Amidst escalating geopolitical tensions and a hawkish defense agenda, Archer Aviation, a California-based startup, has made a significant pivot in its business strategy. The company, which went public in September 2021, has announced a $300 million equity raise from institutional investors like Blackrock and Wellington, bringing its total funding to around $3.36 billion. This fresh capital injection will primarily be used to accelerate its defense program, marking a notable shift in focus from commercial air taxi networks to military applications.

Archer's decision to prioritize defense comes at a moment of industry momentum. The Trump administration has vowed to "rapidly field emerging technologies" like AI, drones, and counter-drone systems to modernize the military. Electric vertical takeoff and landing (eVTOL) aircraft, like Archer's Midnight, possess qualities that make them attractive for defense use cases. These qualities include a reduced noise profile, which is achieved through distributed propulsion among smaller rotors that spin slightly slower, rather than a single large main rotor and tail rotor that operate at high speeds.

As part of its defense program, Archer signed an exclusive deal with weapons manufacturer Anduril to jointly develop a hybrid gas-and-electric-powered VTOL aircraft for critical defense applications. The two companies are targeting a program of record from the Department of Defense, which is a budgeted acquisition program with guaranteed funding over a set period. Nikhil Goel, Archer's chief commercial officer, emphasized the significance of this partnership, stating that the company is the only one in the space targeting a sizable defense program of record.

Rivals in the space, such as Joby Aviation and Beta Technologies, also have military contracts to test their aircraft for surveillance, logistics, and reconnaissance. However, Archer's focus on securing a program of record from the Department of Defense sets it apart from its competitors. This approach could provide Archer with guaranteed funding, a path to scale, and a serious competitive moat.

While Archer is now prioritizing defense, the company still intends to launch its first limited commercial air taxi network in late 2025 in the United Arab Emirates. In 2026, Archer plans to expand air taxi services to several other cities and countries, including Los Angeles, San Francisco, New York, South Korea, and India. The company has partnered with major airlines to facilitate air taxi networks, including United, Southwest, and IndiGo.

However, Archer still faces significant hurdles before it can commercialize its eVTOLs. The company needs to secure type certification, production certification, and airworthiness certification from the Federal Aviation Administration. Goel confirmed that Archer is far along in the process for these certifications but has yet to receive any of them. Nor has Archer flown with a pilot in its aircraft yet, which is a necessary step towards testing the aircraft with passengers.

The process of certifying aircraft and scaling production is an expensive one. Construction on Archer's Georgia factory, built with its strategic investor Stellantis, is nearly complete, with production expected to begin this quarter. Archer hopes to build 650 aircraft annually by 2030. For this year, though, Archer's goal is to produce eight to 10 aircraft between the Georgia facility and its prototype facility in California.

Today's raise brings Archer's total liquidity to well over $1 billion, extending its runway for "multiple years" through commercialization and the initial phases of defense work, according to Goel. The company's total operating expenses hit $385 million in the first three quarters of the year, or $281 million on an adjusted basis. Archer anticipated adjusted operating expenses for Q4 to be between $95 million and $110 million. It's not yet clear how much Archer's development of a hybrid aircraft for warfare will increase the company's expenses.

In conclusion, Archer Aviation's shift in focus towards defense marks a significant turning point in the company's history. With its $300 million equity raise, Archer is well-positioned to accelerate its defense program and capitalize on the growing demand for military applications of eVTOL technology. As the company navigates the complex process of certifying its aircraft and scaling production, it will be crucial to monitor its progress and the broader implications of this trend on the aerospace industry.