Investment opportunities in eVTOL: Reed Smith analysis on the market readiness in Singapore and Southeast Asia

By Julia Norset­ter, Manoj Purush and Simon Spells, Reed Smith LLP

The avi­a­tion indus­try has had sig­nif­i­cant shifts in the prof­itabil­i­ty of dif­fer­ent sec­tors over the past sev­er­al years.  The COVID pan­dem­ic brought a sig­nif­i­cant decline in air pas­sen­ger trav­el, but rapid growth in the air freight mar­ket as e‑commerce rose sig­nif­i­cant­ly. 

It was no sur­prise, then, to see an increase in invest­ment activ­i­ty in air freight, as oper­a­tions turned record prof­its.  Since air freight rep­re­sent­ed a new sec­tor of avi­a­tion for a sig­nif­i­cant num­ber of investors, last year we pro­vid­ed advice on key con­sid­er­a­tions for joint ven­ture invest­ments in the indus­try. As we look towards 2023, avi­a­tion investors desire to seek more envi­ron­men­tal­ly friend­ly tar­gets and we are see­ing an increase in inter­est in anoth­er new sec­tor of avi­a­tion: advanced air mobil­i­ty,
or “AAM.” 

In the near term, many man­u­fac­tur­ers are focus­ing their devel­op­ments on elec­tric ver­ti­cal-take­off-and-land­ing air­craft (eVTOL) for pas­sen­ger or car­go car­riage.  A myr­i­ad of man­u­fac­tur­ers are seek­ing to enter the eVTOL mar­ket, with sig­nif­i­cant invest­ment already occur­ring.  For exam­ple, mar­ket lead­ers like Joby Avi­a­tion and Lil­i­um report­ed in 2021 invest­ments of 1.6 bil­lion and 1.2 bil­lion USD respec­tive­ly.

Avi­a­tion invest­ment: eVTOL and advanced air mobil­i­ty

Sim­i­lar to air freight, investors are seek­ing to form joint ven­tures with indus­try play­ers who are propos­ing to bring new tech­no­log­i­cal advance­ments to the eVTOL sec­tor. 

As with any joint ven­ture, investors will need to clear­ly delin­eate the para­me­ters of part­ner­ships entered into, such as estab­lish­ing the long-term objec­tive of the joint ven­ture, own­er­ship of IP and data devel­oped, ratch­ets, an exit strat­e­gy, and con­trol of the enter­prise. Oth­er impor­tant con­sid­er­a­tions include choos­ing the most tax-effi­cient struc­ture for devel­op­ing the joint ven­ture as well as deter­min­ing
future fund­ing needs and oblig­a­tions.  

Invest­ment in a busi­ness that is look­ing to under­take devel­op­ment of new tech­nol­o­gy brings dif­fer­ent con­sid­er­a­tions for investors who will find that tra­di­tion­al forms of con­trol in such joint ven­tures may have lim­it­ed prac­ti­cal effec­tive­ness when the ‘chef has dif­fer­ent con­sid­er­a­tions for how he/she wish­es to run the restau­rant’.

One aspect of eVTOL invest­ment that is dis­tinct from pas­sen­ger and freight is the man­u­fac­ture and oper­a­tion of the air­craft itself is still in a very nascent stage.  At least ini­tial­ly, nations will have unique air­craft cer­ti­fi­ca­tion require­ments for eVTOL air­craft, even though they may aspire to work towards har­mon­i­sa­tion for the sake of indus­try devel­op­ment. 

Accord­ing­ly, asset investors and own­ers will need to mon­i­tor an eVTOL’s cer­ti­fi­ca­tion progress—that is, in which nation(s) an air­craft is cer­ti­fied to fly.  If an air­craft is cer­ti­fied by EASA for oper­a­tions in the Euro­pean Union, that air­craft will not be read­i­ly oper­a­ble in the Unit­ed States with­out an addi­tion­al cer­ti­fi­ca­tion from the Fed­er­al Avi­a­tion Admin­is­tra­tion.

Sim­ply put, ensur­ing porta­bil­i­ty of an asset should be a key con­sid­er­a­tion for invest­ment as it would have a direct impact on poten­tial growth of the busi­ness. 

Mar­ket readi­ness: Sin­ga­pore and South­east Asia

In our quest to advise on prof­itable invest­ment oppor­tu­ni­ties, we note that cer­tain nations are demon­strat­ing key com­po­nents of mar­ket readi­ness for eVTOL oper­a­tions.  The Euro­pean Union, Aus­tralia, the Unit­ed States, and Asia are all striv­ing to be the first to host eVTOL oper­a­tions; after all, the ben­e­fits of eVTOL oper­a­tions will be seen on many fronts, includ­ing eco­nom­ic, envi­ron­men­tal, and social.

Sev­er­al eVTOL man­u­fac­tur­ers have set their near-term sights on coun­tries in South­east Asia and Sin­ga­pore in par­tic­u­lar, as par­tic­u­lar­ly ripe for swift reg­u­la­to­ry devel­op­ment enabling eVTOL oper­a­tions. 

Indeed, the Sin­ga­pore civ­il avi­a­tion authority’s cur­rent Nation­al Avi­a­tion Safe­ty Plan includes a goal to devel­op a reg­u­la­to­ry frame­work for eVTOL air­craft and ver­ti­port oper­a­tions by 2023.  Urban issues like con­ges­tion and road pol­lu­tion like­ly con­tribute to the Asia-Pacif­ic region’s keen inter­est in enabling eVTOL use.

eVTOL man­u­fac­tur­ers are tak­ing note of the oppor­tu­ni­ties in South­east Asia.  For exam­ple, Volo­copter entered into agree­ments with the Sin­ga­pore gov­ern­ment in 2022 to estab­lish an advanced air mobil­i­ty devel­op­ment park. Fol­low­ing a recent vis­it to Sin­ga­pore, the man­u­fac­tur­er reit­er­at­ed its intent to become the world’s first urban air mobil­i­ty (UAM) provider in 2024, at the Olympic Games in Paris. 

Singapore’s agree­ment with Volo­copter for a devel­op­ment park will pro­vide the its gov­ern­ment
with fea­si­bil­i­ty infor­ma­tion relat­ing about a planned facil­i­ty for eVTOL main­te­nance, repair and
over­haul activ­i­ties in Sin­ga­pore. 

This ini­tia­tive coin­cides with Volocopter’s intent to build six ver­ti­ports in Sin­ga­pore by 2030.  In addi­tion to the agree­ment with Volo­copter, the Sin­ga­pore gov­ern­ment has demon­strat­ed its com­mit­ment to eVTOLs, includ­ing by host­ing a crewed pub­lic test flight over the country’s Mari­na Bay in 2019. 

Oth­er coun­tries in South­east Asia such as Chi­na, Japan, and South Korea have all engage with eVTOL man­u­fac­tur­ers seek­ing to pro­vide ser­vices and infra­struc­ture for AAM and eVTOL oper­a­tions.