Episode Transcript
[00:00:00] Speaker A: To the naysayers, this industry will happen. I think it's not a question of if, it's a question of when.
Welcome to Hangar X Studios where former fighter pilot and host John Ramstead takes us on a journey across aerospace as it enters an historic period of innovation and transformation.
Our guests include aviation experts, pilots, financiers, military leaders and innovators of all types.
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[00:00:38] Speaker B: Welcome to the Hangar X podcast. We are sponsored by XTI Aerospace and we delve into some of the most cutting edge and leading topics right now in aerospace and advanced air mobility and everything vtol. And that's what we're talking about today. We have Sergio Cicuta. Welcome to the podcast.
[00:00:58] Speaker A: Thank you for having us.
[00:01:00] Speaker B: So we were recently at the Revolution Aero Conference and Salim Zahir from our team and you, you've been having conversations for a while and you're one of the top experts, I think one of the leading voices out there in advanced air mobility with some of the work that you've done. You founded SMG Consulting. It's a consulting firm, but you have deep background experience in the industry. And before I ask you the first question though, because I want to dig into some of the reality indexes that you've created for both advanced air mobility and infrastructure. We're also going to be talking about what that means and trends that you're seeing because you have such a inside baseball view of so many of these companies, Sergio. But give us a little bit of background about yourself and how you got here and to what you're doing today.
[00:01:47] Speaker A: Sure. Appreciate. Once again appreciate. Thank you for having us.
My personal background, PhD in aero that I don't get to use that much and basically worked, started my career at Honeywell as an engineer, left the company being in charge of product planning and marketing for all of the commercial aerospace business.
Joined Danaher where I did electrification of transportation before it was cool and on the newspapers and then started SMG consulting. I did some other folks and now we are a team of 10 that covers all of aerospace, defense and auto tech when it comes to advanced air mobility.
In 2016 we saw this first conference by Uber with this new thing called Uber Elevate. We got curious. It reminded me a little bit of why I studied aerospace engineering. All these configurations, all these interest in airplanes and so decided that why don't we look into this industry. And since 2017 we've been involved and we thought that this industry would grow and grow big. And I think as far as today, the Industry has eaten big money and at certain point will be big, but we're still on the journey there.
[00:03:14] Speaker B: Yeah. What's your prediction from when it gets big? Five, ten years?
[00:03:20] Speaker A: Well, I mean, so what we see is this is not the growth is going to take time at the very beginning and then at certain point it will come a self fulfilling prophecy and it will increase exponentially. But even if we think an entry into service between 26 and 27, it's really going to be the mid-2030s where you will see this scaling up and become big and then that exponential growth is going to be in the 2000 and 40s. It's going to take time.
[00:03:52] Speaker B: Yeah, I would agree with that. Also, for people listening hearing the term advanced air mobility, if they're not familiar with it, how would you define it? Sergio?
[00:04:03] Speaker A: It reminds me a little bit of a movie with Eddie Murphy. It's like none of the above in aerospace.
So if it's not aerospace, like we think about it today, it is advanced air mobility. The way we define it is we see advanced air mobility as the convergence of three trends. The electrification of propulsion, distributed electric propulsion and autonomy. And so the way that we see it is if one of these three elements is present, we consider that being part of the advanced air mobility. However, it is a very fuzzy boundary that no one is very well defined.
[00:04:42] Speaker B: Okay, now in that you have created, and it's been fascinating because I've been digging into it and kind of geeking out over it as an engineer and also a finance guy, is the Advanced Air Mobility Reality Index. And for everybody listening, we'll put a link in the show notes but it's aamrealityindex.com and people can go look at the work Sergio and his team have done on it.
Could you talk about what it is and your rationale behind it? Sergio?
[00:05:10] Speaker A: Sure.
Let's go with the origin. So it was the fall winter of 2020 that we had a lot of time on our hands because there wasn't much we could do. And we were looking at this market and trying to understand who are the companies we will want to be our clients.
Because as startups you want to, as a startup, as a small company you want to make sure that you're choosing the right clients. And so we started creating an index that basically ran companies for our own understanding to understand which one were the companies that were good to talk to, target work with. And at certain point it became clear that it could have been something that the industry would be interested in. And so we decided to launch this in December 2020 and now four years later, I think it's been something that the industry, I think it's taken up and likes. And the idea has always been providing a simple data driven picture of the advanced air mobility OEM market.
And data driven is very important to me. I come from a school of executive training that says whoever has the most data wins.
And it really doesn't matter what your opinion. My opinion is it doesn't matter that, oh, I have that many years of experience, sure, that can help. But at the same time, we want very hard data to back up anything that we do. And so this index was born by taking five different parameters and distilling them into one number. And yes, it is simplified, but it's simplified on purpose because many times we get into these, it depends and then you really cannot make comparison one to the other. And the five parameters that we look, we look at the funding, specifically what the company has accomplished with the funding they've received. So no one gets ice cream for spending the most money.
The second piece is we look no.
[00:07:32] Speaker B: Awards for throwing office parties and burning through $100 million in cash.
[00:07:39] Speaker A: No, no, no, that's not a good thing.
The other piece is we look at the experience of the team and when we look at the experience of the team, I mean, we look at the resume, LinkedIn profiles, I mean, we try to gather as much data as possible and we want to see also an expertise that changes with the changing and evolution of a company. Meaning the team that is great at launching a startup might not be the best team to take it into production and growing into an aerospace company.
The next one is going to be the technology progress. We want to understand how they're going along. We borrowed the TRL scale from NASA.
It is a simplification, but it's a good way to say, you know, how far along are you? And this has evolved to have a lot of nuances because there is so many different ways that the companies are slicing and dicing the way that they fly their prototype. It is manned, it is unmanned, it's full scale. It's not full scale. They got a pilot on it. They. There is a lot. And so a lot of detail has been added to take into account all of these different pieces.
[00:08:52] Speaker B: So the trl, the tech readiness level, it can be a bit subjective. How are you able to cut through some of the noise and assign a relative number for your index that takes some of that into account?
[00:09:04] Speaker A: Sure. I mean, we really, I mean, what we look for it's, you know, TRL6 and TRL9 that are the two big ones. I mean, TR6 is basically showing that a system works in a relevant environment. And so for us it means flying. You need to have something flying and then it depends how big it is and then the score changes. And then TRL9 is basically when you've done your CDR, you've frozen your design and you say, yep, that's it. And that's basically around the time where you start rolling out your conforming aircraft.
Now it could be that you do many CTRs, because that's possible. You don't want, but it could be that's how we use that scale. And some folks say, well, I mean, it's a system, you should use the irl, that is the integration readiness level. It's just a simplification, that's why we use the trl. And I think a lot of people in the world are familiar with TRL more than anything else.
[00:10:06] Speaker B: Yeah, I agree.
[00:10:08] Speaker A: The next one, it's the one before the last is certification progress. And with this one we want to see how they progress along the route to certification.
We really don't go into the level of G1, G2, G25. I mean, it's just too much detail that no one but doctors have ever known until this industry started.
And so the big things for us, you know, have you opened a certification project, have you received tia, doa, poa, all of those other good stuff. And last but not least, manufacturing. In the manufacturing, we use the mrl, the manufacturing readiness level, mixed with other items to understand are you ready to produce airplanes in the skin skill that you have put in your business plan. So you want to produce 100, we'll score you against 100. You want to produce thousands, we'll score you against thousands. And none of these gets factored together with specific weights. Not all of these five items are worth the same. Some of them are a lot more complicated. Certification is kind of a low engine fruit to say it's one of the most complicated as well as production. And we spit out one number with one decimal point on purpose to make it easy to read and compare.
[00:11:35] Speaker B: Now, as you're looking at your index as it stands today and as how it's evolved and some of the rankings have changed over the last couple years. What are you noticing and seeing as far as any trends or some things that are standing out to you?
[00:11:50] Speaker A: Well, I mean when it comes to trends, I would say we can look probably at three trends. Number one, it takes a lot more money to do the stuff and the money is going to very few selected companies.
If you look, you've got maybe like four or five companies that have raised over a billion and then you've got this very long tail that goes down.
The other part is in the index we're tracking now. We have taken out some companies. I think we should have been at 28 different companies. However, there is a second layer of company that we would like to include maybe one day and that's another 40 companies. And then there is another level of want to keep an eye on them and that's another 50 or 60 companies. So the 28 is just the tip of the iceberg. And as every iceberg, the majority of the ice is under the water.
And so this is when it comes to funding. The second piece is going to be the timelines. Certification, progress, entry into service, certification, timeline have all been pushing out. I think there has been a lot of optimism.
I think it's also generated by startups coming with the tech mentality and sales. We are going to innovate, disrupt this sector.
However, there is a big difference with when you make cars, nhtsa, when they do the crash test and they do the NCAP ratings. Those ratings doesn't mean that if your rating is low you're not going to sell your car. It just means that people will go, ah, your NCAP rating is low. In aerospace, if the FAA doesn't use certification, you're not selling your plane. So coming from Silicon Valley where Betas, it's very normal in aerospace, there's no Betas, only Alphas or certified airplane can fly.
And then I would say the last item, that's one big trend is how this invisible market has exploded in China.
At the very beginning of the index four years ago, we had one Chinese player that was Ehang and it was also the only one listed on the NASDAQ or any of the stock exchanges here in the west Today we have 7, 8 EVTOL from China, we track another 20 of them. This low altitude economy, as they call what we define as advanced air mobility is exploding there. And what I would say it also comes with two other advantages. Number one, it cost about 1/7 to develop an aircraft there as it costs here in the West. And the second thing is the airplanes are priced up to three times less than what we have here in the West.
[00:14:44] Speaker B: So it's 1/7 to develop the same airplane airframe there as it is here. And then the purchase cost there is three times less. If I was actually going to buy it even in compare that to US Dollars.
[00:14:58] Speaker A: Yep, yep. That's all in US Dollars.
[00:15:00] Speaker B: Yeah.
[00:15:00] Speaker A: And it's not a completely Apple to Apple comparison. Right. We're not talking about the same level of certification, you know, assurance level. It's different. However, it is a commercial product now to the point of many people may well. But, you know, these Chinese products will never be sold in the United States. Number one, I would say never say never.
You know, we, we, we used to see, you know, products coming from China as, you know, cheaper than what we could do here in the West.
[00:15:32] Speaker B: Right.
[00:15:33] Speaker A: Today, if you want to go buy an appliance, three out of four, you are going to buy a Chinese company unless you want to spend $10,000 for a range.
So these companies, we need to look at them and they're going to be markets like the Middle East, Southeast Asia, where we think you will see western player competing with Chinese players.
[00:15:57] Speaker B: Yeah.
So that brings a question for you. So your index is all either electrified or hybrid. And there was just an article that came out of S Works, which was an Air Force program looking at the military application of this technology. And they were looking at different ranges, speeds, payloads, and they've come to the conclusion that this is going to have to be mechanical or mechanical for a period of time until electrification or hybrid catches up the aircraft we're building. We came to that determination because we're long range, seven to 800 miles, you know, up at 25,000ft, take off and land vertically. Love your thoughts on just kind of the mechanical and why you left mechanical airplanes out of the index.
[00:16:43] Speaker A: So, I mean, we wanted to validate our mobility. And so airplanes that have conventional propulsion or existing propulsion, we were not part of advanced air mobility, so we had to draw a perimeter around the market.
Now, to your comments on the dod.
Most of us that are knee deep have always known the agility prime. The interest of the DoD in this was more from a testing and understanding the technology point of view as well as helping making sure that we don't do the same fate as the drones 10 years ago that have all gone to China again. Now they're coming back. But that's a more complicated answer when it comes to the full electric vehicle. We know that these vehicles really don't have the range, don't have the capabilities.
And again, to everyone that says all these vehicles are just going to take helicopter out of the way, let's not forget these vehicles don't hover and helicopters are not that good at flying Long distances, but they're awesome when they need to stand on one place.
And so that's not going to go away at all. It's just going to be another piece. And I think the Air Force has discovered that. I mean, the tyranny of distance is what every General in the DoD talks about when he talks about the Pacific Theater.
Again, they're not coming here. We're going there. So, you know, who's got the home advantage in that specific play? And so we need range and range and electric. Full electric doesn't go together.
I mean, just look how long it took for range and electric to go together on the road.
So it's gonna take some time to get there.
And the other part is the hybridization is something that they have seen as an interesting piece. And I think it's going to be more from a point of view of the quietness that you can have as a hybrid. So you can do things that you wouldn't do with the turbine and the capability of, you know, being able to maybe partially reduce the amount of fuel that you're using.
So those are two other pieces. Now, there is one piece that is also.
Many of the DoD customers want speed, and that's another difficult piece because speed requires a lot of energy. And right now, any of these airplanes that are getting designed, I mean, they're faster than a car, but they're usually not the airplane speed we're used to.
[00:19:31] Speaker B: Correct question for you. If you look at the airplanes on the index now, I'm just curious, what do you think a realistic range and payload is for these aircraft that are being developed in the AAM specific space?
[00:19:51] Speaker A: So you make a very good point. So when we talk about range and payload, we are used to see those beautiful charts that says that you can trade the range for payload. And that is what you can do when you have a fuel tank, because you can put more weight in your payload, less weight of fuel in your tank. When it comes to batteries, your tank is always full whether there's energy in it or not.
[00:20:14] Speaker B: Remember Sergio, because I have a Tesla, and it was down to 10% charge, and I charged it all the way up to 100. And I asked my son, hey, how much more do you think my car weighs now that it went from 10% to 100%. He was trying to guess. He guessed like 500 pounds. I'm like, no, it's the exact same.
[00:20:35] Speaker A: Yeah, yeah, yeah. Some people at the very beginning, they say, well, I mean, electricity needs to account for some weight. And so I'm like, sure, I'll give you a gram. I mean, maybe two. Maybe two, yeah, why not? Crazy. On, you know, on 500, 600 pounds of batteries. A thousand pounds of battery. Let's give you a grammar. So when it comes to these, basically we're always used to have a specific range at a specific payload, at a specific ISA temperature, because those are very important. And usually if you don't get these three numbers together, really, I mean, what you're getting is not something that's realistic. And so what we've seen in advanced air mobility is this airplane can fly up to X amount of distance by what payload, what temperature? Or this airplane can fly with this much payload, or how long is it going to fly? And so we still haven't seen that chart that says you can fly this payload, this range at this temperature. Yes, I understand that payload is not going to change because the majority, I would say 99% of the vehicles have fixed batteries. So it's not like you can take batteries out.
Some can, but it's a very, very limited slice of the market.
And so when it comes to these, really, when you look at the batteries that we have right now in fully electric configurations, 60 to 100 miles, a full payload, I would say it's something that it's possible, again, that was, I would say in a normal day, so, you know, ISA plus 10 or plus 5. So, you know, you're talking about 25 Celsius, you know, 70, 75 degrees Fahrenheit, or, you know, we're not talking about something very hot.
And, and I would say this is also subject to this 20 minute reserves. So we started 30 minutes, now we're going down to 20 minutes. It depends how these reserves are done. I would suspect that they will fly as slow as they can so that they can reduce the amount of range that they have to sacrifice or allocate to these.
But again, it's very, very limited ranges.
And when it comes to payload, this is the other part that we need to consider.
We, we just did an analysis when it comes to payload. And so if you look at £1,000, that is the payload of a lot of these aircraft. And you divide by five of which one is the pilot, you get about £200 each. Unfortunately, I am not £200. And so if you take five Sergios, we're not going to be able to lift off the ground.
And this is five naked Sergio. So if Sergio now has coats and carry on, etc. Etc. What happens is that you begin to get an Airplane that has one seat that will mostly be empty because you cannot put four, three Americans and a pilot.
[00:23:45] Speaker B: You know, that's a lot like general aviation. The plane that I fly has five seats, but if it's me and two adults with luggage and we're going to go 6, 700 miles, I got to be very careful with my flight planning. And we could not bring a fourth or a fifth. That's not even an option.
[00:24:00] Speaker A: Yep. And, and so if you, if you talk to many of these companies and they say next gen batteries and everyone when they look at next gen batteries, we're thinking, oh, we need more range.
Most of the companies are saying as soon as I get better batteries, I want to make sure that I can fill this airplane in any condition.
And again, I mean, to me this is very important. The unfortunate thing when it comes to this airplane is that if you remember many airlines are not profitable if they're load factor falls under what is 85, 80%.
The problem is when you have four seats, if you have one that's unoccupied, you're at 75.
[00:24:41] Speaker B: Well, think about that as an operator, my cost per seat mile starts to skyrocket and it makes it economically, if I can't put six or seven or eight people, whatever it's designed for consistently in there now I can do two or three. Well, it's going to, I mean these are things that all of us as manufacturers in the industry are going to be looking at some of these numbers very carefully.
[00:25:01] Speaker A: Yeah. And I think this is the other part. To me it's always been let's solve one problem at a time. And I think the first problem was can this be made? Can this exist as technologies? Yes. Now the next question we're trying to answer right now is are we going to certify them? And I think the answer is yes, it's just how long. The next question is how are we going to produce them? And I think the last question that it's last but not least because probably the most important is how are you going to make money flying these airplanes?
[00:25:37] Speaker B: Well, that leads into a question. Maybe we can kind of end on this topic.
In the advanced air mobility space, electrified, it's going to tend to be shorter range, certain payloads. And then the aircraft that XTI is developing, the Trifan, is designed to vertical takeoff 700 mile range at 300 knots up to 25,000ft. And there's other, you know, the Leonardo and there's other, you know, aircraft being developed in this space. The longer range Faster space. How does that integrate into the AAM space? The urban airspace environment, you know, the different missions as they overlap and I think complement each other. And what are some of the use cases you might see for the longer range faster VTOLs?
[00:26:25] Speaker A: Well, I mean so these in Vitos that are getting developed right now that are no longer ranging, they're not fast. I mean they're basically for urban transportation. And if you look at the short term, there is one short market in urban transportation is we all need to go to the airport.
Some of us are lucky and go to the airplane to the airport a few times a year to go on vacation. Some of us spend most of our time, a lot of our time on airplanes. And so they need to go to the airport every week, every weeks, every few days. And so at that point this airport shuttle mission is probably one of the big ones when it comes to having more range and being able to go in a regional between cities. I would say that that's an interesting one in which we know that some of the cities are not served and so there would be a goodness to, you know, string them together. I think a lot of this regional air mobility will need to deal with the advance of autonomous cars or level four cars. Not anytime soon, but they're Horizon. And last but not least, if you can get more range and you can get more payload, it's another thing that I think cargo is interesting.
You cannot beat a fully depreciated caravan. But at the same time, if you get pushed because of ESG concern, if you get pushed because of increased safety levels, there is a goodness there. And so if you were to talk to people like ups, what they're going to tell you is, you know, they're not going to go and replace the karens. This is going to be something augment their fleet and understand how does it work. And then yes, in the long range, in the long term, when the capabilities increase for sure, we think the cargo will be another mission.
Last point that I think has become all the talk of industry with the announcement with Archer and underil of Archer Defense is can this be used for the military? If you have a hybrid, then you have autonomy and speed. Parenthesis.
This is what the DoD wants.
And I think that is another short term use case that it is waiting for vehicles to prove itself as opposed to having to figure out if we can make it, how much is it going to cost, et cetera, et cetera.
[00:29:04] Speaker B: Thank you for that. That's really interesting. Sergio is we're kind of looking at These missions and these different capabilities of the aircraft. And I'd like to kind of end on this because I think it's interesting. And this is also going to tap into your experience. So Joby, which we've all we're seeing a lot about and we're reading about, and their approach is a much more vertically integrated development strategy. And Archer, who we know in the industry, is a little bit more out of traditional partnerships. And I would just love your thoughts on what you're seeing and what is your opinion on the different approaches and what we might be able to learn from what each of these companies are doing and they're both doing successfully.
[00:29:43] Speaker A: Sure. I think the vertical integration at Joby, it's an interesting one. I mean, in aerospace, we don't do vertical integrate. And the reason is because these systems are excruciatingly complicated.
I do not remember an airframe company that has done an engine with excluding Boom, that it's kind of on its own.
[00:30:12] Speaker B: Yeah, we're going to have. We've invited Boom to be on the podcast. So we're looking forward to that interview and learning more about what they're doing.
[00:30:19] Speaker A: Yeah, yeah. It's an interesting approach.
But when it comes to this, I think the reason for Joby to choose vertical integration at the very beginning was because the industry did not exist. And we have to remember, Job is one of the oldest born in 2009. Sure, they were not doing evidence in 2009, but at the same time, they're one of the first that started developing these Beatles. And so they had to develop the technology from scratch. The issue with vertical integration is two. Number one is going to be your certification effort because you need to go into every single piece part that you have to certify yourself because it doesn't exist. And there is no supplier that gives you their book of certification documents that then you add to your own. The second part is scalability. Every time you scale, you need to scale everything on your own. Now, the flip side is when you're involved with suppliers, see, for example, volocopter, they can put your schedule at risk and delay you by one year when it comes to your certification effort. So there is really no good answer. The way that Archer is doing, it's similar to a system integrator, but really there is also a lot of pieces they do in house. Their batteries done in house, their motors are done in house. So it's a little bit different.
But at the same time, it is a model that I think aerospace is more comfortable with.
It is going to be interesting to see if Joby can demonstrate that vertical integration allows to develop a vehicle that is so tightly integrated and can be scaled and certified.
Again, not that it cannot be certified, but certified economically.
I think that that's going to be a very good lesson for the industry.
You know, it's a little bit like the rest of the industry looks at SpaceX today.
[00:32:18] Speaker B: Right.
Well, love that comment. So I guess as we, you know, we land the plane, we're settling down now in the helipad.
What are just some final thoughts you'd like to leave with everybody who's been listening to this? Sergio?
[00:32:31] Speaker A: Well, I mean, when it comes to Beetle, the fun thing is when you land on the helipad, you can actually get out of the airplane immediately because the rotors stop. So you don't have to be there for two minutes to wait for them to stop. But anyway, jokes apart, I think to the naysayers, this industry will happen. I think it's not a question of if, it's a question of when.
And it is beyond doubt that it's going to take time. And the last part that I wanted to say is that at the very beginning, AAM was seen as a new branch of aerospace. It is aerospace. Is it Aerospace 2.0? I think at this point we can say it is aerospace. And it comes with all the challenges and the reward of being an aerospace business.
[00:33:19] Speaker B: I love that. So to the naysayers, it's not if, but it's when.
[00:33:24] Speaker A: Yep.
[00:33:24] Speaker B: And I think that is absolutely spot on. There is so much innovation, investment. There's so many talented people that are just excited about this space. What we're, what we're doing is developing an entire new category of aircraft that hasn't happened in decades, probably since the 70s. So it's an exciting time in aerospace. And I agree with you. So, Sergio, thank you so much for your time. I would love, if you're open to have you come back, maybe even quarterly, do an episode with you. And there's so much more I'd love to even talk to you about. We just don't have time today. But if you're open to that, love to have you back on. And everybody, if you want to get in touch with Sergio, if you're running the company, you want to definitely check out his index.
And I just appreciate your time. Thank you so much, man.
[00:34:13] Speaker A: Absolutely. Thank you for the invitation and thank you for the future invitation.
[00:34:17] Speaker B: Yes.
