Dear Fellow Utopia Skeptics,

There’s much about the Tech Industry today that I don’t get. Cryptocurrencies seem useless to me, except for pure speculation or criminal activity. Artificial Intelligence looks way overblown. Most tech transportation schemes, from Segway to Hyperloop, straddle the line between goofy and deceptive – less a Hype Cycle…more like a Hype Flight Into Terrain. As I’ve chronicled since my May 2018 letter, much of the AAM/UAM/eVTOL wave looks like a classic bubble.

Most of all, I don’t understand investor thinking about Tech – or maybe I do. It seems to involve a gaggle of lemmings throwing cash at a bunch of dubious ventures, knowing that most will fail, but one or two will become “like Uber, for something.” But there were two jarring developments this summer: (1) a stock market dip attributed partly to investor fears that tens of billions of dollars invested in AI won’t result in commensurate revenue or returns any time soon, or ever, and (2) Hanwha’s write-off of its $101 million investment in would-be eVTOL maker Overair (as reported by The Air Current). The latter development follows the recent death of Universal Hydrogen, a dubious AAM concept involving giant Hydrogen Nespresso cartridges shoved inside a Dash 8, or something.

With all this in mind, I wonder how this AAM/UAM/eVTOL thing unfolds. I have no answers, of course; but I do have five questions about how this plays out:

1. When will an eVTOL, or anything AAM, actually enter service? Great question! The answer always seems to be, “Two years from now, in Dubai!” So many fond memories of past times yet to come! Here’s a funny eVTOL memento (with some delightfully goofy forecasts) from five years ago. But fear not: Joby earlier this year announced that it would start up an eVTOL service in Dubai in about two years. This summer’s Paris Olympics was the most recent disappointment, with Volocopter failing to live up to dubious promises. I guess I’m not being fair. It isn’t always Dubai that doesn’t get eVTOLs. Sometimes, other places don’t get eVTOL service, too.

2. When will investors lose patience? Or, how many two-year waits for Dubai eVTOL service can they tolerate? Hanwha lost patience, but there are no signs of an AAM sector collapse. There are still hundreds of startups, cheerfully burning through piles of money (memo to the Tech crowd: try buying aerospace components with Bitcoin) and raising more. Universal H2 is dead, but it’s telling that investors funded them as long as they did. Even Boom, the consummate harebrained Tech Bro AAM scheme, is still well-funded (judging by their Farnborough chalet) and working hard on the world’s first cash-burning jet engine. The AAM bubble might take years to deflate. Or it could pop tomorrow. There’s no way to predict. But thanks to that lemming-like tech investor behavior, a slip might become a slide.

3. How many eVTOLs does the market need? I’m not saying, “How about zero? Does zero work for you?” If eVTOL tech actually works, then eVTOLs do have the potential to stimulate the light rotor market. Or not. They’ll cost less to operate than light helicopters, but their unit costs look significantly higher than medium helos. Recently, our Aviation Week friends doubled their eVTOL forecast to 2,000 deliveries by 2030. This forecast is higher than ours. But even if it’s correct, it means that most eVTOL companies will fail in the coming few years. That volume is just not enough to sustain the many scores of aspiring players.

For precedent, consider the Very Light Jet/air taxi craze of the 2000s. Many expected demand for thousands per year – Eclipse, a cursed name from the past, had a business case dependent on 750 jets annually. The 2006 FAA forecast called for 5,000 VLJ deliveries by 2017. At Teal Group, I forecasted ~300 per year. Well, over the last ten years, 691 VLJs and personal jets were delivered (mostly from Cirrus), resulting in many bankruptcies and billions of dollars lost. That might be a rehearsal for the coming larger eVTOL crash.

4. What will survive? A “good” bubble outcome, like railroads in the 1800s or e-retailing after the 2001 tech crash, sees many bankruptcies and lots of money lost by investors, but salvageable technology, infrastructure, or even businesses, after reorganization. There are some good AAM ideas worthy of survival. A few of the eCTOL companies offer interesting concepts. A few eVTOL players (Wisk, Joby, etc.) might have useful autonomous flight technology. Novel avionics architectures combining highly integrated cockpits with compact fly by wire or low cost controls could survive. Also, the light rotorcraft industry could be revitalized by a few successful eVTOL companies (again, after bankruptcy reorganization).

But many AAM creations, like Universal Hydrogen or Boom, are just value destroyers, and nothing else. On the positive side, the people involved in this nonsense can then go and get real jobs at real aerospace companies, helping to alleviate a tight talent market.

5. What are the broader implications of an AAM collapse? The stock market was spooked by the prospect of an AI correction, but an AAM collapse would likely have much less impact on the broader economy. The scale is completely different: AI investment came to a total of $106 billion in the first six months of this year alone, or many times the amount of cash thrown at AAM (our friends at Alton Aviation recently estimated $14 billion, so far).

A lot of AAM investment also came from diversified funds, governments, and anyone else following that weird tech investment model (Hanwha, as an AAM investor, was likely an exception, but it’s in healthy shape), so I don’t think future write-offs will ruin anyone. I also doubt that even mass AAM bankruptcies would produce an investment chill in our industry. The investors burned by AAM aren’t the sort of folks who invest in legacy aerospace.

But, perhaps, in a few years, people might survey the AAM wreckage and decide, just for once, to actually think before they invest.

Yours, ‘Til Pyongyang Gets The World’s First eVTOL Service,

Richard Aboulafia