Aerospace & defenseApril 20, 2021

SPAC to the Future: A Renaissance in aviation innovation

From the very first human-powered flight by the Wright Brothers in 1903,…
Avatar David Ziegler

From the very first human-powered flight by the Wright Brothers in 1903, innovation has been at the forefront of aviation. As Orville and Wilbur demonstrated at the turn of the 20th century, a small team with grit and determination can set in motion a chain of events that fundamentally change human history forever.

Of course, innovation in the last century was often driven by major aerospace players with large R&D budgets – including original equipment manufacturers (OEMs) and defense primes – rather than small teams or individuals. But the times are changing. In recent years, range of startups with access to new investment routes have led a renaissance in innovation, with many promising technologies now being driven by them rather than traditional OEMs.

The challenge now becomes ensuring that these small players are recognized, encouraged, and enabled to grow so they can bring their game-changing technologies to market. That’s where special-purpose acquisitions companies, known as SPACs, come in.

Special-purpose acquisitions companies

In the traditional model, large OEMs invest – via venture capital financing – in smaller companies, facilitating their growth so they can benefit from emerging technologies the smaller companies develop. In contrast, the alternative SPAC model gaining momentum involves a shell company raising capital through an IPO and then merging with a private company.

There has been a boom in SPAC IPOs, (growing from 62 in 2007 to 242 in 2020, an increase of 290%) as private equity firms and other investors identify the growth potential of startups and see it as a way to fund their developments.

SPACs are sometimes referred to as reverse mergers. Their sole purpose is buying companies to make them public under the directive of the SPAC. This funding route is now trending in the industry, opening more doors for innovation in aviation. SPACs are backing urban air mobility (UAM), space, advanced communications, and next generation military capabilities – new areas that are transforming old and well-established segments.

For a small company, an injection of cash can make or break them, essentially funding the completion of a development. Or the investor, by buying up several small players under a SPAC, could end up forming a next-generation aerospace OEM. This is not without historical precedent in aviation: Boeing has roots back to the Wright Company that was founded after the historic 1903 flight.

With this in mind, SPACs are now snapping up start-ups, aiming to ensure that they do not miss out on investing in the next big thing, especially if they missed out on the fortunes amassed by the SpaceX and Tesla booms. An example is Archer, an urban air mobility start-up that has agreed on a SPAC merger that aims to raise US$1.1 billion to fund an all-electric air taxi. Small satellite start-up Astra, on the other hand, is going public after a takeover by a SPAC backed by telecom veteran Craig McCaw, and Boeing’s former chief Dennis Muilenburg is teaming up with Kirsten Touw, founder of AirFinance, to launch New Vista Acquisition Corp. Back in 2019, meanwhile, Virgin Galactic was made public via a SPAC to inject funds into the development of its commercial spacecraft. This, arguably, paved the way for other aviation players to consider this investment mechanism.

A new age of aviation innovation

Diversification of funding sources opens more doors to innovation in the aerospace industry. Understanding this trend, Dassault Systèmes identified at an early stage that the next age of aviation will be driven by both emerging and established players, and has partnered with a range of companies to help them accelerate their developments. By helping companies design, develop and manage their solutions using 3D design, modelling and product lifecycle management via the 3DEXPERIENCE platform, this harmonizes the development of their solutions and the execution of programs from the bottom-up.

Leveraging its tech-focus approached to the aviation industry, Dassault Systèmes is ready to be the enabler of the aerospace industry renaissance by providing startups with Virtual Twin Experience to fuel innovation. It is an exciting time for aviation as we enter a new-era and rekindle the spirit of past innovators such as the Wright Brothers.

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