Right off the bat, it should be noted that Archer Aviation (ACHR 2.29%) should be thought of as a risky investment that only aggressive investors will want to consider. But if the company can successfully execute one of its key 2025 initiatives, Archer could prove that its business concept has a long-term future.
Here's why you'll want to pay attention to where Archer Aviation is in one year if you are interested in this upstart airplane maker.
What does Archer Aviation do?
A cynic might say Archer Aviation loses money. It, in fact, did that extremely well in 2024, posting red ink of more than half a billion dollars on the bottom line of its income statement. On a per-share basis, that amounted to a loss of $1.42, which was an improvement over 2023's $1.69 per-share loss. Don't get too excited by that, however, because the absolute loss was worse. The per-share loss was reduced because it was spread over more shares.
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That's not unusual for a start-up company, especially one attempting to build a capital-intensive business from scratch. It gets even harder when you add that Archer Aviation is attempting to create a product that doesn't exist in a highly regulated industry. In fact, even if management executes at the top of its game, the red ink will likely continue for years. Capital to fund the investment is vital, and stock sales are an effective means to raise it, even if it ends up diluting current shareholders. But what, exactly, is Archer Aviation attempting to do?
The company has built a vertical-lift, short-haul electric aircraft. For lack of a better description, it is an air taxi intended to move a small number of people over short distances. The early goal is to do this in congested cities, where flying over traffic will result in material time savings. Archer Aviation has a prototype and is working toward Federal Aviation Administration (FAA) approval. This is likely to be a multiyear, expensive effort. In 2025, the company is building 10 of its vehicles, a number of which will be used just for testing. Even though it is a necessary expense, every test vehicle is just more money out the door.
There's a key test of the company's business in 2025
But not all of those 10 aircraft will be used for FAA testing. Archer Aviation has inked a deal with Abu Dhabi Aviation (ADA) to launch the first air taxi service using the company's aircraft. It is important for Archer Aviation to get regulatory approval in the United States, of course. But the Abu Dhabi air taxi service is the first real test of the entire air taxi concept.
Archer Aviation is going all out to support the effort. According to the company's fourth-quarter 2024 earnings release, "In addition to the Launch Edition aircraft, Archer also plans to provide ADA with a team of pilots, technicians and engineers to support the initial operational ramp, helping ensure a safe and efficient deployment." Basically, Archer Aviation will be running the show at the start as it teaches Abu Dhabi Aviation how to use its aircraft.
NYSE: ACHR
Key Data Points
There are a couple of big things to look for. First, investors will want to make sure the service gets up and running. This is a first-of-its-kind effort, so there is a chance that it will be harder to do than Archer Aviation believes. Second, you will want to see whether there's a sustainable demand for air taxis. Once again, this has never been done before, and whether people will want to pay for an air taxi is unclear.
Third -- and this one could be the most important -- Archer Aviation is using the start-up process as a template for future expansion. Wall Street will want to pay close attention to the lessons the company learns along the way and how they will inform its future plans. That notably includes Archer Aviation's own plans to build an air taxi service in the United States.
Investors will know a lot more about Archer Aviation in a year
It is highly unlikely that Archer Aviation will be a profitable company one year from now. But that won't mean it hasn't achieved a great deal with its business. In fact, if you are an aggressive growth investor interested in Archer Aviation, the next year could be a pivotal turning point for the company. And a huge amount will depend on getting the Abu Dhabi air taxi service up and running. If that happens successfully, the future could be up, up, and away for Archer Aviation.
