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Funding for Surveillance and Cargo Drone Players Up, Program Delays Likely, Says McKinsey’s FAM Report

Arun Sivasankaran - : Jun 22, 2023 - : 8:19 am

Urban air mobility (UAM) companies and their eVTOLS may be hitting the headlines, but investors are now putting their money on surveillance and cargo drone players, according to a new McKinsey report.

A large chunk of the investment in the Future Air Mobility (FAM) industry this year has gone to surveillance and cargo drone players, a significant change from previous years. Surveillance and cargo drone players have accounted for 51 percent of funding year to date (YTD) in 2023, up from less than 15 percent in previous years.

Funding for the sector continues to flow. According to the report made public at the ongoing Show, US$19.8 billion has been raised over the last decade for FAM, with disclosed funding for the sector touching US$4.8 billion over the last 12 months. US$2.5 billion has been raised YTD in 2023, up 15 per cent from the first six months of 2022.

Program delays likely: Public eVTOL companies have an estimated ten to 33 months of cash remaining, based on current spend levels and cash on hand. Some companies could reach certification with their current cash reserves but could still need additional capital to fund the subsequent production phase, the report says. “Further, it will take time for companies to ramp up operations to full scale, limiting revenues from passenger tickets. Finally, program delays are highly common in new aircraft programs; multiple FAM companies have already announced such delays, and more are likely to follow,” it adds.

Reasons for Optimism: Several electric vertical take-off and landing (eVOL) players have made significant progress toward type certification and record numbers of drone deliveries now take place each day, the report adds. Sustainable aviation companies are conducting test flights and hitting technical development milestones.

An increasing number of letters of intent and orders include some form of pre-delivery payments or deposits. FAM companies are also finding new sources of funding, such as military contracts or public partnerships. Additionally, partner agreements with strong manufacturing players could help to spread capital investment costs. “Another reason that funding could continue to flow is that FAM companies are part of a broader push to decarbonize the air travel industry- which is challenging given its technical complexity, certification rigor, and legacy infrastructure,” the report says.

“It is still early days in the industry, and we expect growing momentum as the FAM value chain is built out and OEMs bring new models to market,” the report, authored by McKinsey’s Saskia Boeck, Ann-Sophie von Gaisberg, Stephan Lidel, Sarina Carter, Tore Johnston, and Robin Riedel, says. “Technology and economies of scale will improve products and reduce production and operations costs as the industry matures. The industry is not without risk, but we see many reasons to be positive about its future.”

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