Commercial air travel remains in the pandemic doldrums, down about 21% when comparing the 7-day moving averages for October 6th in 2019 and 2021. As the world gets vaccinated, the aviation industry continues its recovery and transformation into something other than what it was.
In light of this, BT has kindly agreed to the posting of answers to questions I have about a number of Flyht’s opportunities and initiatives. Kent Jacobs, Technical Fellow at Flyht, has also contributed answers as he takes on more investor relations of the company.
Q: What are the points of differentiation between Flyht and its current competition? Is any single company competing across the board?
A:
FLYHT is moving from a position where hardware (avionics) sales was the focus to a position where SaaS and Actionable Intelligence are primary - from a position where we provided a pipe for data off the aircraft to a position where we now also analyze and provide guidance on what that data means. By leveraging our expertise and understanding of aircraft systems and the interpretation of aircraft data, FLYHT is uniquely positioned. Typical avionics/SatCOM providers may understand the value and meaning of the data they interface with on an aircraft, but these hardware vendors are not well suited for software development and analysis of the data. Similarly, software companies that focus on interpretation and analysis of data from aircraft are at the mercy of avionics and hardware companies to provide the aircraft inputs to their systems. Honeywell, Airbus, etc. claim to have broad sweeping products and services that provide end-to-end solutions. Cost, integration challenges, and airline complexity provide barriers that prevent large players like these from providing such solutions. FLYHT presents an agile, flexible approach to solving problems. We blend a deep knowledge of aircraft systems and data with a proven agile software development process. This provides FLYHT with significant differentiation. Also, these large players are focused on the newest models of aircraft - they seldom go back to older generations of aircraft. With 80% of the worldwide commercial fleet in this category, it is a great market space for FLYHT, and with a twenty-year life, these older aircraft have lots of runway left. Q: Has any of the new software or hardware (i.e.
Actionable Intelligence, Jetbridge) gone beyond trial with the launch customers and into revenue-generating?
A:
FLYHT’s initial Actionable Intelligence solutions are actively being evaluated by partners. Feedback has been received and is being considered for additional implementation by our development teams. Response from these customers has been very positive and encouraging and we are proceeding with discussions to move into contracted positions. Following our agile development processes, we are quick to get product into the hands of these customers to get their feedback and suggestions. This allows us to confirm that the products we are developing are on target and exactly what the airlines are looking for. The rolling delays for airlines make it difficult to evaluate because none of our customers are up to full service yet. I was speaking with an airline president a few weeks ago and he said that it took 25 years to get to where they were 2 years ago. They are starting from a point they haven’t been at for 23 years and need to absorb all that growth in months, when things open up. They are pleased with what we are doing but real results are still a couple of quarters away (providing we don’t have a fifth COVID wave). Q: What is the timeline for integration and revenue generation for the recently acquired Water Vapour Sensing System (WVSS-II) from SpectraSensors? Are any other acquisitions planned for this year or next?
A:
The recent purchase of the WVSS product line involves FLYHT moving the production line to our Calgary facility. Integration of the WVSS with our AFIRS 228 and the AFIRS Edge is expected to begin in Q1 2022. Because the WVSS is already a known- and commercially deployed product, FLYHT is able to actively engage airlines and weather-modeling agencies for Aircraft Based Observations (ABOs) that include relative humidity. M&A (mergers and acquisitions) activity is always considered if the opportunity is appropriate and beneficial to FLYHT. Q: Regarding Airbus/L3Harris licensing, what has been the success rate for selling follow-on services to buyers of the OEM AFIRS 228S Iridium SATCOM system?
A:
Licensing revenue remains the primary source of income from the Airbus/L3 contract. Installation of FLYHT’s first AFIRS 228S on Airbus aircraft provisioned at factory for the AFIRS TSO (Technical Standard Orders) product is expected in Q1/Q2 of 2022. This represents the first time that FLYHT will draw recurring revenue from an OEM wiring installation on the Airbus fleet. Licensing revenues continue from the factory installations on the Airbus A320, A330, and A220 fleets. Q: Has China Express or any other airline put into service any of Chinese airframer COMAC’s new ARJ21’s with Flyht products aboard?
A:
STC work continues on the ARJ21 with the intent of installing the AFIRS 228 on the China Express fleet. This will maintain AFIRS 228 continuity across all aircraft types in the China Express fleet (CRJ-900, A320, and ARJ21). It is expected that China Express will be the first Chinese airline to operate the ARJ21 with an AFIRS unit. We are expecting the first flight and certification of the ARJ in Q4 and will publish a press release when that is done. Q: Although Flyht reached the 3 million flights milestone in late September (since 2004), monthly flights remain down about 38% from pre-COVID levels when comparing numbers for September 2019 and September 2021. At this stage in the pandemic, what part of this shortfall is due to airline attrition and what part is due to COVID international travel restrictions? What regional recoveries would help Flyht the most?
A:
There is no indication that any reduction in our customer’s flights or flight hours is due to airline attrition. The fourth wave of COVID-19 around the world has impacted every one of our customers to some degree. This impact is often felt regionally and customers in different areas are recovering at different rates. While domestic travel restrictions are easing in North America and Europe, Southeast Asia continues to have some of the most restrictive international measures. Passenger uncertainty and caution will follow the easing of any restrictions, and the threat of a new wave makes recovery and planning for the airlines very difficult. Any shortfall we have experienced and that we are continuing to experience are directly related to the effects of the COVID-19 restrictions on travel. Recoveries in North American and Asian markets, coupled with our customers’ ability to ramp up services will be the most beneficial to FLYHT. Q: The ratio of flight hours to flights is at its highest at the moment (1.72 hours per flight in September) – is there an explanation for the steady increase?
A:
The COVID-19 pandemic has slightly skewed our customers’ flights towards longer routes and lower frequencies. This ratio is a reflection of that skewing. There has also been an increased percentage of revenue from freight carriers (18% of our number of aircraft) which typically fly longer legs. Q: Is the basis for billing by the flight or by the flight hour? Are any clients paying a flat monthly rate?
A:
FLYHT has implemented different contract types over the years. Some customer’s services are billed by the flight, others are billed by the hour. Some of our original contracts involved a monthly flat rate where limitations on data transfer (Iridium costs) were incorporated into the contract. Q: With AirAsia slow to recover, where does the 2018 add-on order (for 100 units) with AirAsia stand? With Flyht’s new offerings, has the deliverable changed? Will AirAsia’s planned migration to the A321neo generate some additional business?
A:
AirAsia has been very slow to show signs of recovery from the pandemic. The 2018 order stands, but AirAsia is still in a very difficult state and flying a severely reduced fleet with no obvious signs that their operations will pick up any time soon. It is highly expected that AirAsia will emerge from the COVID-19 pandemic as a different airline. The high frequency of flights between countries in Southeast Asia that have been halted has had a much larger impact on AirAsia than the restrictions have had on other airlines. It is possible that by the time AirAsia is truly emerging from the pandemic, FLYHT’s other products, including AFIRS Edge and our Actionable Intelligence suite, will be better suited to help that airline than continued installations of the FlightLink box will be. FLYHT has supported AirAsia throughout the pandemic and is in a good position to provide new services to the airline as they emerge from the pandemic, in whatever form AirAsia may take. It is unknown at this time how or when AirAsia plans to introduce the A320neo fleet. Opportunities for additional services based on this fleet renewal/expansion will be available to FLYHT as AirAsia makes their restructuring plans known. Q: Regarding Flyht’s Tamdar and the real-time collection of weather data, where does Flyht’s partnership with ECCC (Environment and Climate Change Canada) now stand?
A:
FLYHT continues to provide AMDAR data to NOAA through our existing contracts. Opportunities for incorporation of the newly-acquired WVSS with the AFIRS 228 will allow us to expand our existing AMDAR soundings with relative humidity data to create much more useful ABOs (Aircraft Based Observations). Because the installation effort of the WVSS is less than the existing TAMDAR installation, FLYHT is optimistic of adding WVSS sensors on our Canadian operator’s fleets. Q: Having contracted for 160 SatCOM units and possible add-on services in the future, Flyht now has a relationship with Calgary-based WestJet Airlines. Another connection, Westjet-owned Swoop Airlines is one of the launch customers for Flyht’s
Actionable Intelligence software.
With destinations in Canada, the U.S., Mexico, the Caribbean, Central America and parts of Europe, isn’t WestJet the precise kind of airline Flyht is looking for (and ECCC is, too) to co-operatively take on fleet-wide Tamdar installations?
A:
WestJet and Swoop are exactly the kinds of companies that we want to partner with as we advance our TAMDAR and WVSS solutions. With the acquisition of the WVSS sensor, FLYHT is looking at the most beneficial model for us to incorporate aircraft installations and weather sounding reporting with different government and weather agencies. By securing the two aircraft humidity sensor products, FLYHT will be able to provide the most complete ABO soundings in the industry. And with the recognized degradation in weather model accuracy due to reduced commercial flights during the pandemic (and therefore reduced ABO soundings), FLYHT is working to ramp up sounding reporting. Q: With Tamdar, does the revenue from the weather data cover the cost of the installation or does there still need to be financial involvement from the airline?
A:
Revenue from the ABO soundings does not necessarily cover the cost of the installation of a TAMDAR probe. The right agreement that provides weather data to the modeling agencies, that provides value to FLYHT, and that minimizes the installation costs is the solution we look for when installing TAMDAR on a fleet. Q: And how are deliveries of the WestJet SatCOM units progressing?
A:
Deliveries of the AFIRS units to WestJet are managed by the speed at which the airline installs the units on their fleet. During the pandemic, with the storage of so many aircraft, the installation rate has decreased. As WestJet determines the best approach to re-engage their fleet as the pandemic winds down, FLYHT is ready to support and deliver the units as needed. Q: Is Flyht still offering complimentary weather data to meteorological agencies during the pandemic or has collection returned to sufficient levels to resume billing for it?
A:
FLYHT has resumed billing for all ABOs. Our current contract with NOAA gives us a higher price per sounding and they resell to other WMO organizations. We are working on a hybrid model for this in the next year or two with several independent WMO members. Q: Can you comment on the ICAO GADSS and ADT mandates and their delay into 2023? Have there been any new developments in Flyht’s streaming capability of the Flight Data Recorder (FDR) and the Cockpit Voice Recorder (CVR) since the 2018 validation of Flyht’s data streaming capabilities on Boeing’s ecoDemonstrator? Is there a market yet and is there any active competition (i.e. did Inmarsat ever launch their “Black-Box-In-The-Cloud”)?
A:
The delay of the ICAO GADSS (Global Aeronautical Distress and Safety System) and ADT (Autonomous Distress Tracking) mandates was driven primarily by Airbus and Boeing being unable to meet the deadline of a 2021 introduction. The two large OEMs have significant sway over the introduction of mandates like this. FLYHT’s position has always been that we can provide 4D aircraft position reporting through the Normal, Abnormal, and Distress phases of a flight. The ADT phase of a flight consists of the abnormal and distress phases where position reporting intervals change from the normal fifteen minute interval to either a variable or one minute reporting schedule. FLYHT’s AFIRS solutions continue to meet the tracking requirements and to provide the best means of determination of the Abnormal and/or Distress aircraft states. The Boeing ecoDemonstrator program allowed FLYHT to test and demonstrate true streaming of all FDR data and voice recordings from a flight deck mounted microphone. There have been no further developments on this program, but the technology and solution remain available as needed. The Inmarsat Black-Box-In-The-Cloud program was described publicly during the initial stages of the GADSS working group meetings. Since then, the program has not been actively promoted and we are unsure of Inmarsat’s plans. Should the market emerge for the streaming of FDR and flight deck voice, FLYHT is well positioned – we are unaware of any other competition that has streamed complete FDR data in a manner similar to our ecoDemonstrator flights. Q: What is the sales backlog presently at?
A:
The contracted sales backlog is currently at 26MM. The entire sales backlog is actually a lot higher as our accounting department scrubs this for revenues anticipated in just the next 24 months as measured from the end of the quarter in which it is published. Q: What benefits does Flyht derive from presenting at investor forums?
A:
Typically, IR’s main function is to keep existing investors informed of our company, but we also want to inform potential equity purchasers that we are doing things differently, better than before, and that tangible results are imminent. We have been under the COVID cloud for two-plus years and will continue to be as the skies clear and people get back to normal travel. During this time we have transformed our company to be less dependent on avionics (i.e. hardware) sales. We have built new tools, a stronger team, and a leadership group that is ready to face the opportunities that the pandemic has created. We are very proud of our accomplishments and want to make sure there are buyers waiting in the wings to invest as the results start rolling in. Do you have any answers to frequently-asked questions or are their any other comments that you would like to make here?
FLYHT FAQ: The relationship with the OEM provider (Airbus/L3Harris) has been in place a long time now. What do you feel the future will bring? A: We have a strong relationship with our partners on this and the beauty of aviation is that once a model is certified and starts into service, a 25-year-plus bond is formed. If you look at the 737 family of aircraft (i.e. WestJet has a fleet of them), they have been being built for over 50 years, with the first coming on line in 1967. A lot of the components are the same as they were back then and a lot of those aircraft are still in service. Being factory-installed is a great long-term proposition. We are pleased that the order announced today (October 6th) after a year-long hiatus is starting to show production levels recovering towards 2019 levels. Recent announcements of major aircraft buys from Qantas and others in both the A220 and A320 families are very encouraging to us. Bill Tempany, CEO, FLYHT Aerospace Solutions Ltd.
Kent Jacobs, Technical Fellow.
Both can be reached by calling the Head Office at 403.250.9956.
Email can be directed to either using this email address...
Investors@flyht.com