Aviation investors try new ways to invest in startups as budgets tighten

It is the best of times and the worst of times for aerospace innovation. On the one hand, the pace of innovation is rapid, with electric air taxis such as Joby moving closer to safety certification and drone developments accelerated by warfare. At the same time, airlines and aircraft manufacturers, still recovering from the after-effects of the covid pandemic, are working on precarious finances and are ill-placed to make heavy bets on their innovation arms.

“Aerospace is in that transformational stage,” says Nichola Bates (pictured, above), founder of XeleratedFifty, the innovation and investment group that recently spun out of aerospace company Boeing. “The next generation of aviation is now real that people can see it. We can see drones and air taxis flying around. It’s actually real. Financial investors are saying, ‘okay, now it’s ready for us’. I think we’re in that stage where these new things are growing, and there is potential to be really disruptive.”

But it is hard to focus on innovation when more immediate business issues need attention. “The recovery from covid has been a lot more difficult than expected. The supply chain and the infrastructure around aerospace hasn’t recovered as quickly as anyone would have would have hoped. All of that leads to a different focus. The fear around the bottom line becomes more acute,” says Bates.

Both JetBlue and Boeing have posted heavy losses – JetBlue reported a net loss of $208m in the first quarter of this year, while Boeing posted a loss of $11.8bn in 2024. Both companies’ innovation arms spun out to become independent operations earlier this year.

Bates took the startup accelerator and investment programme she had built at Boeing outside the organisation earlier this year, making it into a part of FiftyGroup, an investor in the industrial sector. The move came soon after JetBlue Ventures, headed by Amy Burr, spun out of US airline JetBlue, turning it into part of aviation investor Sky Leasing.

Flying in formation

At the same time, other aviation investors are clubbing together to invest in capital-heavy areas such as sustainable aviation fuel.

United Airlines Ventures set up a sustainable aviation fuel fund that has brought in money from more than 22 external investors, providing extra firepower and a measure of independence to the fund.

Another group of airlines linked to the Oneworld Alliance, including American Airlines, Alaska Airlines, Cathay Pacific, Japan Airlines, Singapore Airlines, and International Airlines Group (IAG), parent company of British Airways, have jointly backed a $150m SAF fund that will be managed by venture capital firm Breakthrough Energy Ventures.

“Any individual airline’s CVC faces an uphill battle when investing in deeply technical sectors like SAF. Seed investments in this sector are completely a different proposition to something like software, they are much more capital intensive,” says Matt Ridley, director of sustainability and innovation at
Oneworld alliance

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“A single CVC team can’t hire 10 SAF specialists, but by investing together we can draw on a talent pool that effectively gives us that.”  

Investing through an external fund run by a third party also allowed the investments in SAF, which require a long-term capital commitment, to be protected from short term priority shifts at the airlines.

“CVC investing can also be subject to pendulum swings, alternating between almost total independence and being closer to the core corporation.  Having seven or eight airlines oscillating between different degrees of strategic and financial focus in the investments wouldn’t have allowed the same kind of long-term benefit. Investing through this fund insulates the decision-making on investments from those corporate swings,” says Ridley.

Taking a broader approach

While these moves — spinning out or investing together — have been responses to constrained budgets, they can also be an opportunity to broaden the scope of the investment team’s activities.

“The restrictions are gone now,” says Bates. Her team — which had a heavily hands-on approach in helping startups build and scale their businesses — had always fielded requests from companies in other sectors to deliver projects for them.

“There was such a crossover in the companies that we worked with, whether it was from the aerospace, oil and gas, or automotive sectors, we were always asked if we could do this for them. We could only do that if it was a strategic benefit to Boeing. Now we don’t have that restriction. We can work across different verticals, which is really positive.”

Bates and her team supported more than 40 startups in 14 countries while part of Boeing, including supporting Sees.ai, a company developing autonomous drone inspections for critical national infrastructure such as power lines, pipelines and railways. Sees.ai recently raised a £3.65m round from investors including Boeing and Hearst Ventures.

But now Bates is seeking to apply the model to other sectors such as energy, defence, space and shipping. “We’re looking for things that can be really transformational to these hard to disrupt industries,” she says. “The reality was that there are things that I could do at Boeing because of that profile, that platform, the access that [that brand] gives you. However, it needs to be bigger. It doesn’t happen with one organisation. It takes a community to come together, to really start pushing forward,” says Bates. “My dream for this was always that we build that neutral platform where organisations can come together.”

Benefits for outside collaborators

There are benefits, too, for the outside groups working with these corporate investors.

“For Breakthrough the benefit is that you have customers representing about a third of the 2024 SAF market in this fund and you get all the strategic benefits of that. The potential customers of SAF are all in this fund,” says Ridley.  

Meanwhile, for London-headquartered Fifty Group, the addition of XeleratedFifty brings more early-stage investment capability to an organisation that has typically invested in much later-stage financing and large infrastructure projects that can take decades to realise.

“The LPs that they’re working with are all very excited about now having us support what they’re trying to do at earlier stages, helping them identify the innovation coming through. We are making sure that they’re innovative and challenging them with some of the things that we’re seeing in the portfolio. We’re holding their feet to the fire to say, here’s how the technology has changed the 10 years since you started this project,” says Bates.