#70 Bobby Healy, Manna: Unveiling the unit economics behind profitable drone delivery

Bobby: 0:00

I think the most important thing is the audience to understand that the economics have now been proven for this space. The viability of it has been proven very clearly. That this works, that it is better than the alternative in terms of just the economic aspect of it. That is the most important takeaway here because there still remains a lot of doubt about that. And I, I think there has not been a focus of it. I think we're probably the only company that speak about unit economics, costs, traditional business things. We don't talk so much about our aircraft. We don't do any cool videos of our aircraft because it's not what it's about to us. So the takeaway is focus on the economics and that is what's going to make the difference between winning and losing in this space.

Jim: 1:54

Hey, welcome back to The Vertical Space podcast and our conversation with Bobby Healy, CEO and Founder of Manna Drone Delivery. Bobby was a standout guest when we had him on the podcast back in March of 22, and we're delighted he could join us for a return visit today. Returning guests, give us such a cool perspective. They provide an update on the original assumptions and actual outcomes of the last two years. And with Bobby drone delivery overall, and more specifically Manna Drone Delivery, he reminds us of the original assumptions, what has actually occurred and what's been pleasant and disappointing surprises and how he sees the future and perhaps differently than his original assumptions. For those of who know Bobby and listen to his original conversation, you know he's a compelling, articulate industry veteran and accomplished aviation business professional. He's both a person who understands the technology and its application, and combines this with decades of aviation knowledge. And highly successful aviation technology implementation. This isn't always the case with some of the innovators and leaders in advanced air mobility. And it's perhaps one of the reasons more our app to bet on Bobby's projects and his vision for the future. And as we do with all guests, we listened to their important messages and we politely challenge their core underlying assumptions. And we've done the same with Bobby. Listen to what Bobby says is the killer app for drone delivery. Do you agree? He provides details with market size and price, which is refreshing. He talks about the value of B2C versus B2B in drone delivery. This in itself would make for a good podcast discussion as a lot of companies are focusing on B2B delivery. One of Bobby's essential messages is that the economics have now been proven for this space. Listen to his discussion of business and operational profitability. As we all know, getting to profitability is a challenge for any business. And it has been particularly challenging for some in advanced air mobility. Listen to how we discusses how Manna wants to power big and small brands directly. As an example, he has a deal with Coca Cola, where he flies their products. He discusses how he simply wants to replace the road and that consumers will and should never go back to road based delivery. If you listen carefully, you'll hear why Bobby has been more successful than others. I was a bit surprised by technology is actually deploying in house versus what others would hope he would purchase from outside technology providers. And finally listen to where Bobby believes advanced air mobility investments should be made beyond drone delivery. His answers may or may not surprise you. So many, thanks to Bobby for rejoining us and to our listeners, we hope you enjoy our talk with Bobby Healy as you innovate and generate profits in The Vertical Space. Bobby kicked off his career building video games for Nintendo. He then founded Eland technologies an airline technology company, which he sold 12 years later to SITA. He then built Car Trawler the world's largest mobility marketplace for airlines over 15 years and led two successful LBOs for the business. For the last four years he's been building Manna a"Drone Delivery as a Service" business, whose mission is to improve the world by making lightning fast, suburban deliveries, affordable green and safe.

Luka: 5:45

Bobby, welcome back to The Vertical Space. We first spoke in March of 2022 and so we thought it would be great to bring you back and talk about the drone delivery industry and what has changed there, as well as what has changed with Manna. A lot of things have changed. So time to debunk some myths.

Bobby: 6:02

And it's great to be here again, guys. I'm really looking forward to it.

Luka: 6:05

Perfect. As you know, we typically ask if there's something that few in the industry agree with you on, would you amend your original answer or something else that's on your mind?

Bobby: 6:16

If you look at my LinkedIn, you'll see that argument or the main arguments play out. Most people assume, not people in our industry, but generally people think that the use case is critical products, medical, defibrillators, urgent, societally beneficial products, and they are great use cases for sure. But the economic reality is that coffee and takeaway food is the killer app for what we do. That's one thing that most people, they don't disagree, they're just uninformed. They haven't done the work or the research that we've done on where the market opportunity is. And then the second one kind of hand in hand with that is a lot of people believe again, incorrectly that the unit economics or the capital economics don't work right now that they will at some point in the future when some magical technology comes along to make them work. But that's where I find, I enjoy myself the most on LinkedIn answering some of the people that have, raised those questions because I mean, I have the data, we have the flights, we're operating with profitable economics now. And I do enjoy engaging with people on the many misconceptions that are in our industry. And thankfully, we've already debunked them, not in theory or research. We're actually flying the debunk, even today as we speak we're flying aircraft in Dublin that are running profitable unit economics.

Luka: 7:45

I would add that even when we talk to industry insiders, there is a tendency to think that B2B delivery use cases will be the ones that scale first, or at least if you asked them a couple years ago. There was a general tendency to believe that urgent cargo, high value not necessarily high volume movement will be the one that gains traction initially, especially because of the, arguably easier safety case to build with predetermined points in the network, as opposed to ad hoc, don't really know where the next order will come up, low value, you know, how in the world can you make money, delivering coffee and meals, et cetera, et cetera. Yet, as we often discuss on the podcast, those use cases didn't really scale past POCs and pilots, globally, whereas the, B2C delivery, the kind that Manna is doing is really starting to show some interesting inflection.

Bobby: 8:44

Yeah, I agree. In the end we're running an infrastructure and that infrastructure is an airline. It's a cargo airline. And just like any other airline, utilization is a key factor in the profitability of that airline. And every airline in the world talks about load factor or utilization in our world. And you don't get that with high priority, critical goods, the volume just isn't there. So there's no world where you can make, those critical medical type deliveries a very interesting business from a commercial standpoint. And the other thing is you don't learn anything by doing that. Other than building an aircraft, you don't really learn anything. The real learning in serving the space we serve is in being in the trenches doing five, six hundred, a thousand deliveries a day out of a small car park and getting a 30 second turnaround time and embedding that learning into the software, into the hardware and iterating through that. So unfortunately, and there's a number of great players in our space that are doing and have done a really good job, pioneering job, I would say in medical delivery, but it doesn't translate in any way whatsoever to suburban, backyard, high throughput delivery. it's just two totally different paradigms and two different things to optimize.

Jim: 10:09

Some of the guests we've had on have sometimes mentioned coffee delivery in a trivial way.

Bobby: 10:16

Disparaging way.

Jim: 10:17

Yes. And so, so when, as you're saying, listen, it's a, is it a good start for you? Is it a good proving ground for you? But can you scale and meet your financial projections that you want to hit in the next three years, delivering coffee?

Bobby: 10:32

We already, every single coffee delivery we do is profitable. So 100 percent of them now, like we used to be at the weekends because we'd have higher utilization and then, weekdays were less so, but now our volume has diluted the fixed cost per location so they are profitable. And the thing about coffee is there isn't a product as popular on the planet for adults on a daily basis that has the adoption rate and the frequency and the gross margin that works so well that where the benefits of flying in a straight line as we do underwrite the new mode of delivering these products. So in a world where there's no such thing really as coffee delivery and people are now, I mean, you know, Starbucks or Starbucks drive thru is an example of Starbucks mobile app, people are absolutely addicted to, I would say, high consumption patterns, high frequency purchasing coffee. So of course it's going to be the best product. But now you say, people do trivialize it. Yes, only because I think not from a business sense, they're not saying coffee isn't a great product, but they're really saying, I think, is using the airspace to deliver a coffee seems like a bad idea to me. That's really what they're saying without saying it. And that's the purpose of I think regulation and the standards like Part 108 or in our case, U-Space in Europe, standards that are scalable that do allow high throughput in that airspace below 500 feet. And when we look at the market size we estimate that today there's 5. 2 billion food deliveries a year from the top four aggregators annually growing at 15%. So think DoorDash Uber eats all the way down and that's with a constrained market where there's a labor shortage, there's labor costs, economics problems, and there's a quality issue. So, so therefore those 5. 2 billion orders, road based orders are coming from customers that want it come hell or high water. Even if it's a bad customer experience and it's expensive. And the U S customer is paying nearly a 60 percent premium on basket value to get that pizza delivered. And they're never happy with it, but look, 5. 2 billion orders. So that's the current market. Our estimate puts it at a 16 billion order market without even trying, if we can remove the road from the equation and use aircraft. So you tell me one industry where you have probably a hundred billion dollar market staring at you in the face that's untapped, where the technology has proven we've already got positive uni economics. And the only thing between us and that giant market, I guess there's a social acceptance thing. You can't go too fast, too quickly. There's some regulatory, things still to unlock. But if you side that up beside blood delivery or vaccine delivery or whatever, it just dwarfs that space. And we didn't want to take on something easy. We wanted to take on the most impactful, space and that is everyday goods to everyday people in every suburban house on the planet profitably. And we're at the start of that now.

Peter: 13:53

The other thing that strikes me about the coffee and the last mile consumer delivery is that you have the opportunity for a very consistent operation in order to make deliveries into all those customers in the market. By and large, they're already accustomed to ordering things from their phone from the ground based delivery aggregators. And in contrast, when we went and looked into the B2B medical delivery space, at least in the developed world, the companies face a pretty involved enterprise integration and organizational integration for each customer or each segment of customers. How is that flight operation going to work? Who is going to have the authority to initiate a flight? All of it ends up being a pretty heavy front load, cost and integration and it's heterogeneous operations as the business grows. Whereas in this it seems you already have a foundation of educated consumers accustomed to receiving deliveries via phone operations and it lays the groundwork for a reasonable path to go and scale a company to go and address that market.

Bobby: 15:04

Yeah, and there's no, enterprise sales process or there's no finding a budget somewhere in some hospital or some company's budget to try and do this innovative new mode. Our customers are the ones that are drinking the coffee. And they're abundant and they're aware of us and it's viral and all of these tailwinds to what we're doing that don't exist in the enterprise market. And then the other thing is we, again, we look at different densities. So European population density is much higher than US population density in suburbs. So for example, in Europe, we use a lot of motorbikes to move blood around between hospital critical to beat the traffic and it's very hard to justify, you know, why would you spend a large infrastructure budget and drones when the motorbike network's already there, largely run by volunteers. it's just sometimes forcing technology into a place where technology doesn't belong. Now different in Africa or, you know, countries that don't have transport infrastructure anyway. And of course there, you're not providing drone delivery. You're providing transport infrastructure. But there's already solid transport modes in most modern economies that are not as good as drone delivery, but they're not far off. So your benefits are marginal. And then you're incurring, as you said rightly, all this overhead of cold chain of all the trail of every part of the process for that sample or whatever it is. And then of course, toxic substances. a lot of the products you might want to fly in medical areas are considered hazardous substances, so, chemotherapy drugs is a great use case, but you're into a whole other area of risk there. And we just said, look, there's parts of that prize that we're interested in and we also liked the fact that it's a critical need to deliver those products, but at the same time, it comes with just such difficult challenges on the economic side of things that from my view, it's always going to be a business that's subsidized by something. And that's, I think, why it succeeded so well in Africa to date. And I think honestly, it's going to be challenged in other markets.

Jim: 17:18

I may say something really quickly, we can move on from this. As it relates to medical delivery, and in clinical pathology versus anatomic pathology, so blood versus tissue, I think an argument could be made that there's high volume of both, and tissue pathology will have a much higher critical factor, and there'll be a lot of price behind that, because there's a sensitivity to it where that may be a good market. I think they're both relatively high volume, but one difference between a cup of coffee is that the economics may not play out unless there's a lot of volume in the delivery. They're not going to pay a lot for one piece of blood, and I think one thing we discovered, Luka and Peter, on one of our podcasts was what's the real value of getting it there a little bit faster when it's a 24 hour turn on the testing anyway? But my sense is that the, and Bobby, in hospitals, labs, there's a very large cost item set aside for courier.

Bobby: 18:20

Yeah.

Jim: 18:21

So that's a big element for labs. So maybe that's a next stage for you if the economics play out, but that meets a lot of your criteria, conceivably clinical and anatomic pathology, maybe.

Bobby: 18:32

Yeah. I mean, I'd love to be, I'm not sure I'll be proven wrong here. What I'm, I guess in the end, what I'm saying is if you're going to build an infrastructure then you underwrite the cost of an infrastructure with a viable business case, and then all the other applications can work on top of that. So if you're already in a city or a suburb or whatever it is, and you're flying trivial products, albeit you're making money doing it, why wouldn't you then deploy that for other use cases? It could be beer. It could be medicine, like you say, samples, all of these things. And we can pick products up as well as drop them off. And why wouldn't you deploy? Of course you would. But you don't start with that because you're always going to be building a business that needs to be subsidized by something. And again, it comes back to ambition and scale. And for us, the ambition is unlimited. And we say, what is the biggest use case that we can solve? And it is, no matter what you say. It's always going to be the suburban household and their needs. And that's going to be what will underwrite the infrastructure for any successful player in this space. It ain't going to be medical.

Peter: 19:40

Bobby, you talk about the potential to expand the market from what 5. 2 billion deliveries per year today with the ground based aggregators to something much larger. When you look at the differences that drone delivery brings into the equation, whether it's speed or environmental advantages or a safety case or cost, what do you see as being the key drivers that are creating the behavior change that leads you to think that there's a 16 billion a year, delivery opportunity?

Bobby: 20:16

There's existing numbers that show adoption rates of road based delivery between 4 and 5% around the world and they kind of point to a low take up rate and there's our own data as well. and there's different states. I think that the restaurants are a small business. Think the consumer at the end of it all. And you look at the different things that they think are important. And in the case of the restaurant, restaurants frequently, they just can't, they can't get delivery, right? It's just too expensive. They can't do it themselves. The aggregators that power them, the, DoorDashes and Ubers and so on, that power them and themselves are constrained with output as well, if it rains, if the weather's bad in any way, or if it's peak time, you just can't meet the demand peaks, with people, it just doesn't work. So the result is batching, where multiple orders are put in with one driver and therefore cold food or terrible quality food and unpredictable times. And that's reflected in the NPS or the ratings of all of the aggregators, which are on the floor, not because they're not great businesses. They are, but they're constrained by just a limited output that they have. So why are we different? Because we're point to point. our average flight time is just less than three minutes. Physics is on our side. And when you have that advantage, the outcome is look, it's literally as simple as the outcome is hot food or hot coffee or, and in good condition. And that is remarkably the most important thing. It isn't speed. It will speed kind of translates into quality, but also reliability and predictability, which is as important as quality. People are willing to wait 15 minutes or 20 minutes. They are willing so long as that's what it is. But with batching and traveling, the traveling salesman algorithm, there's no way to be sure about that. So, so the variability is very poor. And so the consumer is going to modify their behavior because of drone delivery and the advantages it has. And we already see that in something as simple as coffee delivery. And before we existed, there was no such thing as coffee delivery in suburbs. That nobody would be crazy enough to do that because you won't make any money but yet our basket value in our coffee shop is more than twice the the basket value of the average order in the coffee shop itself, because behavior, right? It's a household order. So it's 2. 3 beverages per basket. There's a bunch of pastries and so on and then the other stakeholder for us, as I said, the vendor, the small business, they're looking at this saying they're now able to reach a couple of hundred thousand up to half a million customers in their catchment area of less than a five minute flight. And they're saying this is massive for their business. So. That's another stakeholder. And then the final stakeholder for us is the aggregator itself. And we'd expect our business is going to be, we call it B2B. And what we mean by B2B is we just want to be a delivery company. So we want to power the aggregators. We want to power the big brands. We have a deal with Coca Cola where we fly their products, but we want to power all of the big and the small brands directly, simply replacing the road. And so you think about the aggregators and their numbers are public. The aggregators lose money on most of their orders in suburbs because of the time it takes to deliver them and the labor costs and the labor laws. So we know the benefits to them are actually simply unit economics. we can do a delivery for them cheaper than they can do it themselves quite simply, and still make a strong margin ourselves because of our operating economics. So there's different stakeholders, but it, and some of them, it's about economics and some of them it's about experience and quality, and some of it, it's about growing the market. And by the way, the five to 16 primarily comes from number one is actually just widening the addressable market. So you're going from where the aggregators really only want to do very dense areas and quite short trips to obviously optimize their costs. We can now do much longer trips and support much less population dense areas. So you're actually widening the market to those like 92 million detached single family homes in the USA. And similarly in Europe, there's these really fragmented towns, suburb cities that aren't that easy to address for the traditional mode. So it's a combination of just customer behavior, I think, and market addressability.

Peter: 24:57

Yeah, I mean, you answered the question, but I was going to ask if there are categories of products that people just wouldn't consider ordering via ground based delivery because they just know it's going to take too long, like a latte or something. And are you seeing that people will order those products given their expectation that it will arrive faster via a drone.

Bobby: 25:20

Yeah, we survey them as well. And quite interesting. If you look at lots of publicly available data, the key categories for road based delivery are, in order, if I just pick one market, the UK, where there's great data. And it's quite similar in the USA as well, but there's the top one is pizza. And then it's, other products like Indian or Chinese and burgers and fries is like fourth or fifth in the list of, perishable prepared meals. But actually if you ask people what they want to eat, burgers and fries is the number one thing. So what's going on there is people already know that certain products just don't deliver well, they don't travel well, and anyone that's got a road based delivery of burgers and fries knows that after 20 minutes, it's just toxic. So, so therefore you can't reheat it either. So, so consumers know not to order these things. So in the existing road based data, there's a hidden demand that's there that's not satisfied. We know that already from ours. And our number one, outside of coffee, our second one is probably tied between burgers and fries and ice cream. And an ice cream is an interesting one because you don't need a lot of choice in ice cream, right? You just need a quality, well known brand or two for the customer. But ice cream is interesting because it's 168 hours of the week almost, it's almost flat by hour of day of week. And it's driven by family orders, right? These are orders that have an experience associated with them, like a party or watching a movie or things like that. And the alternative is getting your car for 35 or 40 minutes to get the ice cream if you don't happen to have it. So we do see people now starting to rely on us for certain categories like coffee and ice cream that they might've pre purchased a week at a time and stored it in their fridge before, and now they just don't care cause they can get it from us and then the really the alarm bells, I think in a good way that ring for us is that burgers and fries in terms of meals are number one category. And finally, I would say people are saying, finally, I can get French fries. It actually tastes like French fries and they arrive. And I know that sounds trivial, but it isn't. It's the flagship product of McDonald's, right? I mean, French fries. I started this business because I wanted a bag of French fries and we call them chips in Ireland. I joke about it, but I did. And it's one of those, highly sought after products that delivery just fails.

Luka: 27:51

I mean, Uber is a great case study in how an addressable market can expand when you introduce a new capability or a new user experience. I don't have the data to back this up, but I'm just basing this on my own consumption patterns and those close to me, but I'd be comfortable saying that a lot of Uber users their budgets for taxi and black cars prior to Uber were not the same as their Uber budgets.

Bobby: 28:18

And the amount of music people consume now, it's Spotify. there's things that consumers never would have told you they wanted until you gave it to them and then they're absolutely reliant on it. It's like air and we'll be the same. We already are in the towns we operate in. It's just, people are blown away by the fact that they can get our service but at the same time, they straight away adjust to it and they start to get angry with us if we're 60 seconds late it almost feels like for some of them. So, so, and that's a good thing. it really is the end of road based delivery. When you offer this service, consumers never going back to road based delivery. And I think that's not unexpected. Our job has been at the engineering level to make sure that no matter what the weather is, they wouldn't need to go back. So that means flying in minus 20 C plus 42 C, very strong winds, I think 35 mile an hour winds, things like that, rain, obviously snow. And if you don't do all of those things and really from an engineering point of view, harden the product, you don't have a business. There's no point being a drone delivery business for fair weather because the restaurants and the customers that you're powering, they'll just, they just, if you, if they can't trust that you're going to always be there, you're a novelty, you're the circus. And that's not who we want to be. So you have to start with the very hardest of solutions and an engineer for that. And when I think about what advice I would give people, you can't start in this business with a halfway house. You have to have the final, picture solved. That's a mistake we nearly made at the start. And just by sheer luck, we happen to be in Ireland, which is the worst country in the world to do a drone delivery business, permanently raining, permanently windy. So therefore we can fly in any weather, but it comes back to, and it's very important. I know it sounds like engineering, but I'm trying not to be too engineering about this. But if you want to be real in drone delivery you have to replace the car fully. You can't be partial replacement. And that makes it much more difficult. The engineering equation is just much harder and the testing equation is much harder. Even the delivery mode, the way we deliver the software we've written for that arrival at the house and delivering, it looks simple. but it's not, it's quite the opposite. And then testing that out in the wild and, is one thing in a big field in the middle of nowhere, but testing it where there's customers underneath you, is a whole other thing. And that takes so much time. Sorry, I'm wondering, but it goes to what do you need to solve for, right? You need to solve for predictability, availability, speed equals quality, cost, unit cost, and yeah. So safety, I don't even talk about safety because you don't have a right to exist, if you're not safe and that comes down to, yes, we have governance because we're regulated by aviation regulators and a lot of oversight comes from that. But. It doesn't make you safe. There's a million ways to still not be safe, even if you're regulated. I think that comes from, there's a, there's an existential threat hanging over the industry if it's irresponsible when it starts to scale. And what that translates to, It took us five years and I don't think you're going to do much quicker than that. And when you start developing a backyard delivery product to, to really scaling it, which is where we are now, it's somewhere between three to five years timeline. And no amount of fantastic engineering, or engineers speed that up. It's a process of gradually evolving, crawl, walk, run more and more volume. You can't please the investors with this one. You have to manage them and let them know that it's a long, arduous process to make sure that you're safe. And I certainly see that in the industry, we've done a great job at that. I don't see anyone pretending that it can go, at blitz scaling pace, but it will, and I think there's a number of, operators like ourselves, like Wing, for example, Google's program that are now ready to start some really, serious growth in a safe way. So, but it is not your typical industry where a five year path normally to a startup, building a viable product with viable economics and the start of a revenue journey. That's very difficult, space by any measure. And so it'll come to what's the market look like in, in a decade, who'll be there, how many will be there, that kind of thing. Just because you mentioned the word safety, what it translates to is a market that's going to be a very few number of players with sufficient deep pockets and patience to get there.

Peter: 33:12

So, Bobby, delving into the customer experience a little bit more. Are you, guiding customers towards expectations for how long it will take for different categories of products to arrive from the time that they push order on their phone? What is a reasonable expectation for a latte versus a hamburger and fries versus other takeout food. Obviously the drone delivery operation itself is a consistent time period, but the preparation time and the other

Bobby: 33:41

Yeah.

Peter: 33:42

what should customers be expecting?

Bobby: 33:45

Yeah. There's a very difficult problem to solve actually and the big aggregators have, have done the best job at this simply because of time and the data that they have. Truth is a restaurant that's preparing meals is a very unpredictable output line, particularly smaller ones. And from a day to day or hour to hour basis, quite difficult to predict. Now there's some very large brand players. I don't need to name names, you know, they are, but they can produce a meal every 20 seconds and they can get one through their drive through every 35 seconds. And so for those types of brands, we can tell the customer down to the minute when they can expect to see their nuggets or their fries or whatever it is land in their back garden, essentially for the others, and we have a number of vendors that are, they're a super product, but they're erratic to say the least. So we tell the customer it's a three minute flight or a two minute flight or whatever it is based on the range and the wind. And then we say, and the prep time for this restaurant is between five minutes and you know, with Google flights, you get this kind of bar chart of likely we give them a bar chart of likely arrival times based on the vendor's prep time. And we tell them what's happening as well. So they know in our app or through our API with our B2B partners, they know when the vendor started to prepare, they know when the vendors finished preparing, they know when we've received the goods from the vendor. They know when it's been loaded onto the aircraft. They know when the aircraft's taken off and then they can track it in real time. So the reason we do all of those things is the customer can always see progression and that's important. So the customer does not mind waiting 15 minutes 20 minutes for their burgers and fries, so long as you keep them updated on that progress. And so we measure time by stages, but if I look at my order to arrival time. So it's a time the customer pressed the purchase button to the arrival time. We see a range for products like our Coca Cola delivery, the median time for the aircraft to take off after the order is two minutes. Flight time is three minutes. So, so median time about five minutes all the way up to the premium, we've got this French guy that makes these, delicious sandwiches, but he takes 20 minutes to make the sandwich, but again, it isn't about the actual time. It's about the confidence in that time. And look, our NPS, our net promoter score is 86 year to date. And that's because we have this obvious advantage that we fly, but also we manage, as you say, the customer expectations very clearly. through constant messaging of progression of their

Peter: 36:31

Okay. So as you scale and demand increases, how do you keep customer expectations realistic? If it's coming up on lunchtime and you get a bunch of, order interest coming in and you have only so much, delivery capacity during that hour and that, beyond a certain amount, deliveries are going to be delayed simply because you're waiting for a free drone to go and make that flight. How do you prevent customer disappointment with the experience?

Bobby: 37:00

And we have an advantage there over road as well, because we know if we look forward at the next 60 minutes and we calculate capacity in the next 60 minutes for any given GPS points, we know pretty accurately how many orders we can handle for the next 60 minutes. And that's the window where, it's actually between 30 and 60 minutes where a customer will say, I'm not willing to wait that long. I'll drive myself or I'll do without. So the first and foremost, there's no point adding capacity blindly if you don't know how to assess it in real time. So the way we look at it is we continually add capacity in units, as our repeat cohort of customers grows, so too does our volume, orders per hour, per day of week, and that's pretty easy to anticipate, and we just allocate extra capacity ahead of time. Overcapacity for us isn't such an issue when you look at the aircraft utilization, because we don't care so much about an aircraft sitting on the tarmac. We care about the people's cost, the people cost that would load that aircraft cargo, they're there anyway. So when we flex up and down capacity, it's more about flexing up and down the people that manage or load cargo or monitor those aircraft than the actual aircraft themselves.

Peter: 38:20

So the most utilization sensitive component of your operation is utilization of your human labor, not utilization of your airframes.

Bobby: 38:30

Correct. Yeah, we don't really care about utilization of the airframes. I mean, we do, but in the end, don't forget we have mobile aircrafts. Our aircraft can load balance from one cell to the other. In other words, the aircraft can autonomously go from one location to another to serve demand in different locations. So we can dynamically allocate the fleet to. And there's other great use cases like parcel delivery, postal delivery, for example, and pharmacy delivery, even that you can take orders with a four hour window on them and just send them in underutilized slots. So we can balance our utilization through the day, particularly daytime hours. So I think as we grow, there'll be more of those what we call latent orders that have a window of delivery time that don't need instant delivery that we will use our fleets to fly. So I'm not too concerned about the aircraft itself. It's the people and we have two modes of operation. We have one where we're highly centralized, all the aircraft and a handful of people. And also, for example, one of our people can load between 20 and 30 flights per hour. So that's our number, right? and 20 or 30 flights per hour is the best you're going to do because our turnaround time is between 30 and 60 seconds, right? Aircraft landing, aircraft taking off and that you can't beat that. No, there's no way to beat that number. But that's the cost, right? That's that person's cost for those 20 or 30 deliveries. And you want them fully utilized. So if you're over budgeted on those people, then you're going to increase your cost per delivery. So that's the way to think about it.

Jim: 40:09

Bobby, what's been the biggest change in the drone delivery market in the last two years since we talked? And what's been your biggest disappointment the market?

Bobby: 40:17

The biggest change in a positive way, I think, well, I think for us, it's, the pivotal moment for us is reaching profitable unit economics. Since the last time we spoke two years ago, we were,$20 or$30 cost per delivery, and now we're at just less than$4 cost per delivery, fully loaded costs, including depreciation on the aircraft. And

Jim: 40:38

revenue per delivery is?

Bobby: 40:40

I'm not telling you that it'll differ across channels.

Jim: 40:44

Something higher than$4.50

Bobby: 40:46

It's a great, it's a positive number. And like I said, I always, I'm not a great mathematician, but if you scale a negative number, you get a larger negative number, no matter how hard you try. no, look, we already have$4 in and around sometimes less, sometimes more dependent time of the week and the cargo cost per delivery fully loaded. Right. That's, and we're going to, by the way, publish this data, both on LinkedIn and through our friends at McKinsey. And so you'll see it and, but you can also see a very clear path to$2 cost for delivery, like literally with our eyes closed, we won't get there at the end of this year. We won't be far off it, but even limited scaling will bring us to a$2 cost per delivery. And what we want to win at is that, going back to the Warren Buffett, right, in a commodity world and drone delivery, ultimately, at scale and over 20 years commodity, right, it's A to B safely and quickly. The winner will be the ones that have the best cost of operation. This is why Ryanair succeeded, is why Southwest did so well in the earlier days. And we learned from history of running businesses that it's not the coolest product that's going to win in this space. Nobody cares. it's about the cost. So, so what's changed, I think we've demonstrated in superb fashion that the industry is viable, economically viable, and I think that's important. And then I think regulatory wise, again, we now fly BVLOS all over Europe. We have license all over Europe. Europe has really strong, difficult, but really clear regulations. USA has moved forward at pace as well. We see pretty much everyone operating with 135s, we see Google really starting to expand their operations, we see major brands like Walmart really leaning into it, so I would say ahead of expectations in Europe, for sure, and what we would have predicted in the USA as well.

Jim: 42:52

What about a disappointment, Bobby? What's disappointed you?

Bobby: 42:55

USA, it's still delays in 108, I think for me, unpredictability of 108 timelines. I would love to see, and we would love to be flying under 108, very soon, but, still uncertain and uncertainty kills an industry like ours, well, it doesn't kill it, but it just makes it very difficult for companies like us to continue to grow and raise money to grow when there's uncertainty around the regulatory environment. And so 108's a discipline. Well, it's not a disappointment. It's great. We love it. It's the right shape. It feels exactly what the industry needs to scale. It's just hard to say when those, rules will be written and we'll go through the process and become, routine. So is it a disappointment? No, like I'm pretty happy that we have BVLOS in Europe. There's, 500 million people here, 300 million of which we can reach. so there's plenty of business. And I would say to any drone delivery company. get over here and start flying. Like Google are flying a mile away from my house here, where I'm recording this from, Europe is a fantastic place to build some scale. It's not as great a market the USA, it's a market where you can really get flying anyway. So, so disappointments, they're not really disappointments. They're just, it's the, I just wish it could all move a little bit more quickly in the USA. and other than that, I think we're in really strong shape.

Peter: 44:23

How should we make sense of the different operating cost numbers that we see in the industry media or being talked about across the different companies that are doing this? From your vantage point, do you know if they're all being formulated the same way? Are we talking about apples to apples or apples to oranges with these numbers?

Bobby: 44:45

I think, there's some wishful thinking in some of the things that I've, seen. I would say, remembering WeWork and community adjusted EBITDA is the phrase I would think of here. You have to include packaging cost, battery motor depreciation, prop depreciation, maintenance, aircraft depreciation, personnel, all of the other costs, but those are the main ones that I listed there. If all of those aren't in your unit economics there's already a problem and particularly aircraft depreciation. So again, that goes to our aircraft has a useful life of 75, 000 deliveries. And that means that our depreciation factor is relatively low. And that's an intentional part of our product design, even battery management, battery maintenance, those ones should be equal for everybody, right, because we're all using lithium ion in some way. And we're charging them at different speeds, discharging them at different speeds, but largely speaking, while we think we're better than most on battery, I think you could pretty much assume that everyone's the same in that regard. I think where all of the players differ greatly is in longevity of the aircraft, how many cycles you're going to get from the aircraft. It's throughput per hour. And that comes to hot swap architecture or not hot swap and then charging in situ kind of the opposite of hot swap. Charging in situ means that your battery won't last as long. And after the person loading the cargo, battery is your biggest unit cost. And what I mean by that is if you're charging a battery in sub zero temperatures, or if you're charging a battery in very high temperatures, it's not going to live as long as a battery that's charged at a consistent temperature indoors. And that comes down to aircraft architecture and operational architecture. In other words, hot swap battery, the battery's only outdoors for 60 seconds before it flies. We've thought about all of that and we've thought about it because of our focus on unit costs.

Peter: 46:49

Okay, so you're treating batteries and motors as consumables. Those are not going 75, 000 flights. Those are being replaced periodically, but it's the remainder of the aircraft that you assert has a 75, 000 flight life. Okay, so how many flight hours, just from an aviation standpoint, comparing the expected life of this aircraft in terms of flight hours? How many is that? Roughly 15, 000 flight hours?

Bobby: 47:18

Yeah, it's a divide by eight, divide by eight. We do eight flights an

Peter: 47:22

hour So what is the remainder of that airframe? What data do you have that, gives you confidence that this is a 75, 000 flight item? And what's your approach to continued airworthiness and maintenance of that object over that time?

Bobby: 47:39

Data. So our old aircraft, we call it the 3.8, was a 20, 000 flights aircraft. And we've never written one off before that, but we have many of them that have done more than that. We've a couple of aircraft over 20, 000, 25, 000 flights each. So we have formed there. We know what are the things to engineer for. When you talk about our newer aircraft, which we call 3.8.4 really it's functionally no different than our old aircraft, except for the propulsion system, which is a, it's a much easier maintenance system because most of the failures in our previous aircraft came down to wear and tear during maintenance, during routine changes of parts of the subsystem, props or, motors. So our new aircraft airframe, a single piece of carbon fiber, no moving parts. And that is easy to cycle, right? It's very easy to cycle that airframe through actually half a million flight cycles, on simulator on test benches, should I say, and get the data. And that's the process for evaluating what the lifetime of each component is. You're right, our motors and our batteries and props actually, for that matter, are in our unit cost. So we write off motors after 2000 hours. We write off batteries, in a number of flights, a number of cycles. So it's very predictable. And props less predictable although there's expected lifetime for props, it's mostly, preemptive, I would say monitoring for imperfections or damage to props and changing, but it's stack ranked it's battery, motor, props. And then we apply just a consistent percentage overhead to the entire bill of materials on the aircraft outside of that annual cost, which is quite conservative to get the look, this cable failed or that, that LIDAR unit failed or whatever, because components fail individually and in very unpredictable ways. And so I think the right approach there is just apply a consistent proportion of the overall bill of materials in an annual tax almost in form of maintenance and component switching. And we're, we've been in this five years, we think we have very good data on that. So we're, and as I said, we're quite conservative on it, but it's still overall the depreciation of the entire system for per flight is quite low. It's certainly lower than the person loading the cargo. And then continued airworthiness or maintenance and, the traditional aviation part of things, I would say our old aircraft or existing aircraft depending on what you're day you're operating on, is an aircraft that required a lot of overhead, a lot of maintenance inspections, frequent inspections, frequent overhauls. And we moved now to our new aircraft that just self diagnoses everything, designed for high throughput, long time without even an inspection. But it still backs down to very traditional aviation practices for keeping aircraft in the air and ensuring that they're safe. We, I don't think we're any different there than company that flies small planes or helicopters in the processes, the training, all that stuff that happens.

Luka: 50:58

Given that you'll be publishing some numbers soon, are you comfortable sharing with our audience some high level,

Bobby: 51:05

Of course I

Luka: 51:05

major cost drivers and the specific

Bobby: 51:08

I actually, I predicted you would ask me, so I actually got a breakdown. Yeah. Yeah. Are you ready? Well, why wouldn't I talk about this? Because we, we do the best, right? So, so today,$4.27 cost per delivery of which fixed overhead, 71 cents, labor$1.93 consumables and depreciation,$1.63. That's where we are today. And then by the end of this year, well, look, I don't want to promise too much, but that'll probably be closer to$3 than even$3.50. Yeah. And then if I look at the human costs, so, and this comes to our operation, which again will evolve. We have different roles. So we have what we call a dispatcher, which is what others would call a pilot, that's a person that for us can monitor up to 20 aircraft simultaneously. What role they have? I don't know, because there's no sticks. There's no control of our aircraft, but they're there anyway, monitoring, but our loaders is our biggest cost. So, so that those are people that just take cargo from a vendor, load on the aircraft, just over a dollar per delivery. That's interesting because Ireland, in fact, Europe is a high wage environment, and so our hourly cost for labor is about$18. so if you look at that and then you look at our future system, which does not need those loaders, so when I talk about going from$3 to$2, that loader for us goes away and the vendor loads the cargo. So we're not in a rush to do that. We have the system built, we're happy. But for now we want to operate just highly centralized, very well managed, location. So we have that loader cost. And the number of the$1.63 that I mentioned earlier on in consumables, I can tell you stack ranked in there it's battery is roughly 50 percent of that currently that'll come down a bit with new battery chemistry we have, and then motors is second at about 25% and then maintenance, just a fixed cost of maintenance per flight that we apply and props and replacement components is the remainder of it. And there are some benefits to scale purchasing of these were obviously tiny now in terms of scale of purchasing. So that$1.63 we predict at scale will come down to about 45 cents. And so when we get from$4.27, where we are now, down to$3 or say$2 and 2 cents is the number I'm looking at, the bulk of that comes from reducing our consumables cost by just scale and better purchasing power. And then there's a pretty significant, unlock for us in change of battery chemistry, so going to a more conservative battery chemistry, but one that has a higher number of cycles and that comes from, again, this, we see this as a major advantage that our system has is that we don't need to charge our batteries and anything over 1C. So we can charge them slowly because the aircraft isn't waiting for a charge with us, so we might have seven, eight, nine battery systems, cargo systems per aircraft, and one of them is flying while eight of them are charging, so we can charge them very slowly and therefore get many more cycles out of the battery. And that, that counts in this space. It really does count. The top level architecture we have, we think it is designed for throughput, of course, productivity of real estate space, but also it flows through that because we have this hotswap battery, our costs per delivery are quite a bit lower than I think for people that are charging in situ, but look, those are the numbers. And we're actually going to publish the whole thing in detail for everyone to look at, but there should be no surprises in there. And I think largely our lower cost is driven by our higher throughput per hour.

Jim: 55:13

Are these contribution costs, Bobby, or what costs are not included?

Bobby: 55:16

So those are pretty much everything. Those are fixed overheads that we apply, like things like rent and electricity and things like that diluted over the volume of deliveries. And the labor, as I said, and that's, that varies depending on the volume and then the consumables. It's everything. And the depreciation on the aircraft is in there as well. That's a 75K aircraft. So the depreciation is quite small in

Peter: 55:45

And you mean rent and electricity for the ground infrastructure at that launch site? Okay.

Bobby: 55:52

Yeah, we assume a certain amount of rent and other, there's other costs that go into just being in a place. And that's a very greatly dependent on where we are, but we've applied a cost of 71 cents per delivery for those fixed overheads

Luka: 56:06

And what does that$4.27 what kind of utilization is implied in these numbers?

Bobby: 56:12

Great question. 55 percent over the week.

Luka: 56:16

Okay. And so this is what five or six deliveries per drone per hour on average. Is that

Bobby: 56:21

It depends on how many drones you have there. So don't forget our cost gets diluted by the number of drones, right? And then that's proportional to the utilization of that same number of drones. So if we've resourced it correctly, in terms of the human loaders, then you need a 55 percent utilization of that capacity to reach those numbers. Those are numbers that we deliver today based on our existing volume.

Luka: 56:47

What does that translate in terms of, daily deliveries per aircraft?

Bobby: 56:52

So we do all of that with less than 300 deliveries a day for our four aircraft.

Peter: 56:57

But there are delivery surges, in the morning, at lunchtime, different parts of the day, and then there are low periods. Is that right? And so if that's the current demand pattern, 55 percent is your threshold for these cost numbers, what is a reasonable expectation for the high end of utilization that you can achieve,

Bobby: 57:16

Yeah. Yeah.

Peter: 57:17

have demand surges during the day and slack period?

Bobby: 57:19

Yeah, exactly. So volume is what takes care of that, Peter. So you, you reduce. Or should I say you increase the granularity of utilization as volume grows, right? So we already see weekends, for example, we operate 12 hours a day. Weekends are, I wouldn't say I haven't looked last week, but they're north of 90 percent utilization now on weekends. And what we probably should do is add more aircraft and drive more demand, but we are not motivated by volume. We've never been motivated by volume for this stage of the business. We've been always motivated by those KPIs around cost per delivery and optimizing for that. So we're about to open two other bases in the same suburb. So we'll be bringing it up to the gigantic number of 12 aircraft, which doesn't sound like a lot to most folks, but that's a thousand deliveries a day for us, more than a thousand deliveries a day cause they're very productive aircraft. And if we're successful at getting that over time, if we fill that capacity, which we will, once we switch on certain new channels, but think probably across the week, it'll be anywhere from 400 to a thousand real deliveries a day in the suburb. you'll have always have that right, but we'll flex up and down the human resourcing part of that across those, days of the week and hours of the day. And we, we think a natural place to be is about 70 percent utilization and at 70 percent utilization, we're somewhere between 2 and 3 cost per delivery.

Luka: 58:59

You already mentioned that this is all beyond visual line of sight, and that the loaders are the only people involved, so no visual observers. Can you talk about how the, mission execution is done with the supervisors and any progress on the 1:many front.

Bobby: 59:16

Well, for us BVLOS is one to many. And for us, that happened at a year ago where we went from many to one. So we had like two point, two point, whatever people per aircraft down to now, actually practically we think it's probably 20 to one because that person, that resource really doesn't have a role. There's no mission planning. There's no nothing that there's really no role for that person, but we're happy to have that person there anyway, to observe and just to be aware. And there's certain areas, like we fly in controlled airspace as well. And Europe has this thing called U-Space. And we've worked with the folks in Google and in Wing with this as well, about de confliction and then bringing that de confliction up a level to ADS B IN to avoid traditional aircraft. Today, we do all in an automated way, but we'd also use that observer to observe the airspace, the ADS B traffic. But like I said, that cost is ultimately going to disappear completely because there's no role really there. Mission planning is automated for us, so when a customer signs up with us we don't see them. We don't talk to them. There's no interaction. they drop a pin where they would like us to deliver. And then we use data to decide if that pin is a safe place or not. And they're in the system. And when the aircraft flies to them, we do check while we're there to make sure the area is clean. In other words, it's less than a 15 degree angle. It's inanimate. There's no people underneath. And all that's automated for us so that there's no observers required. The mission planning is quite interesting actually because there's a couple of things that are surprisingly innovative in that space. I would like to say rocket science, but it's not rocket science, but the flight planning to optimize for energy use, depending on prevailing wind is important. And then we stream the weather from the aircraft that are in the air. So we have very accurate, very localized and very real time weather data that informs the next flight. And so that's a really important optimization for us in both speed of delivery, but also in, in energy drawn, which allows us to have that nice wind envelope or nice wind capability. And so that's very important, but another equally important part of what we do is mitigating ground risks. So, we have an effective population density where we fly. Like it is very populated where we fly. It is very dense. It's as dense as the Bronx or Queens, for example. It is really dense. And we're flying over about 450 houses with every single flight. So we take ground mitigation very seriously. And we do a lot of work there. And one of the feeds that we have is real time location data from users of our code, of our apps that they give us permission to have, and we'll monitor the space for hotspots of people. And that's a really important addition to what we've done. And so that data tells us, like, for example, if there's a beer garden, there's 500 people drinking beer outdoors in the middle of the summer. And we'll know they're there and we'll automate the flight plan around that. And so that for us has proven to be quite an easy thing to build where data didn't exist before. You couldn't really get that insight into where people were before. And in an anonymous way use it to mitigate your flights. So the flight planning is quite interesting in our world. And then the other part is aside from risk, just pure ground risk mitigation. You always think about, you don't want to be flying over the same places all the time. You want to avoid channels down certain areas to overbother people. So we ran, I wouldn't say randomized, but we, in the flight planning, we do a lot of work to reduce the effect of overflights. And that's been a key part of the acceptance aspect of what we're doing.

Jim: 1:03:17

What third party software are you using, Bobby, in that process? What's homegrown and what's third party?

Bobby: 1:03:24

That's all homegrown. yeah. I suppose our strength as a team has been in software, our businesses before have all been software businesses and either way, I think, if there was available software to buy in that space, we'd probably have bought it if it met our needs. But you have to balance always with software. The difference between software that's 95 percent what you need and 100 percent what you need is probably five years. I'm a programmer myself. That's my trade. It's often better just to build a simple system that exactly meets your needs, then adopt a complex system that more or less meets your needs. And in our case, like it is not rocket science where we're building, we're not going to be famous for how awesome our software or our hardware is. That's not what we're going to be famous for. We're going to be famous for our lowest unit cost and our ability to scale that, I think. But to answer your question, we use zero third party software.

Peter: 1:04:19

I'm curious, I have to ask, have AI coding assistant technologies made an impact on your organization's ability to write this software? Has that risen to a strategic level for the company?

Bobby: 1:04:32

Yes, it has. I wouldn't call it strategic. I would call it an optimization. We're faster writing code. We're better at testing code. It just reduces the time to write code, but once code is written, the AI is no use to you and, we have a mature platform now, so we're more I'd say tinkering, we're optimizing doing small additions and it's very difficult to let an AI into existing code and start adding things. It's more when you write it from the start.

Peter: 1:04:59

Does it tilt the equation between building your own software versus buying software? The decision you would have made three years ago versus the decision that you will make three years in the future on that question.

Bobby: 1:05:10

I don't think so. no, it, it just, when you're assessing the number of people you need, or more importantly, you might get a, someone that's a, an average to strong programmer up a level. You might, get individuals just up a level. Like some of the code I would have written recently, and I use ChatGPT or Copilot, to write some of my own code. I'm writing code now that takes two or three days. That might've taken me a couple of weeks to write before. Mostly now when you're writing code, you're using frameworks or APIs that already exist to take a lot of learning, to take a lot of time to get to use, particularly in the AI and the vision space, and that's just like, I wrote some code recently myself that, that used our security cameras to look for people walking close to an aircraft or onto one of our landing pads. That code took me less than two days to get into production. And that's something that would have taken me a month to write before. And I'm, programming 35 years. So, so think about it that way. And I think that's the only right way to think about it. Just, it just makes existing good programmers faster and better. It doesn't replace the programmer. And so your decision, whether to buy versus build would more be about if somebody has matured a platform already that has done a scale drone delivery operation, it automatically by that fact will have evolved into the right piece of software for us, and I would buy that all day long, but nobody has written a piece of software that runs a drone delivery business at scale yet, except us. And I would say Wing. And so would I buy wing software? Yes. I would buy Wing's software, but I wouldn't buy anyone else's because the software evolves in line with the way you use it and you have to use it in order to develop it, I think.

Luka: 1:07:05

You mentioned earlier that the consumer pays upwards of maybe 60 percent of the value of the meal with traditional, terrestrial food delivery. How does the drone economics impact, the wallets of the customers and the restaurants?

Bobby: 1:07:21

So that, that number comes from actually a McKinsey work in the USA where they measured and it's, yeah, it's a 55 to 60 percent increase. So you buy a pizza for$30, you're paying$45 or a little bit more. In our case, we, I mean, you can get our app, we're charging customers$5 a delivery. And we haven't seen it. That's a little bit more expensive than they might pay for that direct. Here's my delivery fee number on the ticket. but we don't mark up the menu. We don't add surcharges. There's no tip obviously for the drone. So to the customer, actually, we're probably on a par with existing road based delivery, the way they might see it. Now it's only in the USA that everyone pays this gigantic premium on basket. In Europe they're paying about$7 fully loaded, but with tip and all that stuff. And so we're kind of in a par and I think a better question is, do we think there's room to charge more? Or do we need to charge less? and I think that's comes down to elasticity of demand. The drone does, favors there. It's really elasticity of demand on consumption, right? Whether they want the hamburger, whether they're willing to get it delivered or go outside. And if we're much more expensive than road based delivery, that's where the elasticity comes in. They're just going to go back to road based delivery. So I think our industry always needs to be on a par at worst with the existing mode or otherwise better. And then that translates again, back to our unit cost story. We think there's a world where a subscription is a real thing in drone delivery. And that's where we'd like to be. We'd ultimately like every household in the world uses us like Amazon Prime or like Spotify or just part of their monthly, thing in the household. And we think we can get marginal costs down to the point where that will work. And just like Prime or just like Spotify this is an almost inconsequential monthly cost for a household and we can use that to subsidize deliveries and still make our money by charging our partners a commission on basket value. So, we see enormous upside in the take rate or the revenue per delivery without needing to increase the cost to the consumer.

Luka: 1:09:41

How do you expect unit cost numbers that you shared with us to change in the U. S. relative to Ireland?

Bobby: 1:09:47

Could be about the same. believe it or not, Irish costs are about the same, a little bit higher actually, than costs in Texas for labor. Everything else is the same.

Luka: 1:09:56

Speaking of scaling drone delivery, what do you anticipate being major either bottlenecks or uncertainties for the industry as a whole, but also Manna in particular.

Bobby: 1:10:07

I would say the only last one that's out of our control is regulation. In Europe, that means implementation of U-Space. The regulations are there, U-Space is there. It's just rolling it out, but there's already four or five countries in Europe that will have U-Space this year. And USA, I think that Part 108 is the answer for scale. I don't think 135 is, although there can be the initial growth and scaling in the USA, which I think we'll all do a little bit of, but true, unlimited, unconstrained scaling, I think needs 108. So that's the bits that are out of our control. I think everything else is just execution. It's a capital intensive world, so you need a lot of capital to scale this, even though it's got a good return on it. Like our capital returns in 14 months when we open a new location, it's funded itself after 14 months. But you still, as we're growing a lot, you're going to need, a lot of capital to fund that growth. And I think debt will be a big part of that finance of the aircraft, just like in aviation. So will that be a constraint? Probably not. So then you move on to, again, the things that are in our control, but will quickly get out of our control. If we don't act properly and responsibly as an industry and as individual operators, we'll be punished by regulation. Cities will slow us down like they did the scooter industry. If there's accidents or, anything really that worries people, that will slow us down. So there's a risk there that with the rise of good regulation and the issuing of licenses that people might try to go too fast when they're not ready. They're rushing to get an aircraft to market. They start flying it and they ruin the party for everyone else. If anything slows us down in a material way, that will be it. And will it happen? I doubt it because I think the regulator on both sides of the pond have been very thoughtful about this. And I don't think anyone will be allowed to fly at scale unless they're safe. I just don't see a world where, you're going to have, people allowed to take risk. We obviously are not going to, but I don't think it's a world where you're going to have small operators that raise a seed round and start flying around communities. I don't think that's going to happen at all. I see this being an industry of two or three big players worldwide that will operate properly.

Jim: 1:12:32

Bobby in three years, are you a$15 million,$50 or a$500 million revenue company?

Bobby: 1:12:39

In three years,$100 million plus, I would hope to think, and that could very well be all in Europe as well with some of the contracts we've signed and with the state of the market here, there's every possibility that we could get there.

Jim: 1:12:53

And at a hundred million, you're a top three player you're saying in the world?

Bobby: 1:12:57

In drone delivery, we want to be the number one. There's us and Wing as far as I'm concerned, and I would be as happy for them to be number one and me number two as I would for me to be number one and them number two.

Jim: 1:13:07

What advantage does Wing have over you?

Bobby: 1:13:10

They are more ready, they've had more time at this. They have a super platform. It's scalable. It's safe. Very strong, well funded team. I think there's a world where it's us and Wing and nobody else gets there. But there's a world where there's two or three other players as well. But, Wing seem to be focused mostly on the USA. We are too, but we also have the European side of us. So, possible we'll get there a little bit quicker in terms of scaling, just because the license regime here supports that, but, I'd be happy to share a couple of hundred billion dollar revenue industry with a couple of players as well.

Jim: 1:13:46

I was just gonna say, in Europe, if you're a hundred million dollar company in Europe, you're still a tiny

Bobby: 1:13:52

me give you, let me give you a fun example, actually, that I'm surprised I haven't remembered this already. Without giving too much away, there's north of a million dollars out of one small base for us in annual revenue. And there's 10, 000 similar suburbs in Europe alone. If we just got to a thousand of them, that's a billion dollars revenue business and with a contribution that pays for itself in 14 months. So you pick, you just won't find an industry with those numbers anywhere that exists today.

Jim: 1:14:22

Then what stops you from being bigger than a hundred million in three years?

Bobby: 1:14:26

it's not software, right? So it isn't, obviously the marginal cost of a unit is there always. We have to manufacture, we have to deploy the boots on the ground. It's a difficult business to scale. I compare us to a Starbucks rollout back to the Starbucks founder, Howard Schultz was on the podcast recently and he broke the numbers down and he said, look, it's half a million for us to generate a million dollars in revenue. It takes two years to pay back. And so he's all about debt financing and trying to go fast, but just it's slow. And I think we won't be as badly affected by that, but that's naturally difficult part of scaling our business. It'll take a while to get to a billion.

Luka: 1:15:05

We already touched on this in the conversation about availability, there's, two potential paths that somebody in this industry might take in terms of how deep in a given geography they want to go, whether they want to offer a full capacity service to the customer in one smaller area or expand a little bit more aggressively, but not go perhaps as deep. How do you think about that trade off?

Bobby: 1:15:32

So we think about kind of Goldilocks suburb of hundred thousand people and up, potentially we could make slightly smaller ones work. So think 50, 000 people and up. And if you look at that as a filter, there's some other ones like number of restaurants within a hundred meter radius of an anchor restaurant, an anchor tenant, things like that. But if you filter it down, you come to about 10, 000 locations, as I said, in Europe alone, that, that are viable for us to deliver a minimum number of, orders. so, and then if you say, okay, from a strategy point of view, do you want a thin layer? That means then you have that incumbency, advantage in, in many markets at once or as fast as possible, or as you said, do you just own a handful of markets such that they're impenetrable and you don't share them with anyone? And we've seen that play out in food delivery, in the USA and then later on in Europe. We've seen the way it goes. Each market gets its own lead player. And then 10 years on, there's consolidation for efficiency reasons, mostly, and you end up with two or three players in the region, in the continent. And I think there's a potential where if we just stayed in the main European markets, that a smaller business will start up in Sweden and one in Spain or whatever, we'll and for us anyway, we don't want to let that happen. We want to go slightly thinner in more geography, early than going deep. And primarily because we learned from the previous two industry scooters and, food delivery, and you could argue mobility as well. So, on demand rides where if you leave a market alone, something will grow there, and then you're postponing a problem of either competition on economics or, competition on marketing and owning the customer, and I think it's better therefore it's not a black and white, but I think generally we would favor going wider and more shallow. That's a stronger position to be in.

Luka: 1:17:42

And just to make sure I understand when you say that shallower and wider, do you mean not saturating a metropolitan area with presence in every suburb, but, perhaps a few suburbs but you're not thinking that, okay, once I'm in one of those suburbs the shallowness will be a characteristic of the service that you offer such that the risk is that you disappoint customers when they go to the app and say, oh, okay, great. Thanks. I can't get the service. I'm disappointed. I'm deleting your app.

Bobby: 1:18:13

it won't be the customers that will decide whether they're getting drone delivery or not. It'll be the aggregators and the vendors won't give them a choice because it's a lot cheaper for them to fulfill that order. So when we say shallow, in an area, it means we go to a large city we'll do all of the suburbs over 50 to a hundred thousand people, but the suburb that's only 25, 000 or less, they're not getting the service because we'd prefer to be growing to the other suburbs in Madrid and Berlin and Stockholm and so on

Luka: 1:18:46

Right. But whatever suburb you are in, there will be full and adequate availability

Bobby: 1:18:50

Yes, choice you mean, yes. and capacity as well. Yes, correct. So yeah, you don't want to go into a suburb and have a inferior product to what the aggregators themselves have and the aggregators themselves will want you, us, to be able to power most of their choice, some of their choice is impossible to power. You've got these real, tiny little restaurants tucked away in corners. And there's just, you're not going to get an aircraft there, but we'd like to think the 60th or 70th percentile of volume, we'd be able to get, and that in terms of volume of, or choice translates to less than 50 percent of choice. or percentage of restaurants in the area that you'd need to care about. But don't forget it. Go back to coffee. If all we ran was a coffee delivery business, we'd be a gigantic business and that would be a lot easier to fulfill than takeaway food.

Jim: 1:19:45

Bobby, if you, as knowledgeable as you are, your background in aviation, your success in aviation. And as you think about advanced air mobility overall, let's say we break it down to a couple of different buckets. Let's say military drones, let's say commercial drone delivery, whether it be coffee, medical or the like. Or three, let's call it eVTOL, STOL let's say those are three big segments of AAM. What excites you and let's say you were an investor and you had to invest your money. I will assume you will say commercial coffee drone delivery will be an early candidate for investment. What would be next and what would be last?

Bobby: 1:20:24

My next, without a doubt, in fact, if I wasn't doing this now or I wanted to do something new, it'd be military, defense, look at Anduril or Look at the geopolitical landscape right now and there's a race for sure to arm countries defensively with technology and that technology without a doubt is going to come in the form of flying robots largely, and that's going to have myriad sensor tech, software. It's a software play more than a hardware one. There's obviously a fusing of them, but I find that a really interesting space. And I think, the world is going to be investing a ton of capital in there and the opportunities are enormous and I'm probably unusual in that. I think that's a good thing that industry thrives because it's actually a way to reduce war, not increase war. So that's what I would be doing and I'd be doing it from the USA. cause I think that's where most of the investment's going to happen. So yeah, that's what I would be doing. I wouldn't bet on passenger mobility for a while. I just think it's too hard. I just don't think the physics work well enough yet, and the economics are, I find them difficult to see. You know, they work and it'd be interesting for sure, but I would, I'd be investing in, and working in military defense tech before I'd be doing that.

Jim: 1:21:43

As you think about aviation technology, as you think about advanced air mobility, who are the thought leaders out there that you listen to? Who are the people that we say, well, when they talk, that's somebody I give a lot of time to.

Bobby: 1:21:56

You guys,

Jim: 1:21:57

Nice.

Bobby: 1:21:58

I listen to your pod obviously all the time. I love it. but there's a number of players that, I have huge respect for. I don't want to embarrass them all, but I think, Keller and Zipline has done a super job. I think Adam Woodworth in Wing is an amazing guy. I met him last year. What they've achieved is remarkable. And closer to home, my own team, I have Siggy Zerweckh, 25 years in General Atomics that just, oozes aviation engineering. I'm wowed by the engineers, so you can probably hear that. And thought leadership in the space for me, more important than those, engineering visionary types that I mentioned are the ones that actually understand business as well. And there I'm afraid the industry is guilty of not being real from a business sense, but I have to say, it would be for me, Google and what they've achieved and drone delivery is who I would hold up in the highest regard. And thought leaders, most of your guests, I think, if I look back, you've done a good job of choosing them and I find them really every time I'm surprised, I've never heard of this person. And then suddenly I've met, somebody that's really understands the space better than I could have imagined. So, so many choices.

Peter: 1:23:14

One thing I think might be interesting to explore are your thoughts on, the capital that is going to fund the scale out of drone delivery. Right now, it has been primarily funded by venture capital, but clearly there are other types of investors that are going to step in and fund the scale out and thinking about, from your vantage point, who are they, what are the things that they want to see and then what will the financing of the scale out likely look like?

Bobby: 1:23:47

Yeah. So I think for who's going to pay to scale it out and what, how does the industry, get the capital it needs to really grow at its natural ability. The numbers are gigantic, right? There's probably a couple of hundred thousand, half a million aircraft are going to be needed in the next five to 10 years, maybe more, maybe less. These are big numbers, in terms of cash needs. I do though, think that the industry lends itself well to venture. We're certainly backed by venture, and we would foresee quite a bit of our future growth. So for us, we'll grow with a blend of debt and venture because we throw off cash now, remarkable as that sounds, we generate cash in a location. So we see ourselves as being probably 60, 70 percent debt funded. So think asset financing type growth and then equity is the other part and private capital for that. So venture. There's an argument that might say, private equity could get there as well. Large private equity firms could get there too. But our ambition is to take the business public as soon as we can. That is a moving feast because public markets are, not in great shape, but by the time we get to that 50 to a hundred million run rate revenue, I think the right thing to do for a business like ours is going to be to IPO because of the profile of investor that's available there. The retail investor will be very important to us as well. The amount of capital we will need to raise to grow it, as I said, to be the leader is enormous. And so it's our ambition to float the company as quickly as we physically can. But I don't think that's in the next two years. It's probably from three years onwards, but there's, there is an outcome where we're floating this business in three years.

Luka: 1:25:37

Bobby, as we wrap up, what are some of the things that you'd like to leave with the audience?

Bobby: 1:25:41

I think the most important thing is the audience to understand that the economics have now been proven for this space. The viability of it has been proven very clearly, that this works, that it is better than the alternative in terms of just the economic aspect of it. That's, that is the most important takeaway here because there still remains a lot of doubt about that. And I, I think. There has not been a focus of it. I think we're probably the only company that speak about unit economics, costs, traditional business things. We don't talk so much about our aircraft. We don't do any cool videos of our aircraft because it's not what it's about to us. So the takeaway is focus on the economics and that is what's going to make the difference between winning and losing in this space.

Luka: 1:26:32

Excellent. Well, thanks a lot, Bobby, for, again, a very insightful and, honest, transparent conversation.

Bobby: 1:26:39

You'll get a lot of commentary, I think, on this. Yeah, it's good. I enjoyed it.

Luka: 1:26:43

Thanks a lot, Bobby.