Business Overview and History

Archer Aviation Inc. (NYSE: ACHR) is a leading aerospace company dedicated to designing and developing electric vertical takeoff and landing (eVTOL) aircraft for urban air mobility (UAM) networks. Founded in 2018, Archer has rapidly emerged as a trailblazer in the burgeoning eVTOL industry, showcasing its unwavering commitment to unlocking the skies and redefining the way people move and spend their time.

Archer's journey began in 2018 when a team of experienced aerospace engineers and entrepreneurs set out to create a revolutionary eVTOL aircraft that would transform urban transportation. The company's mission is to develop safe, sustainable, and quiet eVTOL aircraft that can provide efficient, emissions-free flights within and between cities.

In its early years, Archer faced significant challenges in securing the necessary funding and resources to bring its vision to life. As a relatively new player in the industry, the company had to compete with more established aerospace firms for talent and investment. However, the founders remained undeterred and continued to work tirelessly to advance the company's technology and build partnerships with key industry players.

One of Archer's major milestones came in 2021 when the company completed a business combination with Atlas Crest Investment Corp., a special purpose acquisition company (SPAC). This transaction provided Archer with the capital and public listing it needed to accelerate its development efforts. Shortly after, the company announced a partnership with United Airlines, which included a conditional purchase order for up to 200 of Archer's aircraft.

In 2022, Archer faced a legal challenge from Wisk Aero, a competitor in the eVTOL space, over alleged trade secret misappropriation. This dispute was eventually resolved through a settlement agreement that included Wisk receiving a warrant to purchase shares of Archer's common stock.

Despite the legal setback, Archer continued to make progress on the engineering and development of its eVTOL aircraft, known as Midnight. The company conducted extensive testing and validation of the aircraft's systems, working closely with the Federal Aviation Administration (FAA) to ensure compliance with regulatory requirements. Archer also strengthened its partnerships with key suppliers and manufacturers, laying the groundwork for future production and commercialization.

Financial Performance and Liquidity

Archer's financial performance has been characterized by significant research and development investments, as the company continues to refine its eVTOL technology and prepare for certification and commercialization. As of the latest reported quarter (Q2 2024), the company had $360.4 million in cash and cash equivalents, along with $6.7 million in restricted cash, providing a strong liquidity position.

The company's net loss for the first six months of 2024 was $223.4 million, a decrease from the $297.2 million net loss reported in the same period of the previous year. This improvement reflects Archer's progress in managing its operational expenses, while continuing to invest heavily in research and development.

Archer's cash flow from operating activities for the first half of 2024 was a net outflow of $167.0 million, as the company continues to fund its ongoing eVTOL development and certification efforts. The company's free cash flow, a key metric for pre-revenue companies, was a net outflow of $205.2 million during this period.

For the full fiscal year 2023, Archer reported a net loss of $457.9 million, with operating cash flow of -$271.6 million and free cash flow of -$315.9 million. In the most recent quarter (Q2 2024), the company's net loss was $106.9 million, with operating cash flow of -$80.5 million and free cash flow of -$101.4 million.

Archer's liquidity position remains strong, with a debt-to-equity ratio of 0.063 as of June 30, 2024. The company's current ratio and quick ratio both stand at 4.49, indicating a solid ability to meet short-term obligations. Additionally, on October 5, 2023, Archer entered into a $65 million credit agreement with Synovus Bank for the construction and development of its manufacturing facility, further bolstering its financial resources.

Cerberus Capital Management, a prominent global investment firm, issued a negative report on Archer in 2023, raising concerns about the company's financial sustainability and ability to execute on its ambitious plans. However, Archer has since demonstrated its resilience, securing additional funding and forging stronger partnerships that have bolstered its liquidity position.

Looking ahead, Archer anticipates total non-GAAP operating expenses of $90 million to $100 million for Q3 2024. The company has set ambitious targets for its future financial performance, including a gross margin in the 40% to 50% range at a production volume of 250 units, with the potential to achieve positive operating margin depending on its investment choices in R&D, sales and marketing, and G&A at this production level.

Operational Highlights and Certification Progress

Archer's primary focus has been on the development and certification of its Midnight eVTOL aircraft, which is designed to carry up to four passengers plus a pilot on short-distance urban flights. In 2023, the company achieved a significant milestone when it received the Special Airworthiness Certificate from the Federal Aviation Administration (FAA) for its first Midnight aircraft, allowing it to begin its flight testing program.

During the first half of 2024, Archer has accelerated its flight testing efforts, completing over 230 flights with its Midnight and Maker prototypes. The company has set a goal of achieving 400 test flights by the end of 2024, a target it has already surpassed by four months.

Archer's certification progress has also been noteworthy. In the second quarter of 2024, the FAA finalized the airworthiness criteria for Midnight, enabling the company to move forward with the final stages of the type certification process. Additionally, Archer received its Part 135 certificate, which will allow it to operate eVTOL airlines in the United States once Midnight is type certified.

Beyond the domestic market, Archer has been actively pursuing opportunities in international markets, particularly in the United Arab Emirates (UAE), India, and South Korea, where the company is collaborating with local regulators and partners to establish expedited certification and deployment pathways.

Strategic Partnerships and Expansion

Archer's strategic partnerships have been a critical component of its growth strategy. The company's collaboration with Stellantis, a leading global automaker, has been particularly noteworthy. In 2023, Archer and Stellantis announced a multi-faceted contract manufacturing relationship, wherein Stellantis will contribute up to $400 million in labor and capital expenditures to help Archer scale its Midnight manufacturing operations. This partnership is expected to support the production of up to 650 aircraft annually.

Additionally, Archer has continued to expand its order book, which now stands at nearly $6 billion in indicative orders. The company recently announced a planned purchase of 116 aircraft from Future Flight Global, a prominent business aviation company, representing over $0.5 billion in potential revenue.

Archer has also made significant progress in establishing its planned urban air mobility (UAM) networks, particularly in the San Francisco Bay Area and Los Angeles. The company has forged partnerships with key infrastructure operators, such as Signature Aviation and Atlantic Aviation, as well as with major airlines like Southwest, to develop integrated air taxi networks that leverage existing aviation infrastructure.

Production and Manufacturing Plans

Archer has outlined an ambitious production ramp-up strategy for its Midnight aircraft. The company's goal is to start production at a modest initial rate of roughly one aircraft per month, then gradually increase production velocity to four aircraft per month, 20 aircraft per month, and ultimately 54 aircraft per month in subsequent years. This phased approach allows Archer to scale its manufacturing capabilities while ensuring quality control and meeting regulatory requirements.

The partnership with Stellantis is expected to play a crucial role in achieving these production targets. The contract manufacturing relationship is designed to support the production of up to 650 aircraft annually, providing Archer with the necessary manufacturing expertise and resources to scale its operations effectively.

Risks and Challenges

Archer's journey is not without its risks and challenges. As a pre-revenue company operating in a nascent industry, Archer faces the inherent uncertainties of certification, regulatory approval, and the successful commercialization of its technology. The company's ability to ramp up manufacturing and achieve its target production volumes will be critical to its long-term success.

Additionally, Archer operates in a highly competitive environment, with several other eVTOL companies vying for market share. The company's ability to differentiate its technology, maintain its technological edge, and effectively execute its go-to-market strategy will be crucial.

Geopolitical tensions, supply chain disruptions, and macroeconomic conditions could also pose challenges to Archer's operations and growth prospects. The company's ability to navigate these external factors will be a key determinant of its long-term success.

Furthermore, Archer faces ongoing legal challenges. On May 17, 2024, two putative stockholders filed a class action lawsuit against Archer's directors and officers, as well as other parties, alleging breaches of fiduciary duties related to the merger between Archer and Atlas Crest Investment Corp. The outcome of this lawsuit and its potential impact on the company's operations and reputation remain uncertain.

Outlook and Conclusion

Archer Aviation is at a pivotal juncture in its journey, as it transitions from a development-stage company to a commercial enterprise. The company's strong liquidity position, supported by strategic partnerships and a growing order book, provides a solid foundation for its continued progress.

As Archer advances its certification efforts and strengthens its manufacturing capabilities, the company is poised to play a leading role in the emerging urban air mobility market. With its innovative eVTOL technology, strategic alliances, and relentless focus on execution, Archer is well-positioned to redefine the future of transportation and unlock the skies for everyone.

The company's ability to achieve its ambitious production targets, navigate regulatory hurdles, and successfully commercialize its Midnight aircraft will be critical factors in determining its long-term success. While challenges remain, Archer's progress to date and its clear strategic vision suggest that the company is well-prepared to capitalize on the enormous potential of the urban air mobility market in the years to come.