The futuristic allure of an electric vertical takeoff and landing (eVTOL) taxi service appears closer than ever to reality. Archer Aviation (ACHR 1.82%) has announced that it's received the "Part 135 Air Carrier & Operator certificate" from the U.S. Federal Aviation Administration (FAA), allowing it to begin commercial operations.
Don't grab your carry-on just yet, as Archer's "Midnight" eVTOL aircraft is still awaiting a separate certification. Nevertheless, investors should welcome this development, with the company reaffirming 2025 as its target to debut passenger services.
With shares of Archer Aviation currently trading near a 52-week low, every bit of good news can help. So is the stock now cleared for takeoff? Here's what you need to know.
The vision of an Urban Air Mobility network
Archer Aviation is making progress toward launching its vision for a global Urban Air Mobility (UAM) network. The Midnight eVTOL is seen as a game changer for transportation, capable of carrying four passengers and a pilot at speeds of up to 150 miles per hour.
The concept addresses traffic congestion by offering another option for customers looking to save time moving across large cities. Archer is planning the initial service for markets like New York City and Los Angeles, as well as Dubai in the United Arab Emirates internationally.
In contrast to a helicopter, the all-electric Midnight is designed with a high level of redundancy in its propulsion system to maximize safety. The technology is also quiet, allowing eVTOLs to operate in areas otherwise not feasible for traditional aircraft.
Notably, Archer flew more than 100 flights in the first quarter for testing purposes. The latest update is the completion of an inflight transition, where the Midnight performed a vertical take-off before accelerating forward with its wing-borne capabilities and landing vertically again.
Image source: Archer Aviation.
These types of operational milestones are part of the FAA's final implementation phase of aircraft certification. The next steps include piloted demonstrations later this year.
Archer has partnered with automaker Stellantis for the construction of a high-scale manufacturing facility. The expectation is that the global opportunity for Archer's taxi service could support the need for hundreds or thousands of Midnight aircraft over the next decade.
Archer is also working with United Airlines as a launch customer, for short-range connecting flights with the eVTOL. Down the line, people should be able to book a flight through a direct-to-consumer mobile app following a model similar to ground-based ride-share leaders like Uber Technologies.
Archer Aviation still has a lot to prove
As compelling as the opportunity in eVTOL taxi services appears, the reality is that Archer Aviation has yet to generate any revenue, and the timetable to execute its commercialization strategy faces significant uncertainties.
The main risk to consider is that the 2025 goal of launching may get pushed back, amid a regulatory setback or due to the logistical challenges of entering this new market category. With a current market capitalization of $1 billion, the company will need more good news and likely some luck to realize its full potential.
ACHR Market Cap data by YCharts
Archer benefits from a $413 million balance sheet cash position against just $34 million in total debt. At the same time, it's understood that this liquidity position won't last indefinitely, with an outlook for recurring losses and negative free cash flow for the foreseeable future.
Assuming the Midnight aircraft moves through its certification process smoothly by next year, there is a path for growth to accelerate rapidly, but profitability could be much further out.
There's a question as to what scale will be necessary for the operation to be self-sustaining, given the extensive investments required to both build out a fleet of eVTOLs and operate the taxi service. Archer will also need to deal with competition in the space, including from Joby Aviation, which is also making progress with its own eVTOL aircraft certification process.
Time before takeoff
I'm optimistic that Archer Aviation can take flight, but it's also important to keep expectations grounded. The company is off to a solid start in 2024, but that may not be enough to consider the stock a good investment right now.
Shares can certainly rally from here, but I believe it's too early to turn very bullish. Investors buying into Archer Aviation today will need some patience with a long-term time horizon. I expect that the stock will remain volatile until the company can prove its business model works.
