By Allison Lampert, Joanna Plucinska and Maiya Keidan

PARIS/TORONTO A year ahead of the Paris Olympics, flying taxi maker Volocopter wants to prove to executives at the Paris Airshow it is on track to ferry customers around the sporting showcase and take off globally.

The world's largest air show tends to focus on military and commercial planes. But electric vertical takeoff and landing (eVTOL) aircraft makers are also there in force, with Lilium announcing a deal on Monday for China's HeliShenzhen Eastern General Aviation Co. to buy 100 of its jets.

The sector's challenges are many, as firms need to secure regulatory approval and convince consumers they are safe, at a time when investors are also reining in funding.

Germany's Volocopter is working to overcome these hurdles and launch the first commercial flying taxi service to take customers around Paris during the 2024 Olympics and will use the air show to demonstrate its progress.

"The Olympics are our North Star," Volocopter CEO Dirk Hoke told Reuters.

Success could boost the broader urban air mobility sector by persuading risk-averse investors that air taxis are worth putting money into, analysts and executives said.

"I think with any of the timelines for early operations it will be helpful for the industry if they are met as it will create buzz," said Robin Riedel, who co-leads the McKinsey Center for Future Mobility at the management consulting firm.

No flying taxi maker, whether Germany's Lilium or American player Joby, has received certification so far.

Volocopter hopes to be the first, but still needs to run its aircraft through intensive weather tests and provide thousands of pages of documentation to Europe's regulator, the European Union Aviation Safety Agency (EASA).

"It's not a walk in the park to be the first to certify," Hoke said.

Intensive weather tests will take place in Germany next month, with a pilot and passenger.

A broader trust challenge looms too, as many flying taxi makers have pushed back their dates for commercial launch as they struggle to bring their projects to fruition.

"You need to re-instill credibility and reputation," Hoke said, adding the current financial backdrop is also challenging.

"In combination with a difficult market, less liquidity in the market is a problem for the whole industry."

Air mobility projects that went public through special purpose acquisition companies (SPAC) in recent years have lost at least 30% of their initial value. Venture capital is down across several industries, with a shift in spend from air taxis to drones, Riedel said.

A SMALLER FUTURE

While Volocopter is among the big hopes for the eVTOL sector, hundreds of other players could struggle or fold in the coming years if the current investment climate continues, analysts said.

According to McKinsey data, funding for eVTOL projects declined from around $1.2 billion during the first half of 2022 to $710 million during the same period this year.

Alan Wink, managing director of capital markets at U.S. accounting firm EisnerAmper which has worked on such deals, said he had seen a shift in investments toward drones amid concerns that air taxis will need to overcome greater regulatory hurdles than other types of electric vehicles.

"They want to invest in companies where there is a clear exit at some point in the future and number two, there is a clear road to profitability," Wink said.

U.S. supplier Honeywell International, which makes products for urban air mobility, sees promise in the eVTOL industry due to travel demand, climate concerns and its limited need for infrastructure.

Still, Honeywell's aerospace division president Mike Madsen said he expected to see consolidation in the eVTOL space, where analysts now see more than 200 players of different sizes.

"We're going to see acquisition by larger players of some of these companies," he said. "And the best ideas will survive."

(Reporting By Allison Lampert in Montreal, Joanna Plucinska in London and Maiya Keidan in Toronto; Editing by Mark Potter)