Blade Air Mobility Stock and Urban Air Mobility
Want to know the fastest way to make a million dollars? Invest a billion dollars in an airline. That old quip best describes how difficult it is to operate a profitable airline consistently over time. And that was before nature threw some Rona into the mix. Assuming that the pandemic will soon be behind us, today we want to consider the concept of urban air mobility which Wikipedia describes as small highly automated aircraft that carry passengers or cargo at lower altitudes in urban and suburban areas.
Presently, small aircraft that operate in urban areas are largely helicopters of which a large number can be found in the United States, more than 4X that of any other country.
Helijet is North America’s largest scheduled helicopter airline having generated around $15 million in revenues flying approximately 100,000 passengers in 2019 using approximately 15 aircraft. They were operating at about 50% of that capacity late last year when they were acquired by a company called Blade Mobility (BLDE).
About Blade Air Mobility
Founded in 2014, New Yawk’s own Blade Mobility became “the first publicly traded urban air mobility company” after going public using a special purpose acquisition company (SPAC) in May 2021. The company offers “short-distance flight management solutions” for short-distance commutes, private jet charters, human organ transport, and other various transportation services. Blade leases terminal space from heliports and airports, then buys aircraft time by-the-hour from operators as needed. Their app allows customers to book – what are essentially charter flights – seamlessly. Revenues are split into the following categories:
Unfortunately, the granularity seen above doesn’t extend to the actual financials, so we have no idea what percentage of the “MediMobility/Jet” segment can be attributed to shuffling around human organs vs shuffling the lads off to Miami for a stag doo. Here’s a breakdown of revenues by their two main segments (“other” is largely insignificant) over the last eight quarters.
Unlike most SPACs, Blade Air Mobility not only achieved their forward-looking revenue estimates, they also beat them. That’s on top of achieving consistent revenue growth over the years which has been supplemented by two recent acquisitions funded by the proceeds from their SPAC of which $282 million remains on their balance sheet.
While things look promising so far, we’re not certain about just how big an opportunity there is to be captured. The total addressable market (TAM) presented by the company – several billion dollars for the NorthEast Corridor and New York airports – seems questionable. Prior to the pandemic, they hired some MBAs from a Big Three consultancy company who then hired a third-party consultancy to survey a bunch of high-income people who “indicated they would use a helicopter service.” But if the TAM is there, Blade is in a good position to capture it having held #1 market share in the New York City area by-the-seat helicopter market since 2015.
An Uber for Helicopters
What Blade Mobility has developed – an asset-light model for air transport – might be described as Uber for helicopters were it not for the fact that Uber did dabble in helicopters at one point in time. That foray didn’t last long when consumers realized they could reach their destination for a whole lot less money in a lot less time by using a (wait for it) Uber.
In December of 2020, Joby Aviation acquired Uber Elevate which largely amounted to a whole bunch of software that was being developed. The plan is to open that back up when Joby’s eVTOL aircraft are available. One might argue that starting to fly fixed routes using aircraft of any type is the key to a competitive advantage, especially when you consider how many companies are trying to dabble in the urban air mobility space.
The Urban Air Mobility Thesis
Much of the excitement surrounding the air mobility thesis comes from the emergence of an electric vehicle referred to as an electric vertical takeoff and landing (eVTOL) aircraft. No, not electric helicopters. These vehicles are usually distinguished by multiple blades and motors powered by lithium batteries. Blade Mobility’s latest investor deck offers up an interesting insight into the direction this whole thing might take. Initially, Blade doesn’t expect eVTOL aircraft to be more economical than helicopters. That’s an interesting takeaway for investors who think the eVTOL thesis will immediately come out of the gates with a cost advantage. So, the direction this might take looks something like this.
- Start with existing fixed routes that are currently serviced by helicopters
- Consolidate all operators within these fixed routes to capture economies of scale.
- Replace these helicopters with eVTOL aircraft once they cost less to fly than helicopters.
- Expand number of routes because eVTOL aircraft aren’t as loud as helicopters
- Realize increased margins from the introduction of unmanned eVTOL aircraft.
Would you rather own an asset-light company that focuses on the software that brings the whole thing together, or the company that manufactures the eVTOL aircraft? Joby Aviation’s acquisition of Uber Elevate shows that they expect to be both. As for the other four publicly traded eVTOL stocks – Lilium (LILM), Archer Aviation (ACHR), eHang (EH), and Vertical Aerospace (EVTL) – that’s a story for another day.
The Organ Transport Thesis
Transporting organs is something we touched on recently in our piece on UTHR Stock and the Xenotransplantation Thesis. United Therapeutics is looking at using eVTOL aircraft once they sort out the whole “transporting organs from pigs” problem. Given the founder’s experience piloting helicopters, they’ve identified three companies to partner with for their future aspirations – Tier 1 Engineering, eHang, and Beta Technologies.
Identifying which aircraft to use might be less important than having existing relationships in place between hospitals. Blade’s acquisition of Trinity Air Medical means they’re now contracting with numerous Organ Procurement Organizations (OPOs) and transplant centers across the nation. Having been operating since 2015, Trinity currently performs over 4,000 service requests annually. It’s easy enough to plug in eVTOLs when the time comes.
Organs aren’t the only time-sensitive cargo that needs to be flown around. There are many use cases where autonomous fixed routes could be used to transport cargo without having to worry about the human element. But again, regulatory hurdles mean removing pilots could still be years away.
Should You Buy Blade Air Mobility Stock?
Going back to the earlier comment about investing in airlines, we don’t see the broader thesis to be overly compelling right now. As for Blade, they fall under our market cap threshold of $1 billion being about half that size presently. Without having granularity into their revenue segments, we can’t tell if their growth is coming from transporting organs to hospitals or tools to Miami. That said, we believe their efforts to consolidate asset-light operators today means they’ll be well equipped to begin servicing routes with eVTOLs tomorrow. At the earliest, that will be in 2024 when Air Mobility takes ownership of 5-20 passenger-equipped eVTOLs from Beta in 2024. Yep, that’s the same Beta that United Therapeutics partnered with for organ transplant transportation.
For investors willing to take on more risk, you might be wondering if shares are overvalued. Not according to our simple valuation ratio.
- Market cap / annualized revenues
507 / 98.5 = 5
Of course, we can’t compare their valuation to any of the other five eVTOL stocks because none have revenues. We might try to compare them to mature chopper operators like Bristow Group (VTOL) which has a simple valuation ratio of just under 1, but these companies operate two different business models. Bristow Group owns and operates the choppers they fly, while Blade doesn’t, choosing instead to focus on the software stack. That being said, we’re left wondering how many choppers Blade now owns following their recent acquisitions of companies that seem to operate their own choppers.
If Blade can operate profitable fixed routes today using helicopters, then they’ve solved half the battle. Dropping prices over time not only increases margins but also lets them lower costs to the customer which increases TAM. We’ll check back in when they’ve had a chance to continue expanding for another year to see how that revenue growth is progressing. In the meantime, we’ll look to do a comparative analysis of all five eVTOL stocks available to investors today.
The entire appeal of the eVTOL thesis is that automation will lead to cheaper transport that will displace existing transportation methods. If an electric helicopter with multiple blades costs just as much as a helicopter to operate, there’s not much value added. That’s where autonomy comes into play, but it requires lots of regulatory hurdles to clear.
Companies that start bringing in revenues from operating routes today will be at a clear advantage over their competitors. We like how Blade Air Mobility has managed to consistently grow revenues over the year organically and through acquisitions. They seem fairly valued based on our simple valuation ratio, but we’re avoiding the stock because it doesn’t meet our size requirement of $1 billion or more and its early days for the urban air mobility thesis.
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