What happened

The experimental new aircraft under development at Archer Aviation (ACHR) is not yet cleared for takeoff, but in July, the company announced the expansion of a key partnership that suggests things are moving in the right direction.

Shares of Archer soared 63% in the month, according to data provided by S&P Global Market Intelligence, on the strength of an important new hire and an eye-catching deal with the Pentagon.

So what

Archer is working to commercialize an electric vertical takeoff and landing (eVTOL) aircraft designed to ferry a small number of passengers on short flights. eVTOLs have a lot of promise deployed as "flying taxis" to bypass crowded streets, but there is a lot of competition racing to bring a plane to market.

Shares of Archer gained mid-month following the company's announcement that Nikhil Goel, a co-founder of Uber Technologies' (NYSE: UBER) air taxi division, as chief commercial officer. But most of the jump came on the last day of the month when Archer announced an expanded partnership with the U.S. Air Force.

Archer said that the Air Force has agreed to acquire up to six of its Midnight aircraft for up to $142 million in total. Archer has collaborated with the Pentagon since 2021, and this expanded partnership includes sharing flight-test data, pilot training, and the development of maintenance and repair operations.

The eVTOL market is crowded, with about a half-dozen start-ups as well as established aerospace companies working on different designs. Investors are betting that a partnership with the Air Force would be a big leg up for Archer in its attempt to outlast the competition.

Now what

The words "up to" play a prominent role in the Archer release. The Air Force's interest appears sincere, but it is contingent on Archer bringing the Midnight to market with the specs promised. Archer intends to share more about its partnership with the Air Force during its quarterly results call scheduled for Aug. 10. 

It appears Archer is on track, but the Federal Aviation Administration certification process is understandably intense, and there are no guarantees. The Air Force is taking little risk here, simply securing its place in line to secure and experiment with this new technology if it fulfills its potential.

Shares of Archer are up more than 240% year to date, valuing the start-up at $1.6 billion. Archer appears to be doing what is necessary to grow into that valuation, but investors should be cognizant of the risks, and the valuation, before buying in.