Vertical Aerospace Joins the ‘Flying Taxi’ SPAC Pack

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The race to develop electric vertical takeoff and landing (eVTOL) aircraft is heating up, with several startups clamoring to become the first mover in the flying taxi industry. 

Many of those companies are choosing to go public by merging with special purpose acquisition companies (SPACs), since that route to market does not rely on historical financial results and allows companies to offer ambitious forecasts.

The group includes Qell (NASDAQ: QELL), Reinvent Technology Partners (NYSE: RTP), and Atlas Crest Investment (NYSE: ACIC), which are in the process of merging with Lilium, Joby Aviation, and Archer Aviation, respectively.

Vertical Aerospace is the latest to join the eVTOL SPAC boom, announcing Thursday that it will merge with Broadstone Acquisition (NYSE: BSN).

Waiting for the market to take off

Founded in 2016 in the U.K., Vertical says that the time for eVTOL aircraft has arrived thanks to technological advances and improving economics. The company’s flagship aircraft is the VA-X4, which can carry 5 passengers, has a range of more than 100 miles, and can reach speeds of over 200 miles per hour.

Similar to Joby and Archer, the VA-X4 uses an open propeller design. In contrast, Lilium leverages a proprietary Ducted Electric Vectored Thrust (DEVT) technology, which enables sleeker designs and conceals the propellers. Archer provided more details around its Maker aircraft this week, unveiling a new prototype at a virtual event Thursday.

Vertical is still in the development stage and does not currently generate any revenue. Deliveries are expected to begin in 2024, with the company aiming to deliver 50 aircraft that year to generate $192 million in revenue. Vertical is forecasting that units will grow to 2,000 in 2028, which would bring in $7.3 billion in sales.

The company has secured conditional pre-orders from major players that are also investing in the merger. American Airlines (NASDAQ: AAL) has placed a conditional pre-order for up to 350 aircraft. Avolon, the second-largest aircraft lessor in the world, is looking to buy up to 500 aircraft, with Virgin Atlantic expressing interest in 150 vehicles. That all adds up to 1,000 in potential unit sales, representing $4 billion in revenue if Vertical can execute.

How the merger is structured

The transaction gives Vertical a post-money equity valuation of $2.2 billion. Broadstone is sitting on about $305 million in its trust account, and the SPAC has lined up another $89 million in PIPE (private investment in public equity) financing. Prominent investors that are participating in the PIPE include Microsoft’s (NASDAQ: MSFT) venture arm M12, American Airlines, Avolon, Honeywell (NASDAQ: HON), and Rolls-Royce (OTC: RYCEY), among others.

After covering transaction expenses, an estimated $344 million of the cash will go to the combined company’s balance sheet. Vertical’s existing investors will retain a 72% stake, the SPAC’s public shareholders will own 14%, and Broadstone will roll over its existing 3% ownership. Avolon will own 4%, American Airlines will have 5%, and the rest of the PIPE investors will collectively have a 2% stake.

The merger is expected to close in the second half of 2021, at which point the ticker symbol will change to “EVTL.”

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Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Millennial Money is part of The Motley Fool network. Millennial Money has a disclosure policy.