I offered my Marketplace subscribers an opportunity at Eve Holding, Inc. (NYSE:EVEX) two weeks ago and the stock is up 70%. In this article, I’ll discuss this airline stock in more detail.
Eve Holding receives further investment from United Airlines
United Airlines Holdings (UAL) recently announced a $15 million investment in Eve Air Mobility, placing a conditional purchase agreement for 200 four-seat electric aircraft and options for an additional 200 aircraft. The first deliveries are scheduled for 2026. The companies also plan to collaborate on future projects, including studies into the use and application of the urban air mobility ecosystem. Eve Holding emerged from an accelerator program of Brazilian aerospace company Embraer (ERJ) and still has development ties and support there.
The United deal was signed just a month after Archer Aviation paid $10 million in deposit for 100 eVTOL aircraft. This was followed by a tentative agreement in February 2021 to purchase up to 200 four-passenger eVTOL aircraft from Archer, valued at US$1 billion.
United Airlines has recognized an opportunity for clean energy air taxis and could be a big market for all involved. The investment idea would also be attractive for ESG funds.
The latest investments are also part of United’s carbon reduction goals, “designed to support the company’s 100% green commitment to achieve net-zero emissions by 2050 without the use of traditional offsets.”
Eve Holding has a strong order book
Eve Holding Inc. was listed on the NYSE in January 2021 and the company said at the time (emphasis added):
“Today we celebrate a historic milestone in a journey we began nearly five years ago with EmbraerX, the market accelerator from Embraer, a leader in the global aerospace industry Potential $760 billion addressable UAM market.“
“We believe Eve is uniquely positioned to develop, certify and commercialize our UAM solutions on a global scale,” said Jerry DeMuro, Co-CEO. He added:
“Our pipeline of launch orders for 1,825 vehicles, secured through non-binding letters of intent from 19 customers, consists of industry leaders who have also invested in Eve, including Azorra Aviation, Falko Regional Aircraft, Republic Airways and SkyWest, and provides a strong endorsement of our business strategy and vision.”
This order book has now grown to 2,060 and features a wide range of companies from different industries.
The air taxi idea is taking center stage with orders from the likes of Bristow Group (VTOL). However, the company also has orders from airlines, driving platforms and defense contractors. If we look at the big picture, it’s not hard to imagine a ride in an Uber (UBER) air taxi from an airport to the city.
Eve Holding’s cash balance can support growth
Eve Holding has raised $377 million from investors and the company’s order book is valued at ~$6.0 billion (indicative). The company traded at a valuation of £2 billion two weeks ago but is now closer to $4 billion.
The company has a strong balance sheet with no debt. R&D expenses increased to a loss of $20 million for the quarter, but the company could stay at that level for another 5 years based on the capital raise. That gives the company ample time to bring this idea into the mainstream and attract more investment.
The company said in its second-quarter earnings report:
“It is important to highlight that Embraer currently has nearly two hundred full-time employees dedicated to the eVTOL development program through its MSA with Eve. MSA costs are included in Eve’s R&D and represent the majority of its R&D expenses. SG&A costs have also increased due primarily to the growth in the number of employees at Eve – we now have more than 300 equivalent employees working working on the program, almost double the number in Q2 21.
The company also said it was:
“Constantly monitor the capital markets for leverage opportunities to inject additional cash into Eve on attractive terms as the company currently has no debt.”
“Before service begins, Eve may also apply for additional lines of investment – through corporate loans – to help fund its manufacturing and production facilities.”
United Airlines had also joined American Airlines (AAL) with orders for Boom Supersonic’s Overture aircraft. Delta Air Lines is more cautious about the eVTOL plane without investment, while the company’s CEO Ed Bastian told CNBC he has “more questions than answers” about Boom.
Despite this hesitation, other airlines and travel companies will see the opportunity to meet their emissions targets with electric aircraft. As noted, the sector would be attractive to ESG mutual funds, and insiders own 92.5% of the total outstanding shares, while institutional holders control just 7.05%.
Regulatory hurdles would be a first hurdle
The first headwind that eVTOL manufacturers will have to face will be regulatory in nature. In a recent joint statement by the FAA and UK CAA on eVTOL, the parties said:
“The Federal Aviation Administration and the UK Civil Aviation Authority recognize the potential of electric vertical takeoff and landing (eVTOL) and other Advanced Air Mobility aircraft to bring significant benefits to the public. To support future development and operations of eVTOL aircraft, the US and UK Civil Aviation Authorities are conducting a series of bilateral and multilateral talks focused on facilitating the certification and validation of new eVTOL aircraft, production, continuing airworthiness , operations and personnel licensing.”
“As these aircraft enter the aviation ecosystem, we must continue to maintain the high safety standards that the public has come to expect,” they added.
That’s a positive statement from regulators and should prompt them to continue working on a solution that could help spread electric aircraft.
Eve Holding Inc. offers an opportunity to gain exposure to a $760 billion addressable market with a $2 billion market capitalization. The company has a strong balance sheet and the ability to raise existing capital, including lines of credit for capital expenditures. The company was backed by United Airlines but has a substantial order book that has now expanded its customer list. Use cases could expand into ridesharing and other markets.
Though there are regulatory hurdles, the FAA has made positive statements about the potential of this travel line. Another advantage for EVEX investors would be the low institutional ownership and the potential to attract ESG mutual funds and other large corporate clients.
As eVTOLs continue to grow in popularity, there are a few hurdles the industry faces, such as: