Clean-propulsion start-up OEMs should prioritise raising new funding earlier, a prominent aviation venture capitalist warned at the Ishka Airfinance Global Horizon conference last week, noting that in the current market, an 18-month cash runway is the right point to begin.
The one-day event in London was Ishka’s fifth sustainability-focused conference and the first to feature a dedicated Future Flight Forum, which brought together clean flight market-enabling stakeholders, from early investors and OEMs to future operators and financing parties. This report, the first in a three-part summary of conference takeaways, unpacks key themes from the Future Flight Forum.
‘Six to nine’ months ‘at a minimum’ to raise funding
New propulsion OEMs looking to raise funding should not underestimate how long it may take them, a prominent aviation venture capitalist told the conference, citing “notable” examples of aviation start-ups that ran out of cash due to poor fundraising preparation. “It takes six to nine months at a minimum at this point to raise a big round right now in today's market […] in my opinion, in this [early funding] stage, you need to be fundraising when your [cash] runway is 18 months,” the person commented.
Another aerospace venture capitalist agreed, noting that “anything can happen” to available capital in the market – “we had Covid, we’ve currently got a war […] so you need to always have bought yourself the time to deal with that.”
An investability checklist for start-up OEMs
The two panellists and others also listed the main factors drawing them to invest in new propulsion technology OEMs.
Top reasons included a deep understanding of the certification environment, early engagement with certification authorities, access to seasoned industry advisors, compelling novelty factors behind their technology, founders’ preparedness to stand behind the company in the long-term, and whether the investee owns or is developing a large IP portfolio. Bates, formerly Boeing’s leading venture investor, recalled how, during her time at Boeing, the US plane maker brought strategic value to sustainable aviation start-ups by facilitating regulatory awareness and connections.
A chief investment officer at a new propulsion OEM highlighted two other ways to attract investment. One was influencing policy and certification pathways – the company is known for advancing hydrogen propulsion engagement with certification authorities. The other is technology application flexibility, where the speaker highlighted defence applications.
Panellists also highlighted the role of government funding in creating investment signals through grant allocation. To underline the point, the CIO drew a link between a public funding-backed first demonstrator project in the early 2020s and the firm’s success with a Series B funding round.
Operators come to terms with route creativity, aircraft downsizing
Another panel brought together airlines exploring clean propulsion or planning to operationalise new technologies in the near term. Most agreed that, for clean propulsion to meaningfully contribute to decarbonising today’s commercial aviation, fleet planning will need to be creative, embracing strategic aircraft downsizing where it makes sense.
“If we're looking into new propulsion aircraft, we have to get creative to understand how the entrance into the markets could be feasible,” commented a flag carrier representative. While the airline’s smallest aircraft at present seats up to 88 passengers, they see a potential for smaller, cleaner aircraft to bypass capacity caps at its hub while replacing some low-load-factor routes with more frequent services.
“As long as we see [new propulsion technology aircraft] as a [direct] replacement, it’s not going to come to market, that’s the way it is,” agreed the representative for a European regional carrier.
A large European regional airline was in a more suitable position, with a fleet of both large and small turboprop aircraft. Its fleet director sees a role for new technologies to replace or retrofit small turboprops in its network, as well as to enable new routes or increase frequencies on routes served by larger aircraft. Purely “speculatively,” the fleet manager shared, there could be a case for existing island hop flights– currently flown by ATR aircraft – to become an “electric” air taxi shuttle service.
Besides these airlines, the panel included the CEO of a new operator expected to become the launch customer of the cargo version of battery-electric aircraft. More details on the company’s plans will follow in a separate Ishka SAVi report. The forum also heard how Eurocontrol, a pan-European agency, is engaging with new propulsion OEMs to understand the air traffic network needs of the future.
More insight needed into residual values, maintenance costs
One of the more distinctive panels at the Future Flight Forum brought together a group of voices grounded in commercial reality: an insurance underwriter, the head of sales at an emerging propulsion OEM, and an aircraft lessor. The overarching belief across them is that, barring a few obstacles, and once certified, new propulsion aircraft and technologies can become insurable and investible assets.
Asked whether lessors are in “scouting mode” or moving towards dealmaking in new propulsion, one regional aircraft lessor acknowledged that last year’s Space Leasing International’s (SLI) deal with BETA Technologies may suggest readiness to place speculative orders, but other leasing platforms like itself are still waiting to see which new OEMs will ultimately “be producing” aircraft.
“For us, at the moment, we interact with a couple of OEMs and see what they’re doing and have conversations with them about what the operational setup could be […] at the moment, to really invest in these aircraft for us it would be very difficult.” They described that, as a leasing company, it takes a “conservative” view on residual value confidence or the long-term value split of new airframes and batteries, and needs to see signs of asset liquidity to take on possible aircraft remarketing risk.
The head of sales at an electric aircraft OEM, conscious of these uncertainties, shared that it is engaging with the appraiser community to address aircraft valuation challenges that come with new technologies, such as the role of improving (and appreciating) battery technology over time.
An “energy-by-the-hour” concept, potentially similar to Rolls-Royce’s power-by-the-hour maintenance contracts, is also being considered. “We are going to be swapping batteries out maybe every two years, so it’s a significant part of the business that we need to solve for […] the general takeaway is that the airlines and the operators they want to keep the battery with the OEM,” the new OEM representative added.
Covering the insurance considerations, an advanced technology underwriter said there is “readiness” and “appetite” by the London insurance market for new propulsion technologies. “We personally have been insuring advanced aircraft in the test regimes for at least three years,” they noted. This includes aviation liability insurance, which they said can be found “at a fairly reasonable rate” pending greater data on estimated losses.
“If there's one thing [missing in clarity], it's repairability. No one is yet giving us much comfort that repair costs are going to be reasonably affordable, which we just have to factor into the insurance pricing, because it might be slightly higher, because there isn't a global network of MRO capability if somebody backs a pickup truck into the side of a small composite aircraft,” they added.
The Ishka View
The first Future Flight Forum gave access and visibility to some of the leading stakeholders working to make commercial clean propulsion aviation a reality in the next few years. The discussions took stock of funding difficulties faced by some start-up OEMs, approaching certification targets by some pioneers, and the preparedness of supportive parties to fund and insure these assets.
The funding challenge by new OEMs remained the centre of attention across several discussions. Bringing a new aircraft to market – from design, to certification, industrialisation, and building a support network – remains a high cost, as covered by a senior aviation consultant during their presentation: $500 million to $1 billion “at minimum”. At present, few start-up aircraft OEMs have raised funds anywhere near those targets. There was, however, some optimism around when and how investor interest could be reignited. Two aerospace venture capitalists both believe that the approaching roll-out of early e-VTOL operations could “catapult” investment in the space.
Of course, the next generation of propulsion technologies is not just being led by VC-funded start-ups, established OEMs will also play a key role. The forum also heard how ATR is working with partners to derisk hybrid propulsion technology ahead of a 2029 demonstrator flight, and targeting a 30% reduction in CO2 emissions.
