The Pentagon Is Now the eVTOL Industry's Biggest Customer. Here's How Much Revenue That's Actually Worth to Archer and Joby.

It's no secret that electric vertical take-off and landing (eVTOL) companies like Joby Aviation (NYSE: JOBY) and Archer Aviation (NYSE: ACHR) face years of cash outflows before they become durable businesses. These pressures, exacerbated by any delay in Federal Aviation Administration (FAA) certification of their eVTOLs, mean that any potential for relatively reliable up-front revenue is a major lift for both companies. That's where the Pentagon comes in.

Changing circumstances

Joby and Archer understand that generating revenue from eVTOLs will take time. For reference, the two companies are not exactly an apples-to-apples comparison, with Archer more of an original equipment manufacturer (OEM) while Joby Aviation's plans are more ambitious. It plans to build, own, and operate its eVTOL as part of a vertically integrated transportation-as-a-service (TaaS) business similar to what Tesla is aiming for with its robotaxi rollout. The distinction is not absolute: Archer will run a service, and Joby will sell to third parties, but there is a difference in their core businesses.

However, the two companies have a lot in common. They are both developing autonomous eVTOLs to be able to offer lower-cost flight in the future, and they are both awaiting FAA certification for their eVTOLs, maybe as soon as next year. In addition, both are hoping for early revenue from their eVTOLs, which airlines can use to transport passengers to airports as part of a seamless travel experience. Indeed, it's no accident that Joby has investment from and a partnership with Delta Air Lines, and Archer has a partnership with United Airlines.

It's far from clear that these services will be quite as beneficial as once envisaged, not least because United Airlines' management has made comments that damp enthusiasm for a quick win for Archer in particular. There is a concern about flying eVTOLs into congested airspace, and United Airlines Chief Financial Officer Michael Leskinen told investors at a Morgan Stanley conference that "initial adoption is going to be in less congested airspace" and "how we evolve that into congested airspace is something that's going to take a few more years."

Given that airports with congested airspace are likely to be those where passengers get more value from using an eVTOL, this kind of commentary weakens the investment case.

Image source: Joby Aviation.

Defense to the rescue

With certification delays and a less optimistic outlook for airport shuttles among eVTOL companies, it's natural that both companies will focus on securing early, reliable revenue from defense, and the good news is that's exactly what they're doing. As such, the revenue benefit isn't just the amount itself; it's that it can generate revenue earlier than commercial eVTOL services or sales can.

Joby is working with L3 Harris to develop eVTOLs for defense applications, and it recently bought defense mission systems technology company Resonant Sciences for $500 million to become Joby's dedicated defense business. In addition, Joby has a contract to deliver eVTOLs to the U.S. Air Force worth as much as $163 million.

In comparison, Archer Aviation also has a contract to deliver eVTOLs to the U.S. Air Force, albeit with a smaller ceiling of $142 million. Archer also has an exclusive agreement with Anduril to develop eVTOLs for defense applications.

What it means to investors

Joby and Archer's core business is commercial eVTOL taxis, and that's unlikely to change. However, market realities, cash flow pressures, and uncertainty about the timing of the development of commercial services and sales mean that defense revenue is an increasingly important bridge until both companies turn profitable or need cash to support their businesses. As such, defense is a major plus for both companies, and don't be surprised if both develop their defense businesses during the near to medium term.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends L3Harris Technologies and Tesla. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.