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In an era of meme-stock euphoria and "Dogecoin," it would be easy to dismiss a company whose name contains the words "drone delivery" and has tickers like TAKOF and FLT (cue the rocket emojis). Despite my initial apprehensions due to the aforementioned, I have been following Drone Delivery Canada (OTCQX:TAKOF) for the past 18 months and believe they are poised for "takeoff" so to speak, with a legitimate foundation and go to market strategy. The drone delivery market is anticipated to grow to $275B by the end of the decade, and I believe Drone Delivery is very well positioned to take a reasonable slice of this pie.
Not Your Average Drone Company
When most people first hear Drone Delivery Canada, or FLT, the impulse may be to envision a swarm of buzzing drones delivering Amazon parcels to doorsteps - this was at least my first impression. When you take a look under the hood however, FLT is quite different, at least for the time being. FLT's operating model is currently focused on businesses and government organisations as their client base. They are also using their solutions to address important social issues, such as dramatically improving accessibility to goods for remote and indigenous communities. This is achieved by offering order of magnitude efficiencies in logistics to regions without road access, or other conventional means of transport. The approach has helped FLT build positive relationships with key regulatory bodies like Transport Canada, which has in turn helped them navigate some of the toughest hurdles to bringing drone delivery to fruition.
The Service
FLT offers a complete turnkey drone delivery solution. This includes proprietary software for managing the actual flights, hardware, and all related services including regulatory compliance which is particularly vital when it comes to drone operations.
The applications range from health care (think AEDs, blood, medical tests, organs, vaccines, etc.), to industrial use cases like mining and oil & gas. Logistics also represent a massive area of potential for FLT, in particular the last mile component of the delivery chain. In just the last quarter of 2020 alone, they signed LOIs with 6 couriers including India based CSC Group and Kenya's Astral Aerial, highlighting their prospects for international expansion.
FLT has already began piloting the delivery of medical supplies, PPE, test kits and vaccines to the Beausoleil First Nation and Georgina Island First Nation communities as part of COVID-19-related efforts. They are now in discussions with both federal and provincial governments in Canada to commercially assist with the vaccine distribution as it rolls out nationwide. FLT has even announced ambitions to service vaccine distribution efforts internationally.
Air Canada Cargo
Something I like about FLT is the partnership they have developed with Air Canada Cargo, who intends to use FLT's drone solutions to complement their logistics network and facilitate last mile delivery. Air Canada Cargo acts as a sales and marketing agent on behalf of FLT, allowing them to leverage their existing global network to promote FLT's services. Given the significant reductions in passenger traffic due to COVID-19, Air Canada made a strategic pivot to bolster their Cargo division and managed to grow this segment of the business in 2020, despite floundering sales elsewhere. Air Canada Cargo has already earmarked up to 150,000 routes for which they believe FLT can contribute to their logistics services. Reinforcing this partnership, is Air Canada Cargo's former VP Tim Strauss who sits on FLT's Advisory Board - which leads to my next point.
The Team
A critical pillar in my thesis on FLT is the people. Regulatory approval and flight software are so crucial to the success of drone delivery applications, so by corollary human capital is paramount. I have dug into the pedigree of FLT's entire management team, board of directors and advisory board and believe there are two key personnel worth highlighting:
Mark Wuennenberg (VP of Regulatory Affairs)
Mr. Wuennenberg has unparalleled experience in the regulation of Unmanned Aviation Systems (UAS). Let's just look at one excerpt of his job description when he spent nearly 5 years with Transport Canada:
Responsible for the regulation of civil UAS and the standardization of civil UAS access into Canadian Airspace. Author for the majority of the existing Cdn UAS regulatory and advisory materials and drafted the new Part IX to the Canadian Aviation Regulations.
Mr. Wuennenberg literally wrote the book on regulations pertaining to drones and therefore is the best equipped to help FLT navigate and comply with regulatory hurdles, which is the biggest challenge for operating drones commercially. If that wasn't enough, Mark was heavily involved in the UAS programs of both the US Air Force and Royal Canadian Air Force, as well as chairing NATO's Working Group on UAS regulation.
Steve Bogie (VP, Flight Operations & Technology)
Steve helped build and operate Air Canada's IT infrastructure from Flight Operations to Maintenance over the course of nearly 25 years with the airline - predominantly in Senior Director roles. This experience is particularly of interest given FLT's proprietary FLYTE software they have developed. This creates a massive moat for FLT as flight operations are highly important for ensuring safe and secure drone transport, as well as gaining approval from regulators. The software manages all aspects of the flight and includes features such as geofencing that ensures flight paths are consistent and aligned with the planned routes. This system also serves as a platform for implementing autonomous drone flight in the future, which will drastically reduce costs.
These two individuals are specifically mentioned as they have highly specialized experience that is essential to 2 important and intertwined keys to success for drone delivery: regulation and flight operations. FLT's all-star team is of course not limited to these individuals. CEO Michael Zahra for example has a long track record of leadership, previously serving as President of Staples Canada and Yahoo Canada respectively. The full management team, board of directors and advisory board can be found here. In total Drone Delivery has 31 employees as of last annual report, however they are currently looking to facilitate their expansion. With an active hiring surge on Glassdoor, FLT is currently hiring for 12 roles across functions such as Business Development, Sales and Compliance. While 12 may not sound like much in absolute terms, this represents nearly 50% growth in employees for just the beginning of 2021.
