Vertical Aerospace - Earnings Call - Q4 2024

Transcript

Operator (participant)

Good morning. My name is Jill, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vertical Aerospace 2024 full-year earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star, one again. I would now like to turn the call over to Charlotte Cowley, Director of Strategic Finance at Vertical Aerospace. You may begin your conference.

Charlotte Cowley (Director of Strategic Finance)

Hello, everybody. Good afternoon or good morning, depending on where you're listening from. I am Charlotte Cowley, Director of Strategic Finance at Vertical Aerospace, and I'm delighted to welcome you to our 2024 full-year earnings call today. Before we get started, I would like to remind you that during today's call, we will be making forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward-looking statements. Any forward-looking statements we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. We've posted an accompanying slide deck to the Investor Relations web section of our website at investors.verticalaerospace.com, which contains information and cautionary warnings on forward-looking statements.

For a more complete discussion about these risks and uncertainties, we have filed a 20-F with the SEC this morning. Before I hand over to Stuart, we'd like to share something special with you.

Test B2.

All ready to test.

Control is good.

Control is good.

Retake.

Continuing to see accelerating.

Continue.

Good, and decelerating now.

Low on ground.

Test down. Good job, everyone. Thank you.

Stuart Simpson (CEO)

Hi, good morning and good afternoon to everyone in Europe. Thank you very much for joining the call. As you can see from the video, we've been making significant progress at Vertical over the year, and in particular the last few months. As you know, we relaunched the company on a call in November, during which we shared details of Flightpath 2030, our strategy to lead the sector by the end of the decade. During the call, we laid out clear financial and operating goals through 2030 and beyond. We remain the only company in the sector with a set of transparent, stretching, challenging, but ultimately deliverable metrics. Building on that call today, this is our first formal earnings call. Going forward, we will do these on a regular basis and supplement them with update and progress calls. Now, turning to the agenda. Agenda today.

I'll cover our recent progress and why I'm so convinced Vertical will be one of the winners in the sector. I'm joined this morning by Sy Davies, our Chief Test Pilot, who will then explain our approach to and progress with our flight test campaign and how this sets us apart from the rest of the sector. I will conclude with a short review of our financial position and our outlook for 2025. Over the past months, we've seen the industry reach an inflection point, driven by physics, where the wing tilt rotor is proving to be the winning design, and funding, where we've seen significant investment into the sector. However, the real measure of success is the cost through to certification. Within this context, I want to touch on three key points: our technical progress and route to certification, our best-in-class aircraft, and our focused business model.

The first point on why we are positioned to win is the technical progress we've made to date. We decided early to fly a full-scale prototype and to progress piloted flight tests as soon as possible. Sy will be sharing more on why this is so important to us at Vertical. In short, there are negligible learnings to be made from flying a subscale multi-rotor winged aircraft. We have been making incredible progress with our current full-scale piloted prototype. We are one of only two eVTOL companies in the world to have achieved piloted thrust-borne flight. That is where the rotors provide both lift and thrust. We are targeting piloted wing-borne flight in the coming three to six months, and Sy is going to explain the significance of this shortly.

All of this incredible progress flying piloted is underpinned by our proprietary battery, where we've completed millions of hours and hundreds of years of combined testing as we refine the product and drive towards certification. We have initiated the build of Aircraft 3, a carbon copy of Aircraft 2, the prototype we're flying now. By having two full-scale piloted assets in the air, we will accelerate our test flight progress significantly over the coming year. To put this in context, for every hour the aircraft is flying, we generate double the amount of data within Wikipedia. Just on this point, I'm incredibly pleased to say that we have another world-leading test pilot joining us here at Vertical. He's one of only a handful of people in the world to have flown a full-scale piloted eVTOL.

This is another vote of confidence from people in the industry who know that Vertical can and will be successful. As I've already told you in our November 24 business update call, during 2025, we will initiate production of our certification aircraft with long-range parts purchasing. Now, what does this mean? It means the next aircraft we build will be our certification aircraft. The design we will certify, the one we'll bring to market, and the one you all will fly in. Now, turning to our route certification, we are UK-based, where our home regulator is the CAA, but importantly, they have a collaboration agreement with the EASA. There are two things to note where this is incredibly important. First of all is the regulation under which we certify, SC-VTOL. And second is the level of safety contained within that. The first point, the regulations are clear, transparent.

You can double-click on them, understand the work stack, and build a plan around it. This is why we are confident and comfortable putting out a clear certification date in 2028. The second important point is safety. Within this standard, there is a safety requirement of 10 to the minus 9, or one in a billion. This is 10 to 100x safer than any other aircraft in the sector and definitively sets us apart from competition. This is the same level of safety as a large passenger-carrying jet. What does this mean? This means that we will be the only aircraft in the sector certified to this standard, and we will be the only aircraft that is a globally portable asset, which is what the aviation leasing industry needs. Now, building on the above, I've already mentioned that we will have the safest aircraft in the sector.

I genuinely believe that is what customers and end users will want when you're introducing a new and novel technology. As well as safety, why else is the VX4 the best in class and what sets us apart? Specifically, this is capacity for both passengers and luggage, where we believe the VX4 will be industry-leading. For those in Europe, this is like being in the interior of a Bentley versus a Fiat 500. For those of you in the U.S., this is like being in an interior of a Cadillac Escalade, Lincoln Navigator versus a Fiat 500. There is simply no comparison. We will launch our aircraft with four comfortable business-class seats and 30 kg of luggage capacity per passenger. This means our aircraft meets the demands of today's passengers flying globally, for example, between New York and London.

Incredibly important, this airframe is also designed to accommodate six passengers. Minimal recertification, simply taking out the large seats and putting in six economy seats within the same airframe. This is something that no one else in the industry can do. Just to be clear, to reverse-engineer a higher level of safety or a larger cabin is almost impossible. These have to be thought of and designed in from day one. These are things that definitively set us apart from the competition. Underpinning all of this are our proprietary battery packs. We are targeting the most powerful powertrain in the industry. Our current prototype is already demonstrating a peak power of 1.4 MW and incredibly important peak torque that is unbelievable. We have 16,000 newton-meters or 12,000 pound-foot of peak torque. This is equivalent, going to an automotive analogy, of 10 Bugatti Chirons.

It's a truly incredible piece of engineering by the team. Now, turning to the final thing that sets us apart, that is our business model. We are not looking to boil the ocean. We are engineering, designing, assembling, selling, and servicing an aircraft. Importantly, within that, we will have battery as a service. It's a very high margin. This is very similar to the Razorblade model. Predictable, long-term, high-margin revenue. Now, within our business model, we are working with tier-one aerospace suppliers who understand what it takes to get a new aircraft off the drawing board into the skies and certified. Also, through this OEM focus, we are not exposing ourselves to operator risk. We have an outstanding order book of customers: airlines, helicopter operators, mobility operators, leasing companies who work extremely closely to ensure we are developing the right product to meet their passengers' needs.

As I mentioned, this is the biggest and best aircraft in the sector. It is also the safest. Now, turning to funding, the key metric is the cost to certification. I anticipate we will ramp up our spending incrementally as we drive towards commercialization. However, we will maintain our diligent capital efficiency, and I expect us to spend a significant amount less than many others in their move towards certification. Wrapping up before I hand you over to Sy, I would like to remind you of some of the great recent developments we've made in the last few months. In November, we relaunched the business and strategy with Flightpath 2030, setting a clear roadmap for our plan to lead the sector by the end of the decade.

We issued clearly defined financial and operating metrics for 2025, 2028, and 2030, including rebaselining the business to a stretching but ultimately credible and deliverable timeline for certification in 2028. This whole package was incredibly well received by customers and the wider industry. We have shown with this plan we have an efficient OEM business model, and important to note, we have undertaken significant balance sheet restructuring, and we are an investable proposition, having closed GBP 220 million of refinancing and funding activities, during which we equitized half of the Mudrick Capital floating rate convertible loan note of GBP 130 million, resulting in a new majority owner Mudrick Capital. In addition, we extended the term of the remainder of the loan note and fixed the conversion rate.

Following this, in January, we raised $90 million, $25 million follow-on from current investors, and over $60 million from investors who were new to the story. Just to be clear, this secures our funding through 2025. In terms of the team, we had Dómhnal Slattery rejoining as Chair, bringing his unrivaled aviation industry experience to the business. Just last week, you will have seen the announcement of Eamonn Brennan as a Board Advisor, formerly Director General of Eurocontrol, who controlled the skies over Europe, and the Chief Executive of the Irish Aviation Authority. With that, I would like to hand you over to Sy to talk about his key role in executing our flight test campaign.

Sy Davies (Chief Test Pilot)

Thanks, Stuart. It's great to be here. Thanks for inviting me on the call. A short introduction, I studied aerospace engineering at the University of Cambridge. Straight away after that, I joined the UK Royal Air Force, where I spent 16 years as a fast jet pilot, instructor, and examiner. I trained as a test pilot with the US Navy at Patuxent River Naval Air Station in Maryland, Pax River. In my career, I've flown most categories of aircraft, aeroplanes, helicopters, gliders, airships, and now, of course, eVTOL aircraft. I really believe in what we're doing here. It's great to tell my kids that we're making a new way to move people around that's clean, quiet, and especially safe.

We're really pushing the safety paradigm in aviation with an aircraft that's reliable and easy to fly. Today, I'm going to discuss a couple of things, but I'm going to start with why we are doing full-scale piloted flight tests with our demonstrator aircraft. We'll take those in turn. First, full-scale. Why do we want to test at full-scale? We do not want surprises on our journey to certification. Our experience from other programs has told us if you test at subscale, your results may well not scale well. This is particularly true with the complex interactions between propellers on eVTOL aircraft. These really complex, unsteady flows are very difficult to model.

This is the reason we've been doing full-scale flying at Vertical Aerospace since 2022, because our team's real-world experience with tilt rotors and other programs has taught us that working at subscale means that there will be some surprises when you test your full-scale aircraft. Secondly, piloted. The pilot can give comprehensive and instant feedback and potentially even highlight issues that aren't possible to notice from single sources of data, things like vibration interactions or unusual motions of the aircraft. Also, by having a pilot in the cockpit flying, we can tune the flight control laws and test out the handling qualities and the ride qualities for our passengers. You cannot do this reliably without a pilot in the cockpit. There is only so much you can do with simulation. On top of this, of course, ultimately, we do not just want to put a pilot in our aircraft.

We want to fly passengers too. We need this aircraft to be human-ready from the outset. That allows us to prove the VX4 design incrementally across the full flight envelope in a manner that is representative of how the VX4 will be operated by our customers. From experience as well, the hardest part of design is threading the needle to meet both the airworthiness requirements required for human flight and the performance targets of the aircraft. If you fly remotely without a pilot on board, you only need to meet one of those things. Our whole ethos is to be human-ready, so we're ready for passengers. This approach requires a company-wide safety framework that really underpins how Vertical operates. Next, I'd like to talk about our flight test campaign, what we've been doing, and what's coming up next.

We've just finished our thrust-borne flight test campaign, where we've been flying the aircraft at relatively low speeds close to the ground. This is one of the most challenging parts of the whole flight envelope because the power required is at its peak and because the environment is so complex aerodynamically with ground effect in play and loads and power required changing very significantly with forward speed. Our impressions of the aircraft? We have been telling our customers for years that this certified aircraft will be really simple and reliable in operation. It turns out it really is. As testers of helicopters and conventional aircraft in the past, me and the team are used to there being teething problems and things to fix.

When you have hydraulics, fuel systems, and so on, there is so much to go wrong, it typically takes quite a lot of time to iron out the faults and get a reliable aircraft when you are testing demonstrators. We have had no major technical faults. We have swapped out no major components during this second phase of the flight test campaign. In all my experience as a tester, this is almost unheard of. We shouldn't have been surprised, I suppose, but we really are seeing the benefits of the reliability and simplicity of the design with the battery and distributed electric propulsion. Our next step is wing-borne flight. That's conventional takeoff and landing like an airplane. This is the penultimate step to full transition, but it's probably the hardest part.

In part, that's because of the close involvement of the CAA, the aviation regulator in the U.K. that has responsibility for public safety. For the first time, we'll fly outside the bounds of the restricted airspace at Cotswold Airport at Kemble, and we'll be flying in public airspace around southwest England. The process we go through with the CAA is basically a mini certification process with our prototype aircraft. We use the processes and tools within our CAA approved design organization to support this, including all the usual activity like engineering review, document release, acceptance and comments back from the CAA, and ultimately the CAA's acceptance of our safety case, leading to the issue of a permit to fly and then flight conditions for each phase of flight test. This really does de-risk the certification process that we'll go through with the VX4 because we're proving our tools and processes.

We're demonstrating our organizational competence to the regulator as well. It's not just a demonstration. Our prototype flight test campaign is a mini dry run of our certification campaign for our production aircraft. That will be against a robust and transparent and safe certification basis with SC-VTOL. We are demonstrating our competence, we are proving our tools, and we have a really clear set of goals for certification at the end of it. Finally, onto the question I get asked the most, what's it like to fly? Everybody wants to know. Firstly, in the flight test campaign, there have been no surprises. I took some media flack on social media for describing one of our flight tests as being nice and boring. Boring kind of is the epitome of a really good flight test because it means that everything has gone according to plan. No surprises.

Secondly, our aircraft is really simple to fly. The aircraft is designed to be really easy to operate. It is so simple. I have taught my kids to fly in the simulator, and they are pretty good now. They can take off, transition, and land the aircraft. There is one rotary switch to go from taxi mode to flight mode. As a pilot, you just tell the aircraft where you want to go. The flight control computers work out how to do it. What does it actually feel like to fly? The biggest impression is our aircraft is really stable. It is really stable. Hovering is a hands-off-the-stick activity. Even in slightly gusty winds or when you are hovering very close to the ground in unsteady flow, the aircraft basically flies itself. It is completely unlike most helicopters. It is also really intuitive.

Your command inputs tell the aircraft where you want to go. The aircraft works out how to do it. I remember in one of the early flight tests, setting up for a test point along the runway, realizing that I could just optimize the setup and just slide to the right and back about 10 meters, and realizing afterwards that I've done that really without having to think about it particularly. It's really intuitive. Our pilots and passengers are going to love it. Finally, the noise. It's so quiet. For the first time in my career, I can hear other aircraft outside the cockpit when you're on the ground. When you're taxiing around, you can hear the motors running, perhaps some avionics noise from cooling fans, but then you realize how very, very quiet the cockpit environment is.

You can hear for the first time, I've been hearing light aircraft and helicopters on the other side of the airfield taking off and landing. Our passengers are really going to love that quiet cabin and the pleasant environment. I hope this has given you some of the flavor of what we've done and why, and what we're doing next, and also why our aircraft really is so simple, reliable, and stable in flight. With that, I'll hand back to Stuart.

Stuart Simpson (CEO)

Thank you, Sy. You and your team are making us unique in the sector. You are too modest to say, but nothing is more important than the pilot in the aircraft. You are the single most important sensor we have, and I look forward to seeing you back in the cockpit flying wing-borne soon. Now, just turning to the numbers. This year, our net cash used in operating activities was approximately $100 million. In 2025, we'll be close to this with a small ramp-up, total net cash to be used between $110 million and $125 million. Getting slightly technical, you will see there is a very large number on the face of the P&L, GBP 688 million. Just to be clear, this is a non-cash financing cost that resulted from the restructuring of the convertible loan notes.

Note this is highly volatile, driven by a calculation relative to the current stock price. The full detail and explanation is contained in notes 7 and 23 of the annual report. The key thing to think about is that this is non-cash. Now, looking forward, we have a clear set of operational goals for 2025, including flying wing-borne and flying a full piloted transition. Now, just wrapping up, I'd like to remind everyone, there are three key reasons why Vertical will be one of the winners in the sector. We've got incredible progress to date, a clear plan for 2025, and a clear route to certification in 2028. We have a best-in-class aircraft for safety and capacity for both luggage and passengers, and an incredibly focused and highly capital-efficient business model.

This will lead to the least cash through to certification. With that, I'd like to thank Sy for participating on the call and return to the operator before moving to Q&A. Thank you.

Operator (participant)

Thank you. The floor is open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called on to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. I'll now pass it to Stuart for some pre-submitted questions.

Stuart Simpson (CEO)

Hi, good morning, everyone. We actually crowdsourced a couple of questions. We've had some things coming in over the last hour. Charlotte, do you want to just let me know what the first couple of questions we are while people get their thoughts together?

Charlotte Cowley (Director of Strategic Finance)

Absolutely. Yes. We had a few in, as Stuart says. The first one is asking about the different paths to certification in the industry. Could you explain what is our path to certification and our confidence in our timelines?

Stuart Simpson (CEO)

Okay, excellent. First thing to say is we are in a great position regarding the route to certification. We are working on a specific set of regulations under the CAA, Civil Aviation Authority in the U.K., our home regulator. This category, this set of regulations, is called Special Condition VTOL. There are three things just to draw out that are incredibly important about this, and I really think does set us in a great position relative to our competition. First of all, the regulations for SC-VTOL are clear, they're transparent, you can double-click on them, download the work stack, understand it, and create a plan. This is what underpins our confidence in saying we will certify in 2028. It's that confidence in understanding the work stack. The second thing is the level of safety inherent within these regulations. It is 10^-9.

What that means is our product will be 10-100 times safer than anyone else in the market. This is the same level of safety inherent in large passenger aircraft. When you think about bringing a new product to a new market, a new industry, we feel that's incredibly important to provide that confidence both in our customers and end users. Finally, working with the CAA as our home regulator, we have got in place a collaboration agreement with EASA, the European regulator. This means that when we certify in the U.K., we are concurrently allowed to sell the aircraft into 36 locations in Europe. Interestingly, when you look at this on a world basis, this is the most challenging certification standard.

Once we've certified in the U.K., collaborating with EASA, we can then passport into all the markets around the world in relatively short order. That is our route to certification, and I feel we are in a great position.

Charlotte Cowley (Director of Strategic Finance)

Thank you. Okay, I think there's probably time for one more, and I can see we've got other people on the line who want to ask questions. The second one I'll just ask is, what are our funding needs to get to certification?

Stuart Simpson (CEO)

Great question. I'm probably expecting that one way or the other today. The first thing is to say in 2025, we are fully funded. Great start to the year. We're not going to disclose today the cost of certification, but I'd like to put it in context. I think as people know, we've got this incredibly focused OEM business model. It means that post the de-SPAC, we've spent around $100 million per year, about $350 million. This is approximately $1 billion less than peers. Yet, as we've just explained, our progress is similar, if not better, flying full-scale piloted prototype.

If you look at that and project forward, we will absolutely increase our spend as we ramp through to certification. In terms of that key metric, what is it going to cost to certification and cash break even? I have no doubt in my mind that we will be the most efficient through that period. In fact, we are the only people talking openly and publicly about clear metrics for this year, certain 2028, cash break even in 2030. Again, it is about the clarity of our certification pathway, which means we can plan with some certainty.

Charlotte Cowley (Director of Strategic Finance)

Great, thank you. I think I can see now the operator has got several people asking questions, so if we can hand over back to you, please.

Operator (participant)

Thank you. Again, if you would like to join the queue, it is star one. Your first question comes from the line of Savi Syth of Raymond James. Your line is open.

Savi Syth (Managing Director)

Hey, good morning. Just curious, just following up on the kind of the spend to certification, could you talk about just the timing of the step-ups in spend, like what comes when that intensity starts to pick up or if you think it should kind of continue at this level? Just a little bit more clarity on how that kind of progresses.

Stuart Simpson (CEO)

Yeah, of course. Thanks, Savi. Thank you for asking the question. We're not going to get into the detail of that today. The spend for this year will ramp to somewhere between $110 to $125 million, circa that level. We'll have an exit rate of spend that'll be more commensurate with a ramp-up in the second half of the year. Of course, as we move through that drive to certification, there's probably a couple of big things that drop in as you move through it, but we're not going to get into the details on that today, I'm afraid.

We may talk about it a bit more later on in the year, but I just draw this back to we are the only people that have got this incredibly efficient business model, and we are the only people that are comfortable. This is a clear route to cert and a clear route to cash break even.

Savi Syth (Managing Director)

Yeah, that's super helpful. If I might, a bit more of a technical question. I know in the U.S., the FAA has kind of regarding Vertical, it's written about concerns about kind of downwash and outwash.I wonder if you have any kind of thoughts on that and if that would be a concern on Vertical's side.

Stuart Simpson (CEO)

Thanks. Great question. I think from our perspective, again, I draw it back to the OEM business model. We are designing, engineering, assembling, selling, and servicing the aircraft. We then sell it to our customers. Our customers are the primary interface into those discussions. However, from an industry perspective, we understand them. I know there's some concerns around it. One of the things we've been blown away at is the amount of downwash and outwash that we're seeing. We're not too worried about this as the aircraft moves through towards certification. Sy, is there anything else you could add to that?

Sy Davies (Chief Test Pilot)

Thanks, Stuart. Hi, Savi. No, nothing to add, really. We appreciate the concerns from around the sector, from regulators around the world about outwash, downwash. We treat that very seriously, but our real-world experience with our full-scale aircraft has really put those concerns to bed. It is not something we are super worried about.

Savi Syth (Managing Director)

Understood. That seems consistent. Thank you.

Stuart Simpson (CEO)

Yeah, thanks, Savi.

Operator (participant)

Your next question comes from the line of Austin Moeller of Canaccord Genuity. Your line is open.

Austin Moeller (Director of Equity Research)

Hi, good morning. I think in December, you had talked about the cash burn for the next 12 months being around GBP 70 million, and now you are projecting it to be sort of around GBP 95 million at the midpoint. Does that just reflect an extra quarter being added on there from what you were looking at in December, like for the full year 2024, or could you just go into some of the puts and takes of maybe what you expect to have in that cash burn now?

Stuart Simpson (CEO)

Yeah, morning, Austin. Thanks for the question. I think the difference between December and now is really the level of confidence we have as a business. As you know, we restructured the balance sheet. We have a new owner with Jason Mudrick, Mudrick Capital. Incredibly excited to have them as the new majority owner of the business. We went out, and as you know, we targeted a lower number. We got $90 million through the door. We've made incredible technical progress. Really, this is just a representation of this gradual ramp-up in spend in the second half of the year to make sure we can do everything possible to de-risk the timeline to certification in 2028. I don't want to go into the details of that.

I've touched on the big things we're doing this year, the Wingborne flying, the transition, the build of Aircraft 3, and initiating production of our cert aircraft. It's all of those things that we're just de-risking with that little increase. Hopefully that makes sense.

Austin Moeller (Director of Equity Research)

Yeah. Just to follow up, given the talk of higher European defense budgets, have you had any conversations with the British military or other European militaries about having an electric or hybrid aircraft for defense applications?

Stuart Simpson (CEO)

Yeah, great question. This is a very significant opportunity for us. We've had a team stood up and working on this for some time. We've had deep discussions with the UK MOD. We're looking wider than that now, given the current climate. I think the way I look at this is if anyone sits in our aircraft or indeed just comes to see our aircraft relative to the competition, this is definitively the best one. If you want to move people or things around, we are the one aircraft that has the capacity to do that, to do this. I think we're incredibly well positioned in this, and there'll probably be more to say over the coming 12-18 months.

Austin Moeller (Director of Equity Research)

Very exciting. I'll pass it back there. Thank you.

Stuart Simpson (CEO)

Yeah, thanks, Austin.

Operator (participant)

Your next question comes from the line of Edison Yu of Deutsche Bank. Your line is open.

Edison Yu (Director and Senior Equity Research Analyst)

Hey, thank you for taking our questions. First, on the capital side, I think originally there were talks of getting customer deposits. Do we have any sort of update on the timeline for really getting some money from that angle?

Stuart Simpson (CEO)

Morning, Edison. Thanks for the question. We haven't got any update on that. As you know, we've had deposits in from a couple of customers. The key to this is really when we build that final cert or the first certification aircraft, a couple of months after that, when we've done some testing on it, we'll be able to say, right, definitively, this is the range, the capacity to a degree you could put into a legally binding contract of supply. At that point, I think we're in a great position to start those discussions with customers around who wants to be at the front of the queue. Of course, we've got an amazing group of customers. Everyone really, really wants to get their hands on the aircraft. It is actually a nice little opportunity for us a couple of years down the line.

We do not plan for this. We treat this very conservatively in all our cash flows.

Edison Yu (Director and Senior Equity Research Analyst)

Understood. I appreciate all the commentary around the luxurious cabin. I guess, do you have some ideas of what the first maybe batch of routes could be?

Stuart Simpson (CEO)

Back to your prior question, it's which are going to be the first customers. We've got a lot of customers. We will sit with them once we get to that point of formally contracting and taking deposits. I would expect them to be airport down to central business district type routes, whether that's JFK into Manhattan, whether it's Miami, whether it's in Osaka, Tokyo. Those are the kind of routes I would expect to see as the first deployment.

Edison Yu (Director and Senior Equity Research Analyst)

Just one quick one on that. Would you? Yeah, yeah. Just one quick follow-up. Would you be willing, after it's surveyed, to sell to individuals, almost like just because it's such a luxury product? I'm sure there may be kind of some high-net-worth people interested. Would you be willing to do that?

Stuart Simpson (CEO)

Yeah, great question, Edison. As you know, we closed our order book probably two and a half years ago because we felt we got a great set of customers to work with and help with the development and framing up of the aircraft and the performance and planning out routes. We planned out over 1,200 of them. That question of individual sales, absolutely. There's no question there'll be sales of these to high-net-worth individuals as you move down the line and supply really starts coming on stream. Absolutely.

Edison Yu (Director and Senior Equity Research Analyst)

Great. Thank you.

Stuart Simpson (CEO)

Yeah, thanks, Edison.

Operator (participant)

Your next question comes from the line of Sameer Joshi of H.C. Wainwright. Your line is open.

Sameer Joshi (Senior Equity Research Analyst)

Yes, good afternoon and good morning. Thanks for taking my questions. And congratulations on all the progress. Starting with the outlook for cash spend during the year, does this include any capital expenditures that you may be incurring for those long-range parts or equipment that you will be ordering?

Stuart Simpson (CEO)

Yes, it does. That will be our total cash spend, that 110-125 includes whatever we're spending this year, some of which may be a small amount of capital.

Sameer Joshi (Senior Equity Research Analyst)

Okay, small amount. The third full-scale prototype that is being planned or already being built, how different is it from the first two? I think in the commentary you mentioned the first two are carbon copies of each other. Is this third any different based on any learnings from test flights or whatever testing has been done?

Stuart Simpson (CEO)

Yeah, good question. Actually, the way it works, the very first prototype was unique. The second one has got 60% plus aerospace tier one content in it. It's got our batteries, our propellers. It's really starting to underpin the future certification aircraft. The third one that is in build at the minute is a carbon copy of the one Sy has been flying. It's effectively 100% the same. What we have learned, though, is the first one took X number of months to build. We'll build it far quicker. We understand the process. We're in great shape, and that'll be up and running much quicker. That's how to think about it. Just to reiterate the point on the call, the aircraft that we build after this third one is our certification aircraft.

That's an incredibly important point that we are initiating production of our certification aircraft later this year. Sy, anything you would like to add to that?

Sy Davies (Chief Test Pilot)

Hi, Samir. Thanks for the question. No, Aircraft 2 and 3 are going to be as close as we can make them, really. I think that reflects on the experience from our early stages of the flight tests. We've made no major changes to Aircraft 3 as yet.

Sameer Joshi (Senior Equity Research Analyst)

Understood. Thanks. That was really helpful. Sy, maybe this is one that's for you. I think you mentioned for the wing-borne description, I heard conventional takeoff and landing. Is it that you will be actually flying on a runway as against vertically taking off for this? Maybe just I'm confused.

Stuart Simpson (CEO)

Hi, Sy. I think that's one for you.

Sy Davies (Chief Test Pilot)

Yes, that's exactly right. Conventional takeoff, landing, taking off like an airplane, landing like an airplane. This is part of our strategy to de-risk our transition flight because we can clear the up-and-away flight envelope before we start to look at transition. It's a really key stepping stone to de-risking our test program with the demonstrators. Again, no surprises.

Stuart Simpson (CEO)

Nice to see you. Yeah, thanks, Sy. I don't know if everyone heard that. Sy dropped out a little bit. Just to reiterate, this is an incredibly important moment for the company because the aircraft suddenly gets into public airspace, which, as Sy said earlier, that is a mini certification program with our regulator. They are approving this aircraft to be flown in public airspace. That's an incredible statement of faith, commitment, and support for the company when we do this.

Sameer Joshi (Senior Equity Research Analyst)

Thanks for this. This was also very helpful. Just last one on sort of the ecosystem around it. I know you have an excellent strategy of the battery as a service, which probably is going to be very high margin for you. You're working on the vertical cloud. If you can just shed some light on that. I think someone mentioned vertiports, pilot training. How is all that being planned so that you are prepared to prepare for commercial?

Stuart Simpson (CEO)

Yeah, great question. I think I'll draw out two points. The first is when we talk about our Flight Path 2030, we've built that on a pretty conservative basis in terms of the drive to cash flow break-even. We don't bake in any of these services you've touched on there in terms of vertical cloud, pilot training, etc. These are all additional things that we will be scaling up over the next two or three years. The real focus up to now has been getting this aircraft in the air, proving the concept, laser-like focus on certification. This expansion, this is really part of that ramp-up as you think about bringing that aircraft through to certification. What are the other opportunities that hang off it? I'd say there's some brilliant things out there. It's great that you mentioned those.

We'll start talking about those as we move through the next 12, 18, 24 months. Hopefully, that makes sense, Samir.

Sameer Joshi (Senior Equity Research Analyst)

It does. It does. Looking forward to be part of your project. Thanks.

Stuart Simpson (CEO)

Great. Thank you.

Operator (participant)

Your next question comes from the line of Chris Pierce of Needham & Company. Your line is open.

Chris Pierce (Senior Analyst)

Hey, good afternoon, everyone. Thanks for taking the question. I know you talked about the closed order book prior, but now that in response to a prior question, but now that we've seen investor progress in the space, the second half of the year, the test flight progress you guys are making, I mean, should we see is it about adding orders to the order book or you're so supply constrained, it's not about doing that? And could some of the customers in the order book come on as investors to de-risk the capital plan as we've seen from others in the space? I just want to how do those pieces fit together?

Stuart Simpson (CEO)

Great. Yeah, we've seen incredible progress over the last few years. We are going to open up the order book over the course of this year. I think it's been closed for some period of time. We're now at a point where we really can say, "Look, this concept works. The aircraft looks amazing. We're starting that drive to certification." That absolutely, as you point out, does open up potential routes to additional funding into the business. Yes, those are discussions that we will be having down the line. Does that give a bit of color commentary?

Chris Pierce (Senior Analyst)

Okay. Perfect. In regards to the question prior on high-net-worth individuals, is that something that, what's the right way to think about, once you have certification in a region, is it open to sales to those individuals, or is there another regulatory hurdle that needs to be jumped through for private sales?

Stuart Simpson (CEO)

Good question. Once we are certified in a region, there's no additional levels of certification we have to do. This will really be a case of selling into that high-net-worth individual market, who of course will then need whether they learn to fly it themselves or they hire in pilots, etc. It opens up that market as well. As I say, the way we built that order book, we've got an incredible, incredible group of customers we work really closely with. This is really just about supplementing that as we roll forward and look to the long-term future of the business. Of course, individual sales is a part of that.

Chris Pierce (Senior Analyst)

Okay. Thanks for that. Good luck.

Stuart Simpson (CEO)

Yeah, that's great. Thanks, Chris.

Operator (participant)

Your next question comes from the line of Jesse Sobelson of Boral Capital. Your line is open.

Jesse Sobelson (VP of Equity Research)

Hey, everyone. Thanks for taking my questions here. I did want to follow up. We were talking about this backlog a little bit. Have you disclosed the geographic concentration of it and whether there are certain customers who have exclusivity or priority in the queue? Any regions of concentration?

Stuart Simpson (CEO)

We are about a third, a third, a third if you look across the Americas, Europe, and Asia. We have disclosed that. I think if you click on our website, you can actually see the full list of our customers that are there. It is within one of the presentation decks that we have. We are incredibly lucky that we do not have one region more important than another in terms of customer concentration.

Jesse Sobelson (VP of Equity Research)

Sir, it sounds like it definitely de-risked the development pathway by region, which is kind of where I wanted to take just the next question here. You mentioned the CAA EASA regulatory alignment. Does this alignment streamline FAA certification anyway, or will separate validation still be required?

Stuart Simpson (CEO)

Yeah, great question. Because the CAA and the EASA are in collaboration at what we believe is the highest global standard because it is a 10 to minus 9. There's one in a billion chance of a single point failure. It's not exactly the same as the FAA, but it's a little bit ahead of it. As we drive through our testing environment, we know there's a few additional tests, maybe an additional 5%-7%, something like that, that we have to do. What we will do as we drive through the CAA and the EASA route way, we know where the gaps are or the slight differences are with, for example, FAA testing. We'll do those as we go through our testing.

At the end of the whole program, we don't have to go back and redo things that we could have done in a very efficient manner when we were doing our own flying. How we expect this to work is CAA home regulator, very supported by EASA, drives us into Europe. We will have done all the testing required for the FAA, at which point we enter, we're in discussions with them already. We'll work with the FAA concurrently all the way through. We'll provide them with the evidence when we're certified in Europe, U.K. and Europe. We anticipate we'll be certified very shortly thereafter by the FAA. That process is actually the same whether we're going into South America, Southeast Asia, Japan, etc. It's all underpinned by the clarity, the transparency, the high level of the CAA and EASA standard. Hopefully that makes sense.

Jesse Sobelson (VP of Equity Research)

Yeah, that's great. That's great detail on the pathway to commercialization. Thank you very much for taking my questions.

Stuart Simpson (CEO)

Yeah, Chris, thank you very much.

Operator (participant)

That concludes our Q&A session. I will now turn the conference back over to Stuart for closing remarks.

Stuart Simpson (CEO)

Great. Listen, just like to thank everyone for joining in with the call today, in particular everyone that asked a question. That was great. It's great to talk to you all. I look forward to talking to you all individually and together again soon. Thank you very much for your time, and we'll keep you updated as we move forward. Bye-bye.

Operator (participant)

This concludes today's conference call. You may now disconnect.