tags:

• thesis/product
• sector/aviation
• analyst/grizzly-research ...

Scarce Flight Activity; Recycled Video material; Misleading DoD Contract; Partners bought with cheap Warrants

Archer Aviation Inc (ACHR) is an eVTOL company that is seeking to be a leader in urban air mobility. Brought public through a SPAC, we believe the company has made a series of misrepresentations the latest of which being a contract award from the DoD which led a 40% run up in the stock.
The DoD contracts ACHR received is a noncompetitive award with indefinite quantity and indefinite delivery, meaning the revenue could also be minimal and is also capped at .3m total revenue in 2023.
The latest rise in the stock came after ACHR spun its last earnings announcement, which included the costly settlement of a legal dispute, as a big success: “ACHR secures M Investment from Stellantis, Boeing, United Airlines, ARK Invest …”. In reality, ACHR dished out M in free warrants for a ,000,000 investment by Boeing, diluted shareholders by 25%, and must now purchase key tech from a competitor.
ACHR’s CEO has stated that ACHR is conducting daily test flights, sometimes multiple times per day. ACHR frequently uploads new videos that showcase flight testing.
Our investigators visited ACHR’s flight testing facilities in early August 2022 and late July 2023. Neighboring businesses and former employees reported seeing only a handful of flights conducted solely for special events, far fewer than the company’s statements claimed.
Our analysis shows that ACHR is recycling heavily edited videos of their earlier test flights to portray longer flight performance, more frequent testing, and a generally more advanced product than reality.
ACHR has bought credibility through partnerships with two big companies, United Airlines and Stellantis. In both cases, the company awarded millions of shares for questionable or no compensation. Worse yet, ACHR discreetly amended and/or activated clauses to vest warrants early.
Archer’s stealthy divorce from one of its founders and co-CEO included accelerated vesting of a huge chunk of insider stock to permit selling sooner (which has commenced), while the circumstances of that breakup have never been fully disclosed for investors to evaluate its materiality.
During 2022, ACHR announced that their lab and small-scale manufacturing facility in San Jose, CA would be operational by year end. Then the narrative changed to “right around May 2023”. An on-site visit in July found a very incomplete facility, not expected to be operational before October 2023, showing scant signs of anything approaching production readiness.
ACHR has been spinning a media story that it is rapidly testing and certifying its prototype aircraft for FAA approval.
    As of this report publication date, ACHR only recently received its Special Airworthiness Certificate for its aircraft (non-conforming) Midnight-0 and has plans to start in-air testing only in a few weeks, despite management’s “matter of days” guidance of July 19th. ( Link )
    Even if Archer successfully begins flying Midnight, the path to earning Midnight a Production Certificate required to commence commercial sales seems years away.
    Grizzly consulted with former FAA Certification experts to evaluate the ACHR’s Certification path ahead for its Midnight program, based upon accomplishments so far. The experts we spoke to offered their opinions that for Production Certification (the permit ACHR would need to begin mass-producing aircraft for commercial use), 2028 was a very optimistic estimate and it might well take longer.
In summary we believe ACHR is another SPAC that achieved a ridiculous valuation through unfounded projections and what we see as clear misrepresentations. Our conclusion is that, as an investment, ACHR seems set up for a metaphoric crash landing.