Welcome back, everyone. Next, we have Surf Air Mobility. It's a Los Angeles-based regional air mobility platform and one of the largest commuter airlines in the U.S. by scheduled departures. It's also the largest U.S. passenger operator of Cessna Caravans. In addition to its airline operations, Surf Air Mobility is developing an AI-powered software platform for the regional air mobility industry in partnership with Palantir . The company is also working to commercialize electrified aircraft and creating proprietary powertrain technology for the Cessna Grand Caravan. Surf Air Mobility plans to offer its software and electrification solutions to the regional air mobility industry to improve safety, efficiency, and profitability. Deanna White, CEO and COO, brings years of aviation experience and commitment to transforming flight. Before taking the reins as CEO, Deanna was the Chief Financial Officer responsible for leading the company's public listing in 2023.
Prior to Surf Air Mobility, she served as COO at Kitty Hawk, where she led the finance and business operations for an R&D and eVTOL aircraft program. There, she transformed an R&D and eVTOL project into a thriving startup company that she monetized for investors through a joint venture transaction with Boeing, currently known as Wisk. Deanna also had a successful career with Flexjet, a leading fractional airline operator, as the CEO and CFO for this Bombardier business unit. During her tenure, the company achieved profitability through optimized operations and business expansion. Deanna eventually led the sale of the company to private equity partners. Deanna holds a BS in Accounting from the University of Tampa and an MBA and MA in Cybersecurity from the University of Dallas. She also attended the Women's Executive Leadership Forum at Harvard Business School. We also have Oliver Reeves, CFO.
He joined Surf Air Mobility in 2023, having previously served as the Chief Strategy Officer in Xinuos, the developer and licenser of UnixWare and OpenServer operating systems. Prior to joining the corporate world, Mr. Reeves acquired substantial investing and capital allocation experience, including as an analyst for Coliseum Capital Management. Mr. Reeves received his MBA from Columbia Business School and graduated summa cum laude from Babson College. Thank you both for joining us today on the Emerging Growth Conference. We're very happy to have you both here. I want to start with you, Deanna. Let's begin with a high-level summary of this company and its business model and its strategy. Please, the floor is yours.
Thank you, Ana. It's great to be here and want to thank you for having us with you today. Surf Air Mobility is building the air mobility platform that will transform regional flying. Our company is comprised of two businesses: our air mobility business, which is our scheduled service and our charter flight operations, and our air technology business, which supports two initiatives—our Surf Air SaaS platform initiative that we partner with Palantir Technologies to deliver, and our powertrain electrification initiative with Textron Aviation. We operate in the regional air mobility space. This space is defined as operating flights between 50- 500 mi. We do that using 5,000+ existing public-use airports in the United States. We're the segment between the urban air mobility space and the large commercial airlines operating from the legacy hubs. Surf Air differentiates itself as one of the largest commuter airlines in the U.S.
We're typically the only airline serving the communities that we operate in. We connect the regional air mobility space and the commercial airspace through interline agreements with some of the major commercial airlines, like American Airlines, United, Alaska , Hawaiian , and now Japan . We also, on our on-demand side, service flights through a network of over 400+ operators.
As a follow-up, it's my understanding that Surf Air Mobility is taking a leadership position in investing in both technology and in electrification within your industry. Talk about that.
That's correct, Ana. We're developing technology to transform the regional air mobility industry. Being an operator ourselves gives us unique insight to industry needs. We have two technology initiatives in our air technology business. First is our all-in-one software platform called SurfOS, which provides both commercial and operating systems to this industry. We have an exclusive partnership with Palantir to do this project, and we can leverage their AI-powered tools and their data management expertise for faster business decisions. We are optimizing our operations first with this platform, and we intend to offer it to other Part 135 operators, charter brokers, and aircraft owners. Second, we're working through a supplemental type certificate, they call it an STC, for proprietary electric and hybrid-electric powertrains on the Cessna Grand Caravan.
It's one of the most prolific aircraft globally, and we have a unique agreement with Textron , who manufactures these planes, to help develop, market, and sell them. These powertrains will reduce operating costs and emissions, and it does not require a clean sheet type certificate, allowing us for faster time to market.
Fascinating, truly leading-edge initiatives you have. I want to ask Oliver, can you give us a sense of how big the industry is and how big the opportunities are for Surf Air Mobility?
As you can imagine, we've done a fair amount of research on this particular subject. What our research indicates is that the regional air mobility space will experience transformative growth over the next decade. What we currently estimate is that the global regional air mobility market will grow to between $75 billion and $115 billion by 2035, with the U.S. alone accounting for between $15 billion and $22 billion by that time. What's interesting is today, this is a market that is served by smaller aircraft using combustion engines. This is about to change. We're about to enter the era of electric aviation. For us, what that means is by 2027, we will have an electrified powertrain for the Cessna Grand Caravan that will replace conventional powertrains for about the cost of a standard overhaul.
What I want you to understand is that electrified powertrains will have a very substantial impact on the unit economics of flying. As we've said publicly, we currently anticipate that our all-electric powertrain will reduce the direct cost of flying by 50%, while we expect our hybrid-electric powertrain to reduce the direct cost of flying by 25%. There are huge economic incentives for operators to adopt electrified propulsion. We have already signed MOUs with seven customers for about 100 retrofits of Cessna Grand Caravans. That is going to be once our STC is approved. More broadly, just taking a step back and addressing what you asked about the global opportunity, with the SurfOS software and the services platform and our electrification initiatives, we expect to be at the epicenter of what is the regional air mobility market.
We're going to empower operators, brokers, aircraft owners, and OEMs to succeed in this space. This opportunity really goes well beyond just our own operations and making ourselves more efficient and leveraging our technology. What we're doing in conjunction with Palantir and Textron is bringing a sea change to the entire regional air mobility space over the next few years.
Fascinating. Thank you, Oliver. Deanna, you were recently named CEO. You've previously served as COO and CFO at Surf Air Mobility. What steps are you and your team taking to position Surf Air to capitalize on all of these growth opportunities you both are talking about?
Ana, our company has three clear catalysts for growth. We are executing against this, and in order to do that, we have successfully implemented a four-phase transformation plan. We launched this last year. The first phase was titled Transformation. In that, we were really trying to reposition our company to be successfully able to execute against this plan. We completed all the key steps of this phase in 2024. We improved our capital structure, strengthened our balance sheet, and enhanced our management team with some excellent aviation talent. Additionally, we were able to capture synergies that were available to us from the acquisition of Southern Airways that happened at our listing. This year, we're focused on the second phase of our plan, Optimization. During this year, we are optimizing our airline operations, and we're recalibrating our on-demand business. We're also driving efficiencies from our SurfOS platform.
The first catalyst that comes from this was to make our scheduled service portion of our business profitable during this year. The second catalyst, which is the launch of SurfOS to third-party operators, is part of our expansion phase, which will start in 2026. In addition to this, we also expect to begin to expand our scheduled service routes. With the assistance of a McKinsey study, we have identified over 200 potential routes where today consumers typically drive, and that can be profitable even with a combustion engine. This brings me to the next catalyst, our electrification and hybrid powertrains. When we do this, those routes will become even more profitable. The third major catalyst is electrification, and we believe that in 2027, we expect to complete and receive a supplemental type certificate from the FAA for an electrified powertrain on the Cessna Grand Caravan.
We have an exclusive marketing and sales agreement with Textron Aviation, who manufactures this aircraft. What that means is the aircraft operators around the world will eventually be able to order a factory-built Caravan with an electrified powertrain. For those with existing fleets, we expect that they can replace their inefficient and environmentally unfriendly combustion engine for the cost of a standard engine overhaul. To summarize, scheduled airline services will be profitable in 2025. SurfOS will launch commercially in 2026, and our electrification initiative will come to pass in 2027.
Wow, true transformation in this industry. Very exciting. It appears there are some substantial catalysts for growth over the coming years, for sure. Oliver, help us understand why Surf Air Mobility is uniquely positioned to execute against all of these opportunities.
Ana, we have several strategic differentiators which form the basis of our competitive advantage. The first is scale. We are one of the largest commuter airlines in the U.S. by scheduled departures. The second is experience. We have over a decade of experience operating in the highly regulated aviation industry, and we have flown millions of people millions of miles. The third is depth. We have deep ties across the industry. We have an exclusive relationship with Textron Aviation, the manufacturer of the Cessna Grand Caravan. We also have a unique relationship with Palantir , a company that at this point needs no formal introduction. All of these things are incredibly important as we look to how we're going to develop the future. The fourth is reach.
As Deanna mentioned earlier, we have expansive reach and relationships with over 400 regional air operators who provide charter flights to us, and they will form the initial customer base for our SurfOS platform and for our electric powertrains. In addition, we have interline agreements with United, American, Alaska , Hawaiian , and Japan , the latest, that extend our reach to over 430 million of their customers. The fifth is technology. We are developing AI-powered software in partnership with Palantir to drive our growth and profitability in the future. We're also going to do that for hundreds of brokers, charter operators, and aircraft owners. We also expect to receive the STC for our electrified powertrain for the Cessna Grand Caravan in 2027, which will leverage our exclusive sales and distribution agreement with Textron . Finally, execution, where it all comes to rest.
We have brought together leaders and experts in aviation, software, and electrification to synergistically execute on our vision, drive profitable growth, and create shareholder value.
Thank you for that. Let's dig in a little bit more. Give us some details about your company, your operations, and tell us a little bit more about your scheduled air service and your on-demand service.
Thanks, Ana. I'll take that question. Our scheduled air service flies routes in both Hawaii and the U.S. mainland. I'm here on this call from our operations in Hawaii. In Hawaii, we operate using the Mokulele brand and have 11 routes between nine airports. We're not the exclusive operator here in Hawaii, but we really are the lifeblood for these communities because we enable residents and tourists to travel inter-island. We just signed our fifth interline agreement with Japan Airlines, and this gives us even a stronger presence in Hawaii. On the U.S. mainland, our scheduled service is under the Southern Airways brand. Here, we serve 19 different markets under the Essential Air Service Program, which is through the Department of Transportation, where we get subsidies for service to more remote communities.
We bid for these opportunities to serve these communities and have exclusive rights to those communities under this program. These contracts average approximately three to four years and provide us recurring government revenues. They represent 43% of our total revenue, so they're really important to our business. On the on-demand side, we leverage our Surf Air brand and our unique consumer offering. With our relationships with over 400 aircraft operators, we provide our on-demand charter flights to these consumers. We match those who are looking for flights with operators who can provide the flight across many types and sizes of aircraft, as well as geography. Charter operators are typically small, and their operations are rather inefficient, which can benefit from our SurfOS platform. We can turn the operators providing charter flights to us into customers of our SurfOS platform, driving enormous efficiencies across the charter aircraft market.
Our SurfOS platform can give these operators access to state-of-the-art AI-powered software tools, which they could have never afforded on their own.
Fascinating. Back to you, Oliver, for a second. Deanna previously mentioned that the other side of your business is called Air Technology. Tell us more about that.
Sure, Ana. Air technology is the side of the business where we house our innovation efforts. You've heard us talk about SurfOS, and you've heard us talk about the electrification initiatives. What I want people to walk away from this is that what we're building is greater than the sum of those two individual innovation initiatives. We envision and we are building a full air mobility platform for the regional air mobility market. Here, our ultimate objective is clear. For example, take a charter operator. If a charter operator wants to receive more leads for prospective flights, for example, or to run their business more efficiently, they can come to Surf Air Mobility, and we give them access to the benefits of the SurfOS platform. Take an aircraft operator.
If an aircraft operator wants to leverage an electrified or hybrid-electric powertrain, they can come to Surf Air to either retrofit an existing aircraft or buy a new one. An eVTOL operator, for example, if they're interested in being more efficient or in integrating their network with us, just as we do with the other five major commercial partners that we discussed through interline agreements, we'll welcome them to the fold and unlock greater network effects together. Finally, if any of these industry participants are interested in aircraft leasing or financing or potentially insurance or other services, we actually anticipate that these will be offered on our platform. As we grow, we intend to leverage our size and our network to offer improved terms than what is available today in the market.
As you can see, we really are positioning Surf Air Mobility to be at the very epicenter of the regional air mobility market. We believe that we can leverage our relationships with hundreds of operators and all of these key players in the industry.
Deanna, tell me a little bit more about the electrified and the hybrid-electric powertrains. What types of efficiencies do you think they will bring to the industry?
When consumers and investors think about electrified aircraft today, they usually think about the many eVTOL aircraft that's always in the headline every day. eVTOL will serve and grow the urban air mobility. Most of these are clean sheet design aircraft, slowly working their way through the certification process with the FAA, and in many cases require infrastructure, such as a vertiport that's not built yet. By contrast, our electrification strategy includes swapping out a conventional powertrain from one of the existing most prolific aircraft in operation globally. It doesn't require a new aircraft or a vertiport. In the U.S. alone, Caravans have access to over 5,000 public-use airports today. A supplemental type certificate has a far simpler process than a clean sheet design. As Oliver mentioned, we have already signed MOUs with seven customers to upgrade approximately 100 Caravan aircraft. This is where it gets really exciting.
We believe that the cost of upgrading to an electrified powertrain into an existing Cessna Grand Caravan aircraft will approximate what the operators are already spending on a regular engine overhaul. The direct operating costs are estimated to be 50% less. Operators have a great economic incentive to adopt this technology if the range needs, it helps their operating needs. For the hybrid model, we are estimating a 25% reduction in direct operating costs, but with greater range because there's the potential ability to recharge the batteries in flight. Operators can go further and go to locations that don't have recharging stations using this technology. As a result, the path forward to these powertrain initiatives is much clearer than clean sheet eVTOL programs, with a higher probability of a successful implementation in the not-too-distant future.
Sounds very promising. It's right around the corner. Let's bring these things back to today and talk a little bit more about what you're currently working on and the progress that you're making. Deanna, the company recently published an update on key initiatives. Can you summarize those for us?
Sure. We've been reporting on the progress of our transformation plan each quarter with our earnings results. We also did an interquarter update. In 2025, we are working on the recent optimization phase. In our airline operations, which is our Southern Airways and Mokulele Airlines brand, we have done really well at improving our operating statistics. We've seen steady improvement in our controllable completion factor. That's being able to complete and execute on your flight schedule. Over the past several months, we have increased this factor by 10% compared to fiscal year 2024. We've steadily improved both our DO, or on-time departures, and our A14. These are airline standards, with A14 being an arrival within 14 minutes of planned schedule. Both of those have seen a 20% increase in those statistics compared to fiscal year 2024.
Additionally, on our airline operations, we won a contract renewal in one of our essential air service communities, resulting in $9.9 million of additional subsidy revenues over a four-year contract. Our controllable completion factor, our departure and arrivals, are currently the highest on record since January 2023 for our company. The company expects continued improvements to operational reliability, which will further strengthen customer satisfaction and position the airline for long-term profitable growth. We are also, as a part of this phase, driving efficiencies from the SurfOS platform that we are using internally in our operations to achieve these great operating metrics. We have enhanced the company's CrewApp and added features like the filing of flight risk assessment tools that can strengthen our safety culture and enhance our operational visibility, enabling us to be proactively risk mitigators.
We attribute much of the operational improvement to steps taken by the strengthened senior leadership team, which has talent from Southwest, Flexjet, Sabre, and Amazon Air. We've made significant investments in refurbishing our aircraft, and we even introduced four new Cessna Grand Caravans in Q4 2024. Internally, we're also broadening our adoption of the SurfOS platform. We started on the commercial side, and now we're working with operating tools to gain these efficiencies.
Perfect. Thank you for that. Before we wrap up, let's turn for a moment to the company's financial position and its key partners. Oliver, would you please share some thoughts there?
I'd be happy to, Ana. It's my favorite subject. So, Ana, look, over the last year, we made great strides in repositioning the company. The first thing to note is we took substantial costs out of the operations by exiting unprofitable routes and streamlining operations. The second thing we did that was critical was we addressed the deferred maintenance issues. Now, given our revenue model, that is particularly important because if you think about our EAS subsidies, we get those for flying those flights. Obviously, deferred maintenance and controllable completion factors are particularly important to us. The third thing we did, as Deanna mentioned previously, is we recruited industry experts, and we truly strengthened our management team. Finally, we implemented our SurfOS platform to drive optimization, but also do what we like to call internally earning the right to grow.
As we look forward, all of these optimizations that we're doing are critical to our path. Now, as you will note from our June 17 press release on the subject, these changes are really starting to yield tangible benefits. They, for example, enabled us to achieve controllable completion factors, on-time departures, and on-time arrivals at the highest level on record since January 2023. We've also significantly improved our capital structure. In the fourth quarter of 2024, we raised $50 million in the form of a term loan to kickstart our transformation plan. In the second quarter of 2025, we raised more than $30 million, including our most recent registered direct offering. These capital raises are enabling us to effect positive changes in the organization and drive towards making our scheduled air service profitable this year. That's particularly important to us.
In terms of partnerships, as you mentioned, you'd heard us discuss in detail our software platform initiative with Palantir Technologies. We've been working together for almost four years. As we've highlighted in our June 10 press release on the matter, we remain on track to roll out the three first modules of SurfOS, which are BrokerOS, OperatorOS, and OwnerOS in 2026. Finally, it's worth reiterating that we have an exclusive sales and marketing relationship with Textron Aviation for the electrified Cessna Grand Caravan and also look forward to deploying best-in-class electric aircraft across our network and those of other operators through our platform.
Wonderful. To wrap things up, Deanna, help our audience understand with all of this great information why Surf Air Mobility is a unique investment opportunity right now.
Thanks, Ana. I've never been more excited about the potential for Surf Air Mobility. In just this past year, we have completely repositioned the company. We've done this by attracting world-class talent. We relocated our operations center to Dallas, which has a deep aviation community where a lot of this talent has come from. We have addressed our maintenance issues and driven efficiencies in our operation. Today, we're achieving operating results that are best on record since early 2023. There is excitement and momentum in our organization. When you couple our near-term momentum with the efficiencies we will gain with the SurfOS platform and our ability to commercialize the opportunity of the SurfOS platform to the regional air mobility industry and the electrification of hybrid powertrain opportunities, we have a very clear catalyst for growth in the next few years.
We are positioning our company at the epicenter of the regional air mobility market with unique capabilities and sustainable competitive advantages in a market that is expected to be between $15 billion and $22 billion in the U.S. alone by 2035. Ana, it's really hard not to be excited about that.
Absolutely. Thank you so much, Deanna White and Oliver Reeves, for joining us on the Emerging Growth Conference. I know many of our viewers are interested in learning more about your company. For those, please go to investors.surfair.com. This is the beginning of some conversations with you both and your team. We look forward to following along with your journey in this very exciting time in your industry. Thank you so much for joining us today.
Thank you.
Thanks, Ana.
All right, everyone, we'll be right back.