Is This Opportunity a Game Changer for Archer Aviation?

Archer Aviation (NYSE: ACHR) is working to create a business around a vertical-lift short-haul aircraft. It is already producing these vehicles, and they are being tested by the company and the FAA. The main goal has long been to create what amounts to an air taxi business. However, a new deal the company signed could open up another avenue for growth.

What does Archer Aviation do?

A cynic might say that Archer Aviation just loses money right now. This is true, but given that the company is a start-up, the losses aren't shocking. Still, a money-losing start-up isn't likely to be a good investment choice for anyone other than an aggressive investor. So, this fact is an important starting point when looking at Archer Aviation.

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The product the company is trying to build a business around will also only interest adventurous people, at least at first. That's because it is a new type of aircraft. Vertical-lift short-haul aircraft are a complete rethink of what air travel is today. Kind of like a helicopter and kind of like a small prop plane, they are expected to allow people to move short distances in crowded areas, like a taxi that flies.

Although Archer Aviation will probably need more time to get approval to use its aircraft in the United States, it is actively working toward carrying its first commercial customers in the Middle East. Abu Dhabi, where the company is actually building an air taxi facility, is the place to watch in 2025.

There are three key things you'll want to monitor. First, does it actually get the service up and running? Second, what does the demand for the service look like? And third, what insights does Archer Aviation collect that can help it set up its next air taxi service? (it already has an agreement to open shop in Ethiopia.)

How large is Archer Aviation's addressable market?

The big thing that investors need to figure out is whether or not building and operating air taxis will be a sustainable business. Flying above congestion in large cities seems like it would be desirable, but sometimes good ideas smash into reality, and it doesn't end well for the ideas. But there's been another update to the plan that investors might want to think about, as well.

In late 2024, Archer Aviation signed an agreement with defense contractor Anduril Industries. Although details were a bit scarce, Archer Aviation will help Anduril "target a potential program of record from the United States Department of Defense." Basically, the U.S. military wants a vertical-lift vehicle, and Archer Aviation will give Anduril a jump-start in building one.

Archer Aviation has created a division called Archer Defense to do the work. There are any number of things that this could lead to, from a basic air taxi to something out of a dystopian science fiction movie. Add in artificial intelligence and remote-controlled drone technology, and the sky's the limit to what might come out the other side (think Skynet from the Terminator movie franchise).

It is clearly too soon to know how big an opportunity this could be, but Archer Aviation noted, "We believe the potential demand for this aircraft is stronger than expected." That could be management cheerleading, but given the partnership, it seems like it could also be a big business for the company.

ACHR Cash and Equivalents (Quarterly) data by YCharts

Archer Aviation is taking the right approach

It isn't easy to break into the defense industry, so Archer Aviation partnering with a company with defense experience is probably a good call. Notably, defense contracts tend to be multiyear in nature. So, if the partnership wins a contract from the Department of Defense, it could provide a solid foundation on which Archer Aviation can further build out its commercial business.

Even if the defense effort fails, Archer Aviation will likely come out as a winner. The partnership was used to raise $430 million in capital to fund the defense effort "and for other general corporate purposes." Given that it is the same basic technology that will be used in both commercial and defense products, Archer Aviation just lengthened the cash runway it has before liftoff, hopefully later this year in Abu Dhabi.

Should you invest $1,000 in Archer Aviation right now?

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.