Good afternoon, everyone. My name is Sheila Kahyaoglu with the Jefferies Aerospace, Defense, and Airlines Equity Research Team. Thank you so much for joining us for our second annual eVTOL Summit and our final presentation of the day, where we have the Honeywell team on. We have Dave Shilliday here, who's VP and GM of AAM for Honeywell, and also Sean Meakim, who's a friend, VP of Investor Relations and former sell-side analyst, who was ranked number one. So a little bit about Dave, who's gonna be our major presenter today. He's VP and General Manager of Honeywell's UAM and UAS organization. Dave's been with Honeywell for over 17 years, and most recently serving as VP and GM for the Power Systems business within the Engine and Power Systems sub-segment.
Prior to that, he served as VP of EMEA Airlines, where he led sales, customer account, and channel management functions for the airlines aftermarket in that region. And with that, I won't read all your accolades, Dave. We'll just go right to it in terms of talking about Honeywell's business, which, as you mentioned earlier, we hosted a lot of your customers in the prior session. So Honeywell, how does Honeywell play in the advanced air mobility market?
First of all, thank you so much for the opportunity, Sheila, and it's great to talk with you. Back in 2020, we established a dedicated business unit to support advanced air mobility, specifically recognizing that both the offerings as well as how we support those customers was gonna have to be different. And we needed different solutions, and we needed a different MOS compared to how we support legacy aerospace OEMs. And so when we think of what we do in AAM, some of it is just copy-paste an existing aerospace offering, think sensors, think navigation systems. Some we modify a core solution to make it lighter weight or more efficient for an AAM vehicle, and some is brand-new systems, a need that either the legacy air transport market or biz jet market doesn't have or doesn't have yet.
They just haven't recognized in such a clean sheet application what they might be able to do with it. And so we like to say we don't make the aircraft, we make the brains, the eyes, the ears, the heart, the lungs, from avionics with our Anthem solution, flight controls, propulsion systems, both hybrid electric and electric, through our cooperation with DENSO, cooling systems, which become very, very important for these, all electric or more electric aircraft and electromechanical actuation. And more than just a tier one supplier, we see ourselves as a partner or even a facilitator in this space, whether that be helping to educate on best practices and timelines, coordinating with regulators, and even hosting some events to help advance the market.
It's worth noting, and we've shared this with you before, the development work we've done to apply these systems to AAM vehicles has allowed us to mature these key technologies using this customer iteration in AAM, so that they're also gonna be mature and certified and production-ready for the next BizAv or defense or air transport platform.
That's, that's great. Maybe, you know, given your leadership role in the industry, how do you think about the overall AAM or eVTOL market? You know, do you think about hundreds of aircraft flying around? How would you value it as well? What's the ballpark number you see as the market evolve?
So we think, you know, the tens of billions of TAM is absolutely appropriate over some timeline. But to be clear, it's not day one. And while we're optimistic on AAM being a meaningful and positive change to how people travel, to how people live, to how people transport goods and services, it's not material to Honeywell Aerospace Technologies P&L until probably the end of the decade. And the timing and the missions of those launch vehicles and the launch regions are gonna continue to evolve, and I'm sure you heard a lot about this today, where regions such as China and UAE are aggressively moving on the regulatory framework to allow the aircraft to operate first in those regions.
In addition, you're seeing US DOD, specifically through the Air Force, starting to evaluate these vehicles for cargo logistics, even initially, as well as special missions. So while regulatory timing will continue to be a variable, I think we have to look beyond some of the traditional type certification process as the unlock for revenue. So, so while type certification in the U.S. or Europe is a digital event, it's not the only enabler of revenue. And, and one of the things we talk about a lot is perhaps the, the killer app, the, the really compelling mission isn't going to reveal itself for some amount of time, right? It's gonna be like the early days of high-speed internet or the iPhone, where until you have it and until you've tested it, that, that most compelling application for it may not reveal itself.
Yeah. Thanks for that. And you've given some numbers historically. Air taxi is a $20 billion Honeywell opportunity, and please stop me if I'm misquoting you. Middle-mile cargo as a $10 billion Honeywell opportunity, and local light parcel as $1 billion as a Honeywell opportunity, and you've given broader numbers for the other OEMs in terms of TAM by 2030.... So can you walk around, you know, walk about your thoughts on each of these areas and how you're thinking about the mix of opportunities and the portfolio positioning towards them?
Yeah. So air taxi is gonna continue to get the most attention, not only because of the large TAM it has, but also because we, as travelers, can imagine some of the benefits that it brings, being able to get to locations that are very challenging today. It's also gonna have the most hurdles relative to regulatory scrutiny, so the revenue timing around air taxi is always gonna be the most challenging. However, in 2024, I think we're gonna see a number of milestones that really showcase how far it has come, whether that's Farnborough or Paris or Dubai or going into Osaka and Shenzhen next year. But just listing those cities, it should be very clear that the first air taxi revenues are not gonna come from operations in the US, because of the regulatory scrutiny.
And our solutions for air taxi are extensive, everything that we talked about above, you know, eyes, ears, heart, lungs. middle mile cargo may be the least sexy, but the likely launch application. And the reason for that is both the regional, where people live, you know, where goods and services are located, the operational flexibility, and the immediate operational savings you can get out of middle mile cargo using AAM vehicles is an easier win for regulators, for operators, for OEMs. So you can start to drive revenue, and you can start to showcase the benefits of these operations fairly rapidly. And so our offerings for air taxi and middle mile are very similar, and when we talk about customers, you'll see there's some commonalities there.
Local light parcel trends towards low cost, high volume, depending on how the final set of regulations play out. But even there, things like a ground control station that allows you to operate a fleet of light local parcel drones in a certifiable way, as well as provide continuing communications with that fleet, is a really interesting place for us to play. And so while we tend to spend more time because our offerings fit more neatly within air taxi and middle mile, that's not to say that we're not deeply engaged on smaller drones, in part because that's where a lot of the advances are gonna be shown.
That's, that's super helpful. And maybe can you talk about, I'm just gonna ask one follow-up on the middle mile cargo-
Yep
'Cause you said it's gonna be first market. Where is Honeywell's offering with that? Are you paired with, like, a Textron or a Beta? Can you, can you give us some color there?
Yeah. Underneath Textron, specifically the Pipistrel Nuuva, which is a cargo aircraft they've developed, we provide the actuation systems and some of the flight control systems that support that vehicle. And so, that's one example of where we're engaged on the middle mile cargo. But you can imagine across the portfolio, even up to and including a ground control station that allows you to operate one-to-one with a larger middle mile cargo vehicle or one-to-many at some point in the future, we have a lot of very interesting work going on with customers in that space.
Okay, thank you. Maybe if we could talk about the Anthem opportunity. I went to a really cool event, Sean and Reena invited me to do two or three years ago now, where you launched Anthem. So what is Anthem? How do you think about when it enters service and the broader opportunity set across commercial and business aviation?
Yeah. So, Anthem is our integrated cockpit of the future, and without completely going wild on it, it has a number of advances for the future of aviation. If we think about being connected all the time, as people expect to be, but is very difficult in some cases, in an aircraft, if we think about pushing more tasks, more critical tasks to the pilot and more mundane tasks to the systems on the aircraft, what we call simplified vehicle operations, Anthem also has an excellent roadmap for how we advance as the regulations and the needs of those future aircraft advance.
So we've announced three AAM platforms for Anthem, Lilium, Vertical, and Supernal, whose division of the Hyundai Motor Group, have all committed to using Anthem on their vehicle, along with an unannounced business aviation platform where we've been selected. So right now, our priority is flawlessly executing on those programs, right? Because we need those vehicles to launch successfully, with our platform, and I think we'll see, as you probably talked about, cert timing with some of those customers today, I think we'll see 2025 and 2026, EIS in, on those vehicles.
Maybe the other thing to touch on with Anthem is it does create retrofit opportunities for all the reasons that I highlighted, that it gives you a path towards simplified vehicle operations and in some cases, reduced crew operations all the way to some level of autonomy. You can imagine that operators of existing fleets might look at Anthem and what it's able to do in AAM, and say, "It's worthwhile for us to upgrade to that in order to simplify the operations for cargo or for some specific mission in a way that an existing cockpit cannot.
On Anthem, you mentioned three customers. How do you think about Anthem versus its competition? Is it in-house providers for the avionics? You know, how do you think about expected market share there?
So in general, we've won in most of the areas we've wanted to win. And so I'm being a little bit cagey about that. But one, there's a certain set of customers who are gonna value those unique attributes I described in Anthem more than others, and so we try to focus on ensuring that we've established a position with those customers. The other is, we have to be very choosy about where we can deploy the resources to ensure a flawless integration, a flawless EIS, and support for certification. And so I don't think as much about market share, although particularly at AAM, we have a very strong market share compared to the next best alternative, which is typically going to be an in-house solution or a federated solution.
But more importantly, we're selecting the customers where we think the technology is a great fit, the cooperation between the two companies is a great fit.
That makes sense. Thank you for that. And then maybe you've talked about UAM pipeline, being about $10 billion plus, and I think that's the figure we got a year ago. So where are you seeing and winning the largest opportunities across the portfolio?
It's pretty broad across the portfolio. Everything that I've described, we continue to announce new wins on, whether it's sensors and navigation, whether it's flight control computers, whether it's electromechanical actuation. One of the biggest growth areas where the demand has ramped up significantly is around our cooling systems. And so one of the things that OEMs are realizing is, as they develop these electrical solution... these electrical systems, whether it's all-electric or hybrid electric systems, the amount of heat they're generating in those electrical systems is significant. And so Honeywell's cooling systems, what we call our Micro VCS, which can offer both passenger cooling, as well as cooling for the electrical systems, as well as battery cooling in some cases, is a really important offering, and it gives them some ability to scale as those cooling requirements go up.
The other element of that is, within those cooling systems, you also have seen defense players, as they try to add more and more capability onto either new aircraft or existing aircraft, their cooling needs ramp up significantly. And so our Micro VCS system, which is designed for a very small footprint with a significant cooling power, has been compelling even as they try to upgrade existing aircraft as well.
Maybe if you could talk about your competitiveness across each of these content areas, whether we just talked about avionics a bunch, but fly-by-wire, avionics, and propulsion, and do you, do you use any of the technologies to come—crossover into your commercial transport next-gen products?
Yeah, that's a great point. When we think about certifiable production-ready solutions, we think we have industry-leading solutions in nav, in flight controls, in avionics, in actuation, in cooling systems. Our cooperation with DENSO on electric propulsion goes even further in that it puts us in a position to scale production in a way that's unprecedented for aviation. So regardless of the launch date or the application, vehicles that require between 10 and 30 electric motors per vehicle are gonna require different production solutions than aerospace has needed in the past. And so the work that we've done to drive out weight, to drive out cost, to be more agile in developing these solutions, to your other point, also makes us more competitive on a future BizAv, on a future air transport, and particularly on a future defense application.
The reason I continue to mention that one is, one, we're seeing a number of AAM players pivot towards the defense missions. But two, we're also seeing the buying behavior for defense platforms start to look more like AAM. And so if you look at the Collaborative Combat Aircraft and the Increment 1 selections that were made, selecting Anduril and GA over some of the legacy OEMs, to me, is an indication that they wanna see more agility. They wanna see more in-house development, leading to these solutions being available faster. Then just going back to where can we apply them on non-AAM, you know, particularly as we think about how we're gonna certify electric and hybrid electric propulsion, the experience we gain on how to do that, on how you provide the necessary safety and regulatory guidance-...
to put those aircraft in service, that will apply as we see more electrification come to business aviation or come eventually to air transport. And so, the last thing I would say is we're also, because of the breadth of our portfolio, we can also help identify some of the gaps in between these solutions. We're not just selling a nav solution, a, a cockpit solution, a flight control solution. As these clean sheet customers ask us to integrate in unique ways, it allows us to merge some of those solutions together in a way that offers something unique and compelling relative to weight or cost or performance.
You covered it already with DENSO and the new e-motor you have. Are there any other partnerships we should be on the watch out for? Yeah, I'll let you answer that.
I think you'll see some announcements relative to cooperation within autonomy. When we talked about how our avionics suite and our flight control computer create two of the major elements that go into an autonomy solution, I think you'll hear us continue to advance that. And in some of those areas where we haven't done as much development work, I think you'll see us continue to lean into partnerships in that area.
Then maybe if we could think about the revenue trajectory of the business, how would you say the UAM ramp looks for Honeywell? I believe you have a $2 billion target out there, but I don't know what time frame, and I don't wanna quote it while Sean is on. So how do you think about that revenue ramp and the margin profile of the UAM business?
Yeah, because of the shifting regulatory timing, which is really the biggest hurdle for us to get over to see the big unlock of revenue, we're clear that by the end of the decade, it will be material to Aerospace P&L. A specific target is very challenging, except to say that in the 2030s, you know, it becomes a significant part of Aerospace revenue. And also the launch platform, the launch mission, and the launch region are likely all gonna change over the next months. And so we could see that pull in a lot of those revenues, which we'd be more than happy with, and we could also see it change because of our position relative to those regions or those missions, change the timing of our particular revenue.
So we remain bullish on the market, but it's very difficult to get so detailed about exactly what revenues are gonna occur on what date.
How, how do we think about maybe the dollar content? I think Honeywell provided these numbers, unless my associates made it up, but I think $200,000-$1.5 million for a typical electric aircraft with the vehicle price being anywhere from $2 million-$5 million, although we've seen those vehicle prices also go up. So how do we think about Honeywell's content there?
Yeah. So, so I think that's right. I think $200,000 per vehicle would represent the low end of content for us on one of these vehicles. As you add more complex systems, like electric propulsion or like the flight control computer or the cockpit, you see that value get up closer to the $1 million-$1.5 million per vehicle. Heavy autonomous cargo, similar, and there are some additional things that we can add there that might even take the top end up a little higher. The smaller delivery drones tend to have very simple needs, and so a SATCOM system or a sensor system might be the only thing we get there.
That having been said, as the volume of those smaller drones tends to be much, much higher, it can still be compelling business for aerospace.
And maybe if you could just give us an idea of the partnership structure and the margin profile of this business. You know, how much investment does Honeywell put in, or does it not work like that at all?
It certainly varies by customer. So what I would say is the majority of these solutions were core offerings that we developed, and where the customers invest, a lot of it is how do we support the integration into their vehicle, and how do we support the certification of that solution on their particular vehicle? And in most of those cases, customers are helping us with the investments necessary to do that latter part. So in general, you know, the investment profile is high, where we've got core offerings that need to be matured, and we look for the customers to come in and assist us, where it's more about the integration into their vehicles. We wanna ensure that those offerings have the most reuse possible, whether within AAM or whether within future fixed-wing applications.
So we're very much aligning our spend to where we can get the maximum reuse. I-
That's-
I know that's a little vague, but I think gets at the heart of what you were asking.
Yeah. And then maybe last one for you. What are three takeaways you want investors to walk away with when it comes to Honeywell and the UAM market?
Yeah. You know, I think I touched on a couple of them, but it's worth, it's worth saying again.
Yeah.
The launch applications, particularly for air taxi, are not gonna be in the US, and in my opinion, in Europe. I say that because often, if folks don't see these vehicles in Midtown, they think nothing is happening, and they're not advancing. The solutions that we're developing, in general, are transferable to traditional aircraft, whether it's BizAv or whether it's air transport in the future. And so when we're investing in things like cooling systems in the cockpit of the future, the applications in UAM allow us to iterate rapidly so that we're in a better position when those next aircraft come along. And the last one I would say is, we're seeing defense behave more and more like the AAM business.
I mentioned the CCA selection of Anduril and General Atomics, but if you think about the pace at which they're operating and the number of changes they're looking for, and the agility they're looking for in their customers, they're starting to sound a lot like the AAM customers you've been talking with today.
That's great, and a super helpful overview without even making it over to Phoenix, so appreciate all that you provided. So thank you, everyone, for joining Honeywell's session, and thank you, Dave and Sean, for this overview. That concludes-
Thank you, Sheila.
O ur webcam. Thank you.