-Advanced-Air-Mobility.html

[5] https://evtolinsights.com/2021/07/evtol-insights-podcast-josh-portlock-and-darren-smith-of-electro-aero-offer-insight-into-aircraft-charging-systems-and-infrastructure/

[6] https://www.electro.aero/faq

[7] https://www.rolandberger.com/en/Insights/Publications/Vertiports-The-fundamental-service-provider-to-the-Advanced-Air-Mobility.html

[8] https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter

——

About the author:

Ash­leigh has sig­nif­i­cant expe­ri­ence in avi­a­tion, act­ing on a range of inter­na­tion­al trans­ac­tions for bank and non-bank lenders, lend­ing syn­di­cates and facil­i­ty agents, lessors and air­lines.

She has worked in Syd­ney, Tokyo and Lon­don and has been involved in senior and junior debt financ­ing for air­craft, con­ven­tion­al JOLCO leas­ing, and engine leas­ing and finance.

Her role has includ­ed nego­ti­at­ing and prepar­ing finance and lease doc­u­men­ta­tion for lenders and lessors, refi­nanc­ings, man­u­fac­tur­er pur­chase orders, restruc­tur­ing secu­ri­ty arrange­ments for lenders deal­ing with bor­row­ers seek­ing bank­rupt­cy pro­tec­tion, as well as var­i­ous sales, pur­chas­es, nova­tions and engine swaps.