Advanced Air Mobility - high margins taking flight in 2028

Transcript

Rich Maslen:So we're moving on to a slightly different topic here. Now, CAPA has always been there talking and analyzing about the key trends and the changes in the industry— low-cost carriers, low-cost long-haul, you know, sustainability. We're now going to talk, as you've seen by the preview video there, about advanced air mobility. Now, In Europe, there's a lot of— been a lot of bold ambitions in this space, but a lot of well-publicized setbacks as well. So this has created a lot of skepticism about where this will go as an industry. So it's really good today to be able to have Stuart here from Vertical Aerospace and Simon from Bristow Helicopters, where we can, you know, look at exactly where we are going with this, this side of the industry. And great to have an operator of aircraft, as in helicopters, to actually look at the case of will this work, how it works, and how you can make it fit. So as we've seen on the video, I think it'd be remiss of us not to acknowledge that in the last couple of weeks, Vertical, you've had some really important milestones.

Stuart Simpson:Thank you.

Rich Maslen:The first demonstrated thrust transition, thrustborne transition, the first full flight with the changes. financial support as well with, you know, bringing the financing in. I think first of all what would be good is we look at these things and we think— and I think the mic— is the mic still on?

Stuart Simpson:Yeah.

Rich Maslen:Where is this a solution? You know, is this not something that we've already tried before? What makes your aircraft so different to anything that's gone before?

Stuart Simpson:Great. So thank you, Richard. Thank you for the invite to come here. It's been a great conference. It's great to be on stage here with Simon from Bristow. In terms of what we do, we are making an electric flying taxi, a flying car. It's the first step to highways in the sky. And Richard alluded to this over the last week. We became the number one company in the world. We achieved a vertical takeoff, flying like an aircraft, and then a vertical landing, working with EASA and the CAA. That puts us number one in the world. And this product has the chance to transform how people live, work, move around the great cities of the world by really transforming how we travel.

Rich Maslen:But how does this sort of generally outperform helicopters, private aircraft, regional aviation? You know, how much of a difference does it really make?

Stuart Simpson:So if you look at any great city around the world, there's basically no helicopters in the sky, primarily because of noise pollution, but also a bit on safety. Our product is designed the same as an Airbus to a 1 in a billion chance of failure at a component level to a DAL-A standard. So we are the only company in the world doing that. So not only are we the most advanced from a development perspective, we are the only ones certifying to the same as an Airbus, which sets us apart. So this product will not just displace helicopters around the world, it will open up a new form of transport because suddenly we're having all the great cities around the world want to talk to us because you can't build more roads, you can't build more tunnels, citizens are frustrated, this is silent, and we get over 95% acceptance rate and demand customers for this type of product.

Rich Maslen:Yeah, it sounds great, but Simon, you know, coming, coming to you on the practical side, you know, you're, you're running a business and at the end of the day it's about the returns on the investments you're making. You're in a sector particularly where physics, weather are really big factors in things as well. You know, do the economics of this stand up? I know you're sat next to I should have sat in the middle. Does it all add up?

Simon Meakins:I mean, the simple answer is we think it does, yes. But, but there are some really important caveats to that. And it really comes down to what is the exact use case we're going to use these aircraft for. And we have a portfolio, not, not just Vertical, although we have a very close relationship with Vertical, but we have a portfolio of different types of advanced air mobility aircraft. Both from, from conventional takeoff and landing to short takeoff and landing to vertical takeoff and landing. So it's about matching the use cases and the capability together. It's about working adjacent to our current markets. We're not looking to replace our helicopters with these aircraft yet. There's a lot of capability that Neil needs to build to that, but we can support close to that. We have the people, the infrastructure. So when we're looking at the economics, that's the first thing we look at. And then we look at very clearly what is the operating cost of these aircraft. So where we see a really significant difference between an eVTOL and a traditional helicopter is in that the component level and the simplicity level, there is a lot less components in these aircraft with distributed electric propulsion. We don't have turbines, we don't have gearboxes. So we're taking a lot of complexity out of that. That twofold drives a cost in, in actual parts and, and capability there. But secondly, we expect, and we've tested this out flying a, a, an aircraft in Norway for the last 6 months, a significant reduction in the engineering activity that needs to be carried out to keep these aircraft in the air. So I think those 2 pieces really drive the economics. And then there is, of course, an economy of scale here. You know, we have to get to a volume of flying. We have to be able to, to get the right level of, of seat capacity on these aircraft to make it. But if we get that and we fit that to the right market, then there is definitely a very positive margin to be gained from flying these aircraft.

Rich Maslen:So that all sounds really encouraging, Stuart. As you said, you've, you've had a really good couple of weeks where, where you've gone with it. What's the next stage? Obviously, you You know, you want to take slow progress with these things. It takes a lot of steps to get where you're going. What comes next and what's keeping you awake now thinking, well, this is the next big thing that we have to hit?

Stuart Simpson:So what comes next is certification. We have proved our aircraft works, the concept works. There's a 90-plus percent read across from that to the certification model, the Velo. So we are laser-focused on that, working hand in hand with the EASA and the CAA. And we have a timeline of that for 2028. Now, I reset that in '24, and it was a big deal for our board because back then all the competitors were saying, we're going to certify in '24, '25. And I said, no, I've done a couple of FTSE 100s, I've led them. You cannot mislead investors, customers, regulators, partners like Bristow. So we came out and said 2028. And I did that after working directly with our partners at the CAA and EASA. They came on site, they reviewed our program and said, yes, we will work with you to put that into the market in '29. Certified '28, immediately into service. Now, what keeps me awake at night is we are the only company in the world doing this to this standard. We are the ones— we'll be first in the world to be certified. So we're kind of cleaning the regulatory pipeline. So it's a huge amount of work for the team, but we've got great partnership working with people like Bristow deploying the aircraft, great partnerships with other customers and our engineering suppliers. But that's the big challenge, is really getting the regulators to come with us.

Rich Maslen:Okay. You know, I'd be interested to get some views from the audience there. So maybe you can, with a show of hands, you can tell me you know, do you really believe that AAM will be a meaningful concept? Maybe not by 2028, by, by 2030. So those of you that, that believe it is going to happen, can you raise your hands? And those of you that obviously don't, just so I can— And those of you that don't have an opinion. Yeah. And I think that gives us the answer what we expect, that we are in a situation where We believe this could happen, but we're also very skeptical about it, about it moving forward. You know, Simon, you spoke about the operations side of things and, you know, the reliability and the parts and everything else. But, you know, looking even further ahead, when you have a good-sized aircraft, you know, what is the major benefit that AAM will offer over helicopter operations?

Simon Meakins:Well, I think there's a, there's a couple of benefits, of course, and Stuart very well talked about it. It is the ability to fly a a much quieter aircraft, and of course, a much more efficient aircraft. You know, what we haven't said yet is these are zero-emission aircraft. This is pure electricity driving these aircraft. So there are significant environmental benefits of using these aircraft. So I think that really, to me, is one of the biggest ones. And then being able to unlock travel into new locations. So, you know, as scale happens, then The cost, of course, reduces, and we get to a point where we're democratizing travel using these new aircraft in a much greater capability. So, you know, we'll— let's be realistic. Initially, we're going to start by operating and doing such like— such as airport shuttles and transfers for premium passengers. And there's no— there's nothing wrong with doing that. But as we get more into this and as the efficiency gains, then I really do think there's some interesting use cases. in regional travel, in linking the regions, in linking remote areas, and actually really being able to deliver value to, to, to the, to the public.

Rich Maslen:I think most people when they see this, they see some of their headlines and think, oh yeah, I'm— this is an opportunity for me to get to the airport quickly as a taxi, avoiding, avoiding traffic and everything. Stuart, from, from, from the airline perspective, obviously this is a great maybe an ancillary, an opportunity to add to the whole journey. But airlines are sometimes reluctant to, to be the first to make these moves. How do you think that's going to develop? Do you think first mover status will be significant for those that are willing to, to look at this? But, or do you think it's, it's going to have to be a wait-and-see process?

Stuart Simpson:So, a really good question. For those, those who don't know, we've got over 1,500 pre-orders from some of the great airlines around the world, working with Bristow. We have American Airlines, Japan Airlines, GOL, so all across the world. And that takes us through about 4 years of production. And we actually closed the order book about 3 years ago because we said, look, that, that's kind of enough to work with. And our customers have shaped the product for us. But in terms of why they should want to grasp this opportunity, as a human, we're all human. I travel at least twice a month to New New York, the ability to give me back some time, I will fly with that airline. And what do I mean by that? It's a roughly 12-hour elapsed time London to New York. The flying across the Atlantic takes around 7.5 hours, but it takes me 4.5, 5 hours getting in and out of London and Manhattan. Well, if you can shave 2 or 3 hours off that, which we can no doubt, probably more, everyone's going to go for that. So not only do you give back millions of hours to your customers, you create a wonderful experience because our product really is quite beautiful and something to behold. It's silent. You don't have to wear cans like in a helicopter. So the ability for airlines to demonstrate that forward thinking, I would say, look at some of the cities around the world, the conversations we're having with Miami, Tokyo, Osaka, Seoul, London. These cities want to showcase innovation and be at the forefront of what a great city can look like. And that should read right across into what a great airline wants to look like.

Rich Maslen:It's maybe a bit cheeky of me, but, you know, from the airline perspective, is this about network extension? Is it about a premium offering? Is it purely brand positioning ahead of others, or is it all 3?

Stuart Simpson:I think it's all 3. And I think for each of our customers, we'll have their own sort of view on how they deploy them. And something very important to note, we're not competing with our customers. We're an engineering company, an aerospace company. We design, engineer, service, and sell the product. We're not competing. So how it's deployed will be for the airlines. But the opportunity is enormous. We actually turn down a lot of people. We get loads of inbounds from people that want to buy the product, and we say, no, sorry, we don't want to deal. We want to work with large professional companies like Bristow who are going to work with us at the start to prove that this type of product works. And then once it's up and running, it is the first step to highways in the sky, at which point you can grow it through different products and different channels.

Rich Maslen:Now, Simon, I'm interested from your perspective because have you gone out to the people that you fly for and actually got their views on whether this is what they want as well? Or are you driving this as a business decision from Bristow's perspective and your customers that are flying, you know, will take what is on offer?

Simon Meakins:I guess a little bit of both. I mean, I mean, certainly we, we do not see this replacing our core large helicopters that are flying for, for oil and gas contracts out to the rigs. It's a long way offshore and, and, and these aircraft just don't have the capability yet to do that. Maybe that comes in the future with hybridization. and developments as we go forward. But we see this as an adjacency. So we see this about building out the market next to this. So the use cases that we look at are initially starting off looking at some cargo applications using CTOL or STOL aircraft and then moving into passenger. We talk about doing this pragmatically, crawl, walk, run, taking this in the right way. But I think it's the partnerships that are so important here. And, and one of the key pieces that we're doing currently with Vertical is working on what an offering can look like to an airline, which is almost a joint offering. So it's Vertical bringing their fantastic product, and then it's us with our 75 years plus of operational experience being able to fly these aircraft on behalf of the mainlines, take that risk away, be the easy button, and actually be able to operate on behalf of under our operations certificates that we've got across the world. You know, we operate across 15 countries and 5 continents, so we're actually able to almost in many cases do an end-to-end, you know, bookend that flight to New York and actually be the supplier in the UK and then in the US as well. And that's quite a powerful offering, I think.

Rich Maslen:Now obviously we saw that bit of skepticism earlier on from those in the audience. We've got a couple of questions here that will be quite interesting to One of them's a fan of EVs. How long between battery charges? Will it be easy to operate on a daily basis?

Stuart Simpson:Stuart? Yes, absolutely. Very easy to operate on a daily basis. We design, engineer, build the batteries ourselves. They are designed to be charged within about 10 to 12 minutes once the aircraft's done a flight. So in the time it takes to take the passengers off, grab the luggage out the back, Get them out the way and then bring the new passengers on board. The aircraft's charged up again. So it really bounces between kind of 20 to 80% of charge in 10 to 12 minutes. So very simple to deploy repeatedly over the course of a day.

Rich Maslen:And the other question, I think if we could actually answer that, we wouldn't be sat around here. We would be held high in the industry. So AAM is a new market emerging. What should it learn from a century of mistakes in the aviation industry to improve in regulatory, technical, and economic aspects? Can we learn that? Are there too many factors that we don't have control of?

Simon Meakins:I think there are some significant learnings that we can get to here. You know, if we touch on the regulatory side, we do see today differences between the regulatory set in the US and in Europe and the UK, which does cause challenges, especially for a global operator like us. is that we may be looking at different standards in one region than we are in the other. So, you know, my call would be— and I actually sit on an IATA working group on this— to try and bring that together. That would be fantastic. Sorry, ICAO working group. And then, and then I think, you know, the other lesson, and it's one of the key parts of the relationships, is this is a brand new industry. Everyone is learning and everyone is working together. And the level of collaboration that you can get You know, we can talk about what we require in the aircraft and actually then Stuart can build that aircraft, you know, and we're really feeding in at that right at that beginning. So it's not a classic relationship between an operator, an airline, and an OEM. It's much more of a collaboration. And I think that lesson is really important because then you're actually going to get the product that you want rather than the product that, that is, you know, someone else decides you want.

Rich Maslen:It all sounds really positive. So, you know, we've got about a minute left. So Stuart, as I said, we've seen the skepticism. There's a big negative narrative about this, you know, beyond a good PR strategy. How are you going to make people realize that this is going to be the future of flying?

Stuart Simpson:Yeah, I mean, I actually saw lots of hands go up, so there were a couple at the front that didn't. So there wasn't— for those at the front, there were lots of hands up behind you. This is real. There's been a huge shakeout. So I was actually approached to lead Vertical 2 years before I joined them. My background's 30 years in engineering-led businesses, and I did 2 years of diligence before I agreed to join. And that focused on customers, talking to customers of the company, regulators, investors, suppliers, to look to see if this was real. And after 2 years, I concluded, yeah, this is going to happen. And what's happened over the 2 and a half, 3 years I've been involved with Vertical, the industry has Evolved enormously. There has been a shakeout from over 100 players. There's now around 5 that are still going. We are one of those 5. We are the furthest ahead. This is real. You know, this is real. We will be certified in '28. These will be flying all around the world in '29.

Rich Maslen:And just very quickly, what's the next proof point that we will see of the next step of this?

Stuart Simpson:We'll be at Farnborough Airshow demonstrating the aircraft every day, and then the first version of our final aircraft will be flying around this time next year. We all look forward—

Simon Meakins:going on, we all look forward to it.

Rich Maslen:Stuart, Simon, thank you very much for your time. Can I have a round of applause for the guys, please?

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