Advanced Air Mobility: An Untapped Market Using Existing Technology


Last month, Archer Aviation pitched bringing air taxis to LA to help alleviate traffic on our freeways, but how much of a reality is this future method of air travel? In this panel from the 2022 Motivate Vancouver conference, titled Advanced Air Mobility Prepares for Takeoff, both aviation operators and investors speak to the innovative future for air travel. Panelists include Danny Sitnam of Helijet International, Ben Howard of Kinect Air, Catherine Kolimas Schorn of Goldman Sachs (pictured), and Robert McKinney of Ravn Alaska and was moderated by the Canadian Advanced Air Mobility Consortium’s JR Hammond. VX News offers this panel excerpt in which leaders in advanced air mobility discuss both short and long-term opportunities to expand the industry’s target market and further its sustainability goals.

JR Hammond: If you haven't heard about advanced air mobility, I wanted to give each panelist space to give your own definitions. Why don't I kick it off with Danny?

Danny Sitnam: I'm Danny Sitnam, President & CEO, for Helijet International. We're mostly in the vertical wing operations. We operate an airline service to Victoria and Nanaimo. Our interest is to  grow the network with our partners, such as Blade Urban Air Mobility out of New York, to bring down the cost, and become a little more sustainable using vertical lift technologies. We're really focused on AAM (advanced air mobility), where the technology is going, and where the infrastructure is required. Advanced air mobility, to me, is talking about less friction in the air and opportunity for everyone to use air as a mode of transport, as opposed to the two or three percent that use it today.

Ben Howard: I'm Ben Howard with Kinect Air. AAM, to us, is making private aviation accessible to the public. Kinect Air is doing the infrastructure layer of what will allow the public to connect to the analog world of aviation today by digitizing it and making it a lot more efficient on the sustainability side.

Catherine Kolimas Schorm: I’m Catherine Kolimas Schorm, I am a managing director within the investment banking division at Goldman Sachs. I primarily focus on the transportation-aviation industry more broadly, including the commercial legacy side of the business. I also co-head our aviation technology effort.

When we think about AAM, we take a very holistic approach. We think about the next generation of aircraft tech, enabling technology suppliers, infrastructure developers, software developers, and the investors and strategic capital providers that ultimately support this space.

In general, as an investment bank, we are here to provide the matchmaking between capital providers and innovators and emerging businesses. We are very excited and enthusiastic about supporting this innovation getting off the ground.

Robert McKinney: I’m Robert McKinney. I'm CEO of Ravn Alaska, but I'm also representing Northern Pacific Airways. Advanced air mobility is really important to us as far as not only the health of our planet and being good stewards, but also from an economic standpoint. It makes good economic sense to be able to bring air service to more people at a more affordable cost, so that more people can actually participate in aviation.

JR Hammond: Before we get deeper into this conversation, I think it's important for everyone in the room that isn't deeply involved in the aviation sector to understand some of the past work. I wanted to pass it over to Catherine to give a bit of where we are and where we're going.

Catherine Kolimas Schorm: I think about the growth and evolution of the industry through the lens of capital flows. Innovation in the aviation industry is not new. It's the heart of this industry. We have looked to and relied on traditional players to innovate over time, but over the last five to ten years, we've seen the emergence of separate, standalone businesses. Engineers that are coming out of other ecosystems that have innovated and are setting up a new lens. If we look from 2015 to 2020, we saw deals that were primarily supported by venture capital providers increase over 120 percent. That's quite extraordinary.

In the absence of that acceleration of capital deployment, we probably wouldn't be sitting here today. It's been able to support the introduction of new solutions, new areas of innovation, as well as new potential operators. Infrastructure has given cause for this industry to be thinking more holistically and partnering with each other.

Today's market is a slightly different story, but we still continue to see capital providers be quite constructive here. From our perspective, it gives us a lot of confidence in the success of the future of a lot of these technologies that will ultimately lay the foundation for AAM.

JR Hammond: As we talk about capital inflows, it's great that we have a few operators here to talk about the tangibility of this industry. When I first came into AAM, flying cars sounded really far off. For some, it may still be a way off. I wanted to hear more from each of you about tangibly, what are the business models to adoption of more transition in the aviation sector?

Ben Howard: For us, our model is connecting the existing aviation is infrastructure to the public. Airplanes just sit in a hangar, right. There's a huge supply availability that we can absolutely make more accessible to people. When people start making it a thing that they can depend on or a part of their mobility toolkit, there's a huge business model there. As the future comes with EV and other tech, people can fit this into the repertoire of the way they travel.

Robert McKinney: One of the things people don't realize if you're not an operator is the cost of overhauling a gas turbine engine. On a small Cessna, it is a $400,000 overhaul. On midsize aircraft, it's a million dollars. When we started looking at hydrogen or EV solutions, that offered a direct operating cost that was lower as much as 35 or 40 percent. It actually physically moves the financial needle for us. It's not just because it's the right thing to do; it’s the smartest financial thing to do and makes it so that we can offer service into lower-yield cities that don't have air service now.

Danny Sitnam: What we're seeing here is a crawl-walk-run arrangement. When you talk about tangible opportunities today, we can become better at using soft fuels. If we can start using biofuels in our aircraft today, we're cutting our footprint down by 80 percent. That's easy to do if we can get supply and storage.

Another example is the technology that we're looking at and the opportunities for hybrid technology that's coming along: our good friends at Harbor Air are electrifying the engines on their sea planes. That's a great start to move forward using conventional aircraft, but why not change the engines in helicopters as well and start greening that way?

Catherine Kolimas Schorm: Everything said is spot on. It depends, as an investor, where you're trying to play the space more broadly. If you're thinking about near-term opportunities, you need to look for the steak through the sizzle. We're in a marketplace where everyone's looking for what is the tangible value today. Solutions around alternative fuel sources are definitely something the industry is focused and invested in. For the investors in the room, that's where you have a whole ecosystem that is laser focused on coming up with those answers now.

Then, you have the medium and longer-term innovators that are focused on electrification or autonomy. Not only is decarbonization a part of ESG, it’s a part of margin expansion and bringing costs down. There's real shareholder value created if you're able to bring down certain key operating cost components. Although those are further afield, the impact of making air travel services more accessible, let alone the social impact, is a huge marketplace. There's plenty of infrastructure today that's not being leveraged that can be utilized there.

Ben Howard: The margin expansion is a big one. In scheduled airlines, you've optimized that schedule in a way that it stays full because it's expensive to fly empty aircraft. For us charters, it is the other way around, where half the time the aircraft is empty. For us, the margin expansion is filling those empty legs. The green side of that is we're not burning fuel with nobody on the plane. We've got some options where we can bring down the price and increase margin to make it more accessible.

JR Hammond: When I got into this industry, everyone was talking about flying cars and how far it was going to grow. Then, I started learning about the regulatory frameworks and the barriers. I would love to hear more about the future of this industry from you as an investor and operators.

Catherine Kolimas Schorm: I initially was talking about the early capital flows that we saw sort of over the last five to eight years. Today's market is more challenged, with new risk factors that investors were focused that are geopolitical, inflationary, and recession, that have created a slowdown in the public markets.

What we're seeing on the private market side is still fairly constructive. Processes are being elongated, and investors are using additional time to be diligent on certain risk factors that were a little bit less of a focus. What have we seen investors focusing more on is everything from bottom line, having the right team, how advanced the development of the technology is, and what's the value in the technology. We've seen some incredible teams shine with investors spending time and being even more partnered in terms of getting the business off the ground or bringing the right ecosystem of industry partners to support them.

Danny Sitnam: What we're seeing through the Canadian Advanced Air Mobility Consortium is trying to get some visual progress sooner than later. Everybody's hungry to see the technology move and see the benefits of it. One of the best ways, as a consortium, is to look at certain sectors. Healthcare is a big one. We want demonstrate these technologies are helping people, more so than just buying a ticket to go to Victoria or Nanaimo. We’ve got to break that psyche, and healthcare is one way where we can prove the technology and advance it. Today, for instance, we move organs for BC Organ Transplant. Our partner Blade is one of the largest med mobility companies now in the United States.

Ben Howard: For us, making the industry transparent is close at hand that we can do. There’s got to be a mind shift where people think about it and can check it again next time to see if it'll be cheaper. Making it transparent from the economics, but also like the sustainability side of it is important. We can say that it is an electric or hybrid flight, then the user can make choices and start to think about how they would fit that sustainability priority into their travel budgets.

Robert McKinney: To echo, it's super important to get technology out there and get it into use. That's why traditionally we've been really full support of these companies that modify existing aircraft because in aviation, you always have to look through the lens of regulation. As much sizzle is out there with all these cutting-edge technologies, we are big believers of perfect can't be the enemy of the good. We believe in the retrofitting of existing aircraft. The sooner we get that technology out there and the public gets used to it, that's going to accelerate the next step.

JR Hammond: Given your positions as operators or investment bankers, what are some things you would want this group to know about?

Catherine Kolimas Schorm: For those that are operators and innovators, as well as those who are investors, knowing that there is still significant capital out there that is constructive in this ecosystem. What's exceeded my expectations is the incredible support of the more traditional elements of the industry to either invest in, partner with, and help a lot of these businesses move forward. That, married with capital that's willing to take the time to understand the value proposition of the technology or the specific market that's been underdeveloped, is really constructive.

For those who maybe feel a more weary because of the market backdrop, I’d say that high quality blue-chip investors alongside Amazon and others speaks to the fact that even in today's environment, if you have the right team, there are real opportunities for capital to be deployed.

Danny Sitnam: Along the same lines, one thing that investors should consider too is government. There’s strong participation in British Columbia and in Canada with PPP’s. It is an opportunity for private capital to come in and not take all the risks because the government wants this. The government support is going to take about 60 to 70 percent of that number out, so we're having to put 30 or 40 percent.

Robert McKinney: As someone who purchased a bankrupt airline in the middle of a pandemic, I know a little bit about risk. I do believe that there are so many exciting things right on the cusp of happening. It's going to take capital to push it over the over the finish line.

I really look at economic hiccups as opportunities. This space is a perfect way to approach that because the technology is moving forward, and it needs that capital to help get it across the finish line. Not only will we better as operators because it's more economically efficient, but we're going to be better as a society because we'll be more green. This is an excellent time to strike while the iron is hot and make a big difference.

Ben Howard: I’d really echo that opportunity in that people have spread out more in the last two years. They're less close to their international airport. They also value their time differently. There's a huge demand now for advanced air mobility because it's one of those things that people actually would consider it for reasons that they wouldn't have before. There's a huge pool of folks who are now in the market for it that weren't before.

JR Hammond: We're seeing all of these different transportation modes start to integrate more with their tech stack and create more intermodal journeys. Aviation has typically been in its own silo. Where do you see advanced air mobility fitting in the new transportation mix?

Ben Howard: That one’s huge for us. As you start to fly private, you're going to smaller airports. Transportation on the ground matters a whole bunch in figuring out how to get from door to hangar to where they need to go. Is there Uber on the other side? Can I rent a car? We have to know those kinds of things to make that journey possible. That's what makes it door to door transportation. That's what we're all looking for. I don't want to fly somewhere; I want to be somewhere.

Danny Sitnam: That's exactly right. Intermodality is where it's at for us. It's got to be intermodal where someone who gets off the aircraft can take the bus to North Vancouver or take the train out to Port Coquitlam. Intermodal mobility is so key to the transportation system where you can buy one ticket and just get to your final destination.

Robert McKinney: Our model to get people off the roads in Southern California was to fly them to work. We were making great traction as we’d come up on March of 2020 because we were starting with companies that were located within a half a mile or so of these general aviation airports in Southern California. which was great. Once we would have expanded, the integral part would have been that last-mile problem. How do you get that person on to their job would have been super critical to the business model. Technology is just going to be so critical going forward so that we don't have people sitting in traffic in cars for hours.

JR Hammond: There's been a lot of talk today about the 15-minute city and about creating more livable cities. This really ties into that idea that we can't just think about electrification of airplanes or building an app, we need to think about the entire user experience and how that benefits the citizens. Any other comments on this point?

Catherine Kolimas Schorm: One thing I would echo is how much this feeds into, in the US, trips that are done somewhere between 50 to 500 miles—93 percent of those trips are done in the car. It's not for lack of infrastructure. 90 percent of the US population lives within 30 minutes of a general aviation airport. Compare that to only 50 to 60 percent in similar proximity to larger commercial hubs. There is this ecosystem of infrastructure that is ready to be tapped. There are a lot of reasons if you look at our history in the industry that either regional or charter carriers have pulled back from operating in a lot of those locations. Basically, the economics didn't make sense.

New operators that are focused on bringing that market back to life and coming up with the cost-efficient way of doing it to make it viable, profitable, and then ultimately scalable feels like a low-hanging fruit area of innovation. We talk so much about EV and UAM, which is extraordinary as well, but there's also this whole ecosystem that can be tapped without new infrastructure and with existing, certified aircraft. I think that's an area which maybe has gotten a little less sizzle, but it's actually very near-term tangible if we can bring some of these technologies and operators forward.

"Not only is decarbonization a part of ESG, it’s a part of margin expansion and bringing costs down. There's real shareholder value created if you're able to bring down certain key operating cost components. Although those are further afield, the impact of making air travel services more accessible, let alone the social impact, is a huge marketplace."—Catherine Kolimas Schorm