What happened
The U.S. Air Force took a big step toward eventually buying aircraft from Archer Aviation (ACHR -3.18%) today, and investors are excited to go along for the ride. Shares of the aerospace start-up climbed as much as 30% on Monday after it announced an expanded partnership with the government.
So what
Archer is one of several companies working on commercial electric vertical takeoff and landing (eVTOL) aircraft capable of transporting a handful of people on short flights. The so-called "flying taxis" are likely to be used to bypass crowded roads or to ferry airline customers from outer suburbs to larger airports, but the military sees potential applications as well.
On Monday, Archer announced that the Air Force has agreed to acquire up to six of its Midnight aircraft for a total of up to $142 million. The company has worked with the Department of Defense since 2021, and the expanded partnership includes the sharing of flight-test data and certification-related reports, pilot training, and the development of maintenance and repair operations.
CEO Adam Goldstein issued a statement saying, "We look forward to working closely with the U.S. Department of Defense and the U.S. Air Force to integrate Midnight into their operational fleet with a focus on transport, logistics and rescue operations."
The Air Force joins United Airlines Holdings and Stellantis among the high-profile partners working with Archer.
Now what
The agreement makes sense for both parties. For the Air Force, it is a small price to pay to stay on top of cutting-edge technology. For Archer, it is a chance to get in the door at a major buyer of aviation assets. But investors need to be careful not to get ahead of themselves.
As any defense contractor will tell you, the U.S. government is not in the habit of forming exclusive long-term relationships with any one supplier. If eVTOLs succeed as hoped, Archer and its rivals will likely have ample opportunities to sell their wares to military customers. For now, Archer's focus is on getting the Midnight eVTOL through the Federal Aviation Administration certification process, with hopes of launching commercial deliveries in 2025.
Shares of Archer are now up nearly 225% for the year, though still down more than 60% from their all-time highs set in early 2021. The company is definitely moving in the right direction, but investors need to be aware there is still a long journey ahead.
