Lilium remains optimistic despite loan guarantee rejection
October 23, 2024
With German AAM company Lilium having recently been denied a $50 million loan guarantee from the Federal State of Bavaria, chief commercial officer Sebastian Borel remains optimistic about opportunities to progress the Lilium Jet’s path to certification.
As reported by Flight Global (attending NBAA BACE in Las Vegas), Borel explained: “My message to investors is, we’re really close and we need everyone to jump with us, to make it happen” – adding that “the executive team is working hard right now to… get more funding and find solutions”.
So far this calendar year, Lilium’s stock has dropped from a high of $1.33 to a near-all-time-low of $0.465, recorded yesterday. Writing on LinkedIn, Spanish private investor and financial advisor at smallvalue David Pintado described Lilium as “the riskiest company in [their] portfolio,” explaining his opinion that to navigate ongoing “significant challenges”, Lilium must “not only seek new funding sources but also accelerate progress and implement critical cost-cutting measures”.
Lilium loan guarantee rejected
The health of Lilium’s finances was heightened when the company’s attempt to secure a loan worth a combined €100 million fell short; with the German federal government failing to extend a similar guarantee to one already received by the state of Bavaria (and subsequently calling the latter into doubt). Although Lilium CEO Klaus Roewe had already stated his conviction that the fully-repayable loan’s conditions were “very advantageous for KfW, and thus for Germany,” the loan’s ultimate rejection by the Bundestag’s budget committee called Lilium’s future into question.
Lilium stated in a regulatory filing dated 17 October that it “is continuing discussions with the Free State of Bavarian with respect to a guarantee of at least €50 million,” with Roewe adding: “it’s not about saving a crisis-ridden company with grants”.
Relocation?
“If we get a no, we will not be able to keep the company in its current form in Germany,” Lilium co-founder Daniel Wiengand told German tabloid Bild ahead of the final loan decision. However, a move within Europe could be on the cards, with Lilium confirming in May 2024 that it was in “advanced discussions with the French government on plans to expand its high-volume capacity with an industrial footprint in France”. Of several possible sites, these include the “aerospace and battery production hotbeds of Nouvelle-Aquitaine”. Crucially, Lilium also stated in May that its French expansion could also include provision for “potential subsidies and loan guarantees”.
The Nouvelle-Aquitaine region is also home to VoltAero’s clean-sheet hybrid-electric Cassio aircraft production, a programme that received a €5.6 million grant from the French Government via BPI France’s ‘France 2030’ investment plan.
“Significant cash burn”
With Lilium anticipating certification of its Lilium Jet by 2026, its first three conforming prototypes are already under production at its site in Wessling, Germany (including its first crewed aircraft, MSN 2, which is currently in final assembly). However, having spent $102 million in Q1 2024 (with adjusted cash spend for H1 2024 projected to be between $200-$211 million), Lilium’s €114 million capital raise conducted at the end of May may not be enough: with the company noting in a September 2024 US regulatory filing that it “expects to incur significant expense in the foreseeable future,” alongside “substantial cash burn in connection with [its] ongoing activities”.
As highlighted in an October 2024 McKinsey analysis (explaining how “disclosed funding for future air mobility (FAM) has slowed since its 2021 peak of €6.8 billion), this industry-wide decline “comes at a particularly bad time for companies in this segment” with most players still needing to complete the “development, prototyping, and testing required for type certification, which typically requires €1 billion to €2 billion”.
According to McKinsey analysts, total disclosed future air mobility funding dropped to around €3.9 billion in 2023, with 2024’s total expected to be similar – meaning it’s not just Lilium who are seemingly struggling to secure the equity they require to push their projects over the line.
106 firm orders
Looking towards the brighter side, McKinsey added that aircraft orders can partially bridge the funding gap and provide a crucial lifeline if they contain pre-delivery payments. However, it cautioned that “new orders alone will not solve all financial needs for FAM players,” with OEMs needing to first “invest in manufacturing infrastructure and internal capabilities to achieve efficient full-scale production” (reminiscent of the chicken-and-the-egg conundrum).
In July 2024, the Sadia Group placed a firm order for 50 jets (with options for 50 more), formalising a MoU signed in 2022 and taking Lilium’s total order book to more 106 firm orders and reservations, 76 options, and a further 600 aircraft under MoU. “Despite being behind schedule, Lilium continues to make strides, and the project has advanced too far to abandon,” concluded Pintado. “With current pre-orders, converting even half could substantially enhance the company’s appeal to investors”.
