Key Takeaways
- Speculation surrounding a potential fast-tracked military drone programme, reportedly championed by political figures like Pete Hegseth, should be viewed as a potential future catalyst, not an active policy. It highlights a direction of travel in defence strategy but carries significant political contingency.
- Archer Aviation ($ACHR) and its primary competitor, Joby Aviation ($JOBY), already possess foundational, multi-year contracts with the U.S. Department of Defense. This provides a tangible, non-speculative basis for their relevance in military modernisation efforts.
- Despite these military relationships, the financial reality for Archer remains challenging. The company is pre-revenue from commercial operations, reports significant net losses, and faces a long and capital-intensive road to FAA certification and manufacturing at scale.
- The investment case hinges on distinguishing between the narrative of “dual-use potential” and the reality of securing large-scale, funded production contracts. Existing agreements are primarily for testing and evaluation, not widespread deployment.
Recent political discourse, including reports of a potential directive from figures like Pete Hegseth to dramatically scale the U.S. military’s drone capabilities, has refocused investor attention on the aerospace and defence sector.1 While such a policy remains hypothetical and contingent on future political outcomes, it acts as a powerful signal for where strategic capital may be allocated. For companies like Archer Aviation, operating at the intersection of civilian urban air mobility and defence technology, this narrative provides a compelling tailwind. However, a sober analysis requires separating the political theatre from the existing, tangible contracts and the fundamental challenges that persist for the nascent electric vertical take-off and landing (eVTOL) industry.
Grounding Speculation in Contractual Reality
The concept of a sweeping “drone surge” is an accelerator, not an origin point, for the military’s interest in eVTOL technology. The U.S. Department of Defense (DoD), through programmes like the U.S. Air Force’s AFWERX, has been exploring the utility of these platforms for several years. The objective is to solve logistical challenges in contested environments, specifically for “last mile” delivery, personnel transport, and medical evacuation where traditional helicopters are too costly, loud, or vulnerable.
Both Archer and its key rival, Joby Aviation, have secured significant partnerships that validate their technology’s potential military application. Archer holds contracts with the DoD valued at over $142 million, which include the delivery of its Midnight aircraft for testing.2 Similarly, Joby has a longstanding relationship and delivered its first eVTOL aircraft to Edwards Air Force Base in 2023 as part of a contract worth up to $131 million.3 These agreements are the substantive foundation upon which any future, larger-scale procurement would be built. They demonstrate that the Pentagon is already committed to evaluating the technology, irrespective of any future top-down mandates.
Archer Aviation: The Financial Headwinds
While the defence angle offers a compelling long-term narrative, Archer’s current financial position underscores the speculative nature of the investment. The company is in a pre-revenue stage concerning its core air taxi model and relies on collaboration agreements and capital markets to fund its intensive research, development, and certification efforts. An examination of its recent financial performance reveals the scale of this challenge.
| Metric | Q1 2024 | Full Year 2023 | Insight |
|---|---|---|---|
| Total Operating Expenses | $115.6 Million | $446.9 Million | High cash burn driven by R&D and administrative costs. |
| Net Loss | ($98.4 Million) | ($457.9 Million) | The company is not profitable and losses are substantial. |
| Cash & Equivalents | $525.5 Million | $625.3 Million | Possesses a solid liquidity runway but will likely require future financing. |
Source: Archer Aviation Q1 2024 Shareholder Letter.4
The data is unambiguous: Archer is a development-stage enterprise burning significant capital. The path to commercial viability depends entirely on achieving FAA Type Certification, a rigorous and expensive process, and then successfully manufacturing its Midnight aircraft at scale. The defence contracts, while strategically important and a source of non-dilutive funding, do not yet alter this fundamental reality.
The Competitive Landscape
Archer does not operate in a vacuum. The race to supply the DoD with eVTOL capabilities is competitive, with several firms vying for attention and contracts. Joby Aviation is arguably better entrenched, having started its military engagement earlier. Beyond the direct eVTOL competitors, the broader uncrewed systems space is populated by defence-native firms like Anduril Industries and Shield AI, which focus on autonomous combat and surveillance drones. While their missions differ, they compete for the same pool of defence innovation funding.
For an investor, this means assessing not only Archer’s technology but also its competitive positioning. Is its platform uniquely suited for a military role that others cannot fill? Or is it one of several viable options in a crowded field? The answer likely lies in specialisation. An eVTOL designed for transporting four passengers in a city has different design constraints than an autonomous reconnaissance drone, potentially giving Archer an edge in niche logistics and transport roles.
Conclusion: A Hypothesis on Value Realisation
The enthusiasm for Archer and the eVTOL sector in light of potential defence acceleration is understandable, but it must be tempered with a clear-eyed view of the risks. The primary hurdles remain certification and commercialisation, not military procurement. A top-down directive could certainly accelerate timelines and expand the size of the prize, but it does not guarantee a contract for any specific company.
A more robust hypothesis for value creation is that the military will serve as a critical, de-risking launch customer, but not the ultimate end market. The real prize remains the commercial urban air mobility market. Defence contracts can provide cash flow, operational data, and a stamp of technological validation that significantly lowers the risk profile for commercial investors and partners. Therefore, the most important metric to watch is not the rhetoric from Washington, but the steady, measurable progress toward aircraft certification and the establishment of a reliable manufacturing process. Should Archer prove its utility to the Air Force in real-world scenarios, it would not only secure further defence work but also gain an invaluable, and perhaps insurmountable, advantage in the race to commercialise the skies.
References
1. Wallace, D. (2024, May 22). Hegseth tears up red tape, orders Pentagon to begin ‘drone surge’ at Trump’s command. Fox News. Retrieved from https://www.foxnews.com/politics/hegseth-tears-up-red-tape-orders-pentagon-begin-drone-surge-trumps-command
2. Archer Aviation Inc. (2023, July 31). Archer Announces U.S. Air Force Contracts Valued at Over $142M, Signifying a New Era in Military Aviation With its Midnight eVTOL Aircraft [Press Release]. Retrieved from https://investors.archer.com/news-releases/news-release-details/archer-announces-us-air-force-contracts-valued-over-142m
3. Joby Aviation, Inc. (2023, September 25). Joby Delivers First Electric Air Taxi to U.S. Air Force [Press Release]. Retrieved from https://www.jobyaviation.com/news/joby-delivers-first-electric-air-taxi-to-u-s-air-force/
4. Archer Aviation Inc. (2024, May 9). Archer First Quarter 2024 Shareholder Letter. Retrieved from https://investors.archer.com/news-releases/news-release-details/archer-announces-first-quarter-2024-financial-results
