Archer Aviation (ACHR -5.75%) is working to break into the aviation industry. It isn't taking on the industry's entrenched giants directly, however. It is using new technology as it helps to build out an emerging niche of airplanes meant to operate as air taxis. For more aggressive investors the company's increasing list of business wins could make it an attractive buy. Here's what you need to know.
What does Archer Aviation do?
The truth is that, right now, Archer Aviation doesn't actually do much of anything but lose money. Given that it is a start-up in a capital intensive and highly regulated industry that makes sense. Virtually all of the products it produces right now are meant for testing. Investors need to understand that Archer is an early-stage company and there is a lot of risk involved in owning it.
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But what it is building is pretty exciting. The company's aircraft is called Midnight. It is an electric vertical lift aircraft meant to carry small loads over short distances. Or, to put it a different way, Midnight is meant to be an air taxi, allowing riders to fly over traffic-congested city streets. This is a totally new form of travel and one that Archer Aviation hopes will take off once it gets all of the regulatory approvals it needs.
Regulatory approval is the key to Archer Aviation's story right now. It has proven it can build the aircraft. It has proven the aircraft will fly. Now it just needs to get the regulatory nod to start carrying commercial customers.
Archer is close to the next big goal
Archer Aviation's stock has more than doubled over the past year. Investors clearly believe that it is making important progress toward its final goal of building an air taxi service. And, in fact, it has, which is why more aggressive types might still want to buy the stock.
The biggest news right now is coming out of the Middle East. The company is setting up its first air taxi service with a partner in Abu Dhabi. In early July it started test flights. This will help the company get this one air taxi service set up, of course, but that's only the tip of the iceberg, as what it learns in Abu Dhabi will help it move forward elsewhere.
For example, every additional piece of flight information it gets will help Archer Aviation move more quickly in the FAA approval process for the U.S. market. The lessons from setting up the Abu Dhabi service, meanwhile, will be instrumental as it sets up similar services in other countries. It already has partners in Ethiopia and Indonesia. Put another way, the next rollouts will likely go more quickly and smoothly.
And then there's the company's plans for the U.S. market. It has FAA approval to operate a flight school and to operate an airline. Archer Aviation has plans for air taxi services in New York and California already lined up. If it can get Abu Dhabi running smoothly, it will not only help get the company closer to FAA approval, but it will set the company up for a rapid domestic rollout in what is likely to be its most important market.
It wouldn't be fair to call Abu Dhabi a linchpin, but a lot hinges on the company's success in that market. And so far it looks like things are going well. Assuming Archer Aviation succeeds, which seems fairly likely given the current evidence, this story stock's story could get much more interesting pretty soon.
Buy now or wait?
As noted, investors have bid the price of Archer Aviation higher over the past year in a pretty substantial way. Still, given the start-up nature of the business most investors will probably be better off watching from the sidelines here. But for more aggressive types who believe air taxis have a huge future, Archer Aviation could be an attractive option in the emerging transportation niche given how close it appears to taking off.
