Vertical Aerospace: Red Flags Everywhere I Look

PeopleImages/iStock via Getty ImagesNot all electric vertical take-off companies are the same. Vertical Aerospace (NYSE:EVTL) aims to be an aircraft manufacturer, not an operator; it wants to build its VX4 and sell it to airlines. Joby (JOBY) wants to be an operator; they want to manufacture their aircraft and use it to operate an airline. Archer (ACHR) wants to both operate and sell the aircraft. Joby’s end customer will be the general public paying a few dollars per ride, and EVTL’s end customer will be an airline spending a few hundred thousand dollars per aircraft. EVTL is building a team of companies that will cooperate to make the aircraft. Rolls-Royce (OTCPK:RYCEY) will build the engines, Molicel, a subsidiary of Taiwan Cement (OTCPK:TGBMF), the batteries; Honeywell (HON) the electronics; Leonardo (OTCPK:FINMF) the fuselage; and GKN, a subsidiary of Melrose Industries (OTCPK:MLSPF) will assemble the parts into an airplane. Joby is trying to do it all themselves. EVTL will coordinate all of this and get the aircraft approved to fly, it is a mammoth task, but everything in the aero industry is. The eVTOL industry is a high-risk area for investors, the companies are years from revenue, and there are probably too many. It is unlikely they will all make it to revenue, so we must be careful where we put our money. In this article, I will look at the people behind EVTL and the company’s finances and try to judge how it is doing concerning certification. Finally, I will consider its competitive strategy, which is the basis of my writing. EVTL: The People Stephen James Fitzpatrick owns more than 67% of EVTL, giving him complete control of the company he founded. Fitzpatrick is a highly successful UK-based entrepreneur. He built an energy company from virtually nothing and turned it into a top 6 supplier in the UK. EVTL, incorporated in the Cayman Islands and listed in the US but based in the UK, is one element of a web of companies controlled by Fitzpatrick. According to Companies House, he is currently involved with eight companies, including Imagination Industries, OVO group, and EVTL. In total, he has recently been on the board of 14 companies. These companies are private UK-based limited companies where reporting transparency is not as strong as it is with the public US-based companies we usually deal with. Earlier this year, Fitzpatrick was questioned by UK lawmakers regarding intercompany loans; EVTL received two loans from Imagination Industries in 2021 totaling £9 million. Imagination also loaned £27 million to its directors last year, £4.4 million to Imagination Industries Incubator, £1.6 million to “Imagine Just 3 Things” and several million to Imagination Industries Aero. PricewaterhouseCoopers audited the 2021 accounts for Imagination, and in their report, they raise several points regarding the ability to continue as a going concern. See P21 of accounts. (imagination_2021_accounts.pdf) The group is forecasting to breach financial covenants with trading creditors under the base case scenario. The company relies on a royalty stream from its subsidiary OVO and has a loan facility repayable within the going concern period for which there is no confirmation of renewal. There is a material uncertainty which may cast significant doubt about the groups and the company’s ability to continue as a going concern. The subsidiary in question is OVO energy, a highly successful UK-based energy company that supplies gas and electricity to households. The UK energy industry is unique; energy companies buy wholesale and sell retail without owning the infrastructure. The National Grid owns the country’s gas and electricity networks that move energy around the UK. Much of the pricing is state-controlled by an ombudsman; the industry structure was formed when a previous government broke up a state-owned energy company. The UK regulator fined OVO energy £8.9 million for overcharging customers in 2020. OVO made a combined loss of £300 million in the three years to 2020. However, soaring energy prices and great management gave it a profit of £337 million in 2021, turning net assets positive for the first time. Fitzpatrick has developed a relatively poor press relationship; the generally business-friendly Daily Mail (a major UK national newspaper) has run a few negative articles about him. The Mail reported that Fitzpatrick was accused of being a fat cat making profits while ripping people off and describing him as controversial for taking money out of his company to buy a mansion when it was losing money and increasing debt. The Web of Companies Going through all 14 companies was time-consuming but revealed several facts worthy of note. If you follow the previous link to companies house, you can read the accounts of each company. The web of companies controlled by Fitzpatrick is deep, and the shared names make it confusing. Jetty Technologies Ltd. (source: search of Jetty Technologies at Companies House) (active, but its counts are overdue) has previously been known as Imagination Industries Aero LTD, Vertical Aerospace LTD, Imagination Incubator LTD, Mylo App LTD, and OVO view Ltd. It has five officers, including Stephen James Fitzpatrick, Stephen Fitzpatrick, and Vincent Francis Casey. This is not illegal or sinister in any way; it is just unusual. Many of the linked companies have charges against them (that is an official register of a debt). Below is the charger schedule from one such charge. (registered against OVO gas and one of 7 such charges). Charge sheet (Companies House UK)As is common in the UK, it is difficult to determine the size of the debt, who owes it, or what it was for. Vincent Francis Casey is the CFO of EVTL and companies house have him being a director of 33 companies, generally the same companies as Fitzpatrick. The two men work together to build these businesses, and they have been very successful. In October 2021, EVTL announced that Harry Holt had been appointed COO. The press release contained the following few lines Harry is joining Vertical from his current role as Chief People Officer at Rolls-Royce, one of the world’s leading industrial technology companies and which has decades of experience in powering the global aviation sector. That is only half of the story. Companies House shows that Harry was a director of two companies. I have found this a recurring theme with EVTL, I think they want to be transparent, but as you will read in this article, their output is often overly positive. Mr. Holt was a director of Rolls Royce Submarines Limited, which is the technical authority for the UK’s Nuclear Submarine fleet and a division of Rolls Royce holdings with a turnover of nearly 700 million GBP. Harry resigned on December 31st, 2021. Rolls-Royce has decades of experience in powering the global aviation sector, but Mr Holt does not. Mr. Holt had previously been a soldier in the British Army for more than 20 years; he rose to the rank of colonel and was awarded a distinguished service order and the Order of the British Empire. That represents a highly impressive military career, and although I have never met him, I have had the pleasure of knowing several Irish guards. They have all been very impressive professionals. The Go Ahead Group PLC was the second company Mr. Holt was a
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