The Future of Flight? Building an Electric Aviation Business with Kyle Clark, CEO, BETA Technologies

The aftermarket, dominated by energy, and I'm going to say why I say that's part of the aftermarket in a second, is so much larger than the cost of the aircraft that really a more sophisticated buyer looks at what is the operational cost of this aircraft, not what is the cost of this aircraft. 7-8 years ago, there were 300 companies in this space because everybody realized we had crossed the threshold of electric propulsion and energy storage to create flight and do something commercially viable. We're down to like five or six viable companies now. Aerospace demands a long view. We can't get short-term sugar highs and be excited about them. We need to be steady and consistent in our deliverables. Cost is going down, the access is going up constantly. It really comes down to the economic viability of flying these things, with the one little nuance that when you get to vertical takeoff and landing aircraft, you can go to so many more places because you're divesting yourselves of the three most annoying things in aviation. You got rid of the fuel, you got rid of the noise, and then you get rid of the airport.

It's great to be here, Simon.

I am in Vermont. I'm at our production facility in Vermont. I'm looking at a line of airplanes that are going out the door here to further our test flight campaigns.

You know, that's funny. First of all, I love Strava. But going back to the family and influence, my dad ran a machine shop in town, and I was always tinkering in it. In fact, I built my first airplane parts in that shop. And my mother was an art teacher. So she was always creating things, and she built all of our houses, and that played forward to what I think is one of my biggest attachments to flying and doing what I think is the most technologically unforgiving pursuit in engineering, which is aerospace. There's very little room for off-point designs, and that's something I learned from my father, who, you know, he says about three or four words a day. He doesn't say a lot. He's an extremely hard worker and is incredibly persistent. And that's, you know, in a highly regulated engineering environment, that's important. But at the same time, because you asked about the family, I have an extremely creative mother who certainly fills the room with the balance of the words. And will look at any problem and say, 'Oh, I can do that.' Whether it's make clothes, build houses, build furniture, you know, I build soapbox derby cars and iceboat racers ice racing boats, like all kinds of crazy stuff because she saw no bounds in anything. So, that's the world I came from, a very structured engineer running a machine shop and a crazy old art teacher.

Yeah. I mean, look, when I was little, I had three passions. It was building things, it was flying, and it was ice hockey. And they were equally pulling at me. But the magical thing about hockey is it really enabled the academic work. Like, I played on the US under 18 national team and then got recruited to play at Harvard and a bunch of other schools. But I chose Harvard because of the academics. And when I got there, they didn't have aerospace engineering. So, as you mentioned, I leaned really hard into material science because the materials and the structures are a really important part of aerospace, or so I thought at the time. And then when I signed with the Capitals, the very first thing I did with my signing bonus, I went to the airport and I said, 'Now I want to properly get a pilot's license.' I may have been flying other things without a proper pilot's license in the past, and I built a number of airplanes at that time. And so they were interdependent with each other. One was enabling the other. And then playing professional hockey, you know, you work out for five or six hours a day, and the rest of the day you can eat whatever you want. And ironically, that's where the name Beta came from because on the bus I was always designing airplanes and writing new code and trying new things out. And in the movie The Matrix, there was a nerd in the back of the box named Beta. So, my nickname on the hockey team was Beta. And so, when I started Beta in college, I immediately said, 'You know what? Kind of the is a screw you to the guys that were kind of making fun of me for being the nerd on the bus.' I called it Beta Air. And here we are.

Well, absolutely there was. So, Beta was my senior thesis in college. So, as I went back to college, I focused on Beta. And I pitched it to everybody that would listen. There was a gentleman who came to me and said, 'I'm not going to invest in that airplane thing, but I'll invest in this other company you've worked on.' Which was some power systems development called Itherm. But I continued to fly all the time and behind the scenes work on Beta. And when we sold Itherm, I tried to start Beta again. Couldn't get anybody to invest in it. So, started building high-reliability power systems at Dynapower, which was really an entrepreneurial venture because we started a company within the company called Energy Management Systems. And we built Tesla's commercial industrial power supplies. We did Patriot missile system electrification. We did wind farms and solar farms. And it really taught me the rigor and discipline of doing high power, high reliability power systems. And then when we sold Dynapower, I tried to start Beta again. And I couldn't get anybody to invest in it. But I started an investment bank. So I went and got my Series 7, 23, 24. I went and all the way and got my Series 79 to be able to underwrite deals in an effort to understand how to get people to invest in Beta. And after a couple years of doing that, I met Martine Rothblatt, the founder of SiriusXM radio. And I was pitching Beta in Philadelphia. And she came up to me and she said, 'Who are you and where are you from?' And by the following Friday, we had a deal. And we were going to design airplanes for her. Now, behind the scenes, I had been teaching at the university and sponsoring students to build pieces of the aircraft company. It was always my passion under all the work I was doing elsewhere, Beta and the flying. And Martine opened that door for me. And that was really how the company went from a concept in my garage to something that had a customer, a specification, and a small amount of funding.

Strava is awesome and I'm addicted to it, by the way.

For skiing, cross-country skiing, and riding, I used to have a whole bunch of Strava segments that I would compete with people I didn't even know to hold the title on.

Yeah. You know, it's just reflecting on that comment. Like, aerospace engineering, and I'll get back to the manufacturing, is technologically unforgiving in a way that all of the systems have to work together in harmony. What's interesting about that is when you move to electrification from fuel-burning engines, the fundamental architecture of the airplane has to change because the existing aircraft are built around their engines. They have to aspirate, they have to breathe, they have to carry fuel, they have to produce a ton of cooling to cool down the inefficiency of converting that fuel to thrust, and you architect the entire airplane around this philosophy. Electric airplanes, they don't need much cooling, they certainly don't need to breathe, they don't carry any fuel, they have a battery that doesn't change its mass over the course of the flight, and so the rules of the game change. And people ask me, 'Why did you design a pusher aircraft with twin V-tails and a wing that looks like the wing of a bird?' And the answer is because the center of mass is different, you don't pump fuel anywhere, your engine doesn't need cooling, so we're going to take advantage of things like boundary layer ingestion and wake filling, which basically improves the efficiency by replacing the air behind the airplane. All these little aerodynamic tricks that are only enabled by electrification allow us to set the world record in the longest-range electric aircraft. And that's like just to break into the market to say we can do something utilitarian for the UPSs and the Amazons and the Bristows, you have to go out and show that these things are technologically sound.

So, pulling that all together, you actually start to think about the manufacturing differently. And you go from a traditional manufacturer like a Boeing and Airbus and Embraer which says, 'I'm going to build the airframe and I'm going to buy all these legacy pieces and shove them into the tube and the wing and have a beautiful machine.' We said, 'Electric motors don't exist. Fly-by-wire systems or computer-flown aircraft don't exist for small aircraft. Certainly batteries that propel aircraft at high voltages don't exist.' So, we ended up completely vertically integrating. We wind right down the hallway here in the clean rooms, we wind our own motors. We build our own inverters. We make our own computers. We have no operating system on that computer because it's called a safety-critical device, a design assurance level A computer. It can't fail. It's like going to the moon, right? And you put all these things together and at the end of the day, we buy raw materials and push an electric airplane out the other side. Very few things do we buy as completed assemblies and it's because the rules and the physics change when you move from fuel-burning aircraft to electric aircraft. So, thus the manufacturing has to change drastically. And like we built this facility I'm sitting in. It is, to my knowledge, the largest net-zero building east of the Mississippi. Which is important to the philosophy of how we're building things. But also, it looks like no other manufacturing facility for aerospace. You know, you don't have clean rooms. You don't have winding machines and vacuum pressure impregnation tanks for dipping high-voltage coils and battery lines and power electronic lines, all these things coming together to the airplane in a traditional production facility. So, you had to rethink how you do this and then you got to work in this regulated space of the FAA for part 21 for production and part 23 for certification and you're making new rules. You're literally writing new rules, putting them into the Federal Register, getting public comment on it while you're working physics and technology and regulation all at once. It's a pretty awesome space to work in, but it is really, really codependent, interdependent, and it's all burdened by regulation.

I know.

Yeah, it's the fundamental unlock that people tend to not understand, which is when somebody buys an airplane from Airbus, Boeing, Gulfstream, whoever, they're going to spend a lot more on engine maintenance and fuel than they ever spent on the airframe. The aftermarket, dominated by energy, and I'm going to say why I say that's part of the aftermarket in a second, is so much larger than the cost of the aircraft that really a more sophisticated buyer looks at what is the operational cost of this aircraft, not what is the cost of this aircraft. They ask uptime, serviceability, dispatch rate, and operational cost. That is the financial unlock of our business, Simon. We sell an airplane at a reasonable margin. We sell it at something like, you know, four or five million bucks with a sub 20% margin. Over the life of that aircraft, there will be approximately $13 million of batteries sold at upwards of 50% margin for the aircraft. Because batteries will have, let's say, between 1,000 and 2,000 cycles at a reasonable range, and then they're replaced. Now, instead of buying that fuel from Exxon, they're now buying it from Beta, right? Now, it's a fuel storage device. It's not the fuel itself. But the cost of the electricity that you use to charge that battery is like 1/40th of the cost of jet fuel. Even if they both move up, which they have, or they both move down, because they tend to move generally together. You end up with like a de minimus, almost irrelevant cost of fuel, and now a reasonable cost of batteries. When you sum it all together, the cost to fly a package a mile, or move a person a mile, is about half of what it is with a fuel-powered airplane. So, the customer wins by cutting their costs in half. We win because instead of having Exxon taking the bulk of the profits, or BP in your case, taking the bulk of the profits, we get the profits, and we get an extremely high margin on it.

Now, that changes the way we think about our business. We invest in developing an airplane, but quietly behind the scenes, we've made a major investment in the machine to certify batteries. And every time a new cell comes out, we incorporate it into these validated models. We took over an old Energizer plant just north of here to do the battery validation. It's got all the primary lithium safety systems and power. And we do it over and over again. I can tell you three and five years from now what the energy density those batteries are going to be. And the reason is there's a phase lag between introduction of chemistry and when it's certified with the FAA or conformed then certified. So, it's an entirely new business model where if you look at the cash of our business on any particular asset sale, it's pretty low on the upfront sale of the airplane, but it sticks with it for 15 years at extremely high margin. And because we're in a regulated environment that's hard to break into, we get a guarantee on that revenue.

Yeah, great great question. Look, as a small aerospace company and an industry, we are not going to push this tidal wave of basic chemical research in battery energy density, cycle life, and power density. The three major parameters of the battery. Rolling up to cost, of course. But what we get to do is we ride that massive wave driven by automotive, consumer electronics, and other electrical devices. Our part of that continuum is to get extremely high-quality cells based on this chemistry, use an FAA validated process to conform them and then inspect them and then we design the pack so the battery balancing monitoring thermal management structural all of those things that make it applicable to be in an airplane. But that's where the value is. If we sell a battery, our cost of bill of material is only comprised of about 10% battery cells. The rest is actually thermal management, we have delivery done in battery balancing and monitoring systems, we've got all kinds of branch circuit protection in there because you can never have a battery failure take an airplane out. It has to be protected, contained, aware, forecasted, all of those things all at once. And so what that does, Simon, back to your original question, is you introduce a battery to aviation 3 to 5 years after the battery becomes real. It is always a phase lag because you have to create a statistically relevant data set to prove to the FAA or EASA or CAA in the case of the UK that you have a safe reliable battery that hits an extremely high fit rate, which is a failure per billion hours of operation. And I'm not sure if you can contemplate that, but it is a massive threshold of reliability. So we take control of all of that, but it takes time. So the batteries we're flying on now, we received 3 years ago in a conforming state. And I can tell you 3 years from now how high the energy density is going to be and it keeps going up. So that's the part of the continuum that Beta and Aerospace sit in on the batteries.

Yeah, it's interesting like our we have like the formal competition. We got a couple people doing air taxis. Really solid companies, thoughtful, high technology, Joby's, Archers, Embraer Eve who's also one of our customers. They buy motors from us. A company in the UK called Vertical. You know, about I would say 7-8 years ago, there were 300 companies in this space because everybody realized we had crossed the threshold of electric propulsion energy storage to create flight and do something commercially viable. We're down to like five or six viable companies now. It's a pretty pretty high attrition rate, right? And several public companies went upside down because um it's a hard task.

Now, some of the differences in the way that BETA went about it versus those companies that failed and versus our competition is that we have an extremely simple design. We didn't do liquid cooling, no gearboxes, no thrust vectoring like the V-22 Osprey, you know, where the propellers start up and go forward. We have what we call a lift plus cruise where the airplane lifts itself up with one set of propellers and then they shut off and then you cruise. And so, sorry if you hear that, that's the F-35s launching in front of me here. So it's a very simple aircraft and the software control algorithms are very simple. This is kind of at the core of our business. I'm an engineer. We have a lot of engineers here at the company. As you know, I'm a flight test pilot, a flight instructor, and fly electric airplanes and all kinds of airplanes all the time. Simplicity and reliability are king in aerospace. And when you get at it with this move fast and break things kind of Silicon Valley mentality, it doesn't always work. And if you should try to shove every latest technology into it without saying aerospace is interesting, it creates a strategic moat to all your competition to get in because it's a highly regulated environment. But that moat also demands that the technology you introduce has to be really really valuable. The juice has to be worth the squeeze. That means you don't get to shove in every latest blue LED to the cockpit and say, 'Hey, it looks cool. Let's put it in.' It's got to have a definitive actual practical purpose. Our company has taken that to the extreme and we have a simple reliable aircraft. And what's interesting, what's come out over the last decade is that that simplicity actually equals performance. Because when you add complexity, you have to it snowballs into this impossibly complex system of redundancy. Like if you have a system on an airplane, you usually need a second system to back up that system. And then you got to bring both of those systems to the air, which means you got to have the structure to carry both those systems. And it starts snowballing. So the simplicity is how we've differentiated the technical aspects of our business and we've mirrored that on our market entry strategy where we said, you know, our biggest orders with UPS.

Cargo medical logistics first and then passenger. Why? Because people are problems. Like picking up passengers, people poking windows, pulling on door handles. Packages are along for the ride, right? So our first version of our aircraft was a cargo and logistics aircraft and then we built a passenger aircraft. And we are certifying and commercializing in that order as well. And I could go on and on about the simplicity of the way that we introduced market, but it's really the fundamental design of our physical airplane and our software, dead simple. And our market entry strategy is extremely thoughtful, I think. And it doesn't mean we're not about passenger urban air mobility or air taxis. I happen to believe that flying thousands airplanes millions of flight hours with packages on it will give the confidence to the flying public to fly in our airplane at a higher rate and we will win at that game as well over the people who try to jump to the top of the stairs in one leap. We're taking it step by step.

Yeah. So we've brought several billion dollars into the company, and then two point seven something like that. And we did an IPO last fall that landed about 1.2 billion dollars in the IPO and about 500 million dollars in the months before that. So we have been just extremely fortunate with the people who have stepped up to fund our business, whether it be the Amazons or the TPGs or the Fidelity has been behind us from day one and more recently the AllianceBernstein and of course General Electric. We have class A institutional investors on the book who have stuck with us post IPO and were there before the IPO. But our capital stack and our structure has also been very very simple and clear. You know, we are a controlled company. I have all the voting majority of the company and control the board. That's public information, but it's not done because I think Kyle's always right. It's done so that we can take a long strategic view on an industry that demands it. Aerospace demands a long view. We can't get short-term sugar highs and be excited about them. We need to be steady and consistent in our deliverables through a decade of certifications and entry strategy. So, we chose investors that are along for that long-term ride with us. And it's interesting, at first I was told, 'Hey, you know, that whole control provision, that's going to cause some problems in the markets. It's going to give you a discount.' It did just the opposite. The more sophisticated investors are like, 'No, no, we want that consistency and vision.' And I have a high bar to cross because I have to prove I can only wear one shirt at a time. I love flying. I love aviation. I love engineering. You could pay me zero and I would be here. Except, I'd be a little bit starved for airplanes because I really like airplanes. But everything I do and everything I care about is focused on the success of this business. And when people start to understand that, they lean in and they say, 'Okay, I'm going to align that with the long-term view and the control.' And we have had, and I don't want to jinx ourselves, very little problems getting access to capital. People believe in what we're doing. We keep our promises. We have a simple approach to the business. And it's easy to understand. We're tucked up here in Vermont. That causes some friction with people because they're like, 'I don't even know where that is. I don't know what state it's in.' We're like, 'We're our own state. We happen to be the smallest state, but we're a real state.' But anyway, it hasn't been a problem and I'm happy to talk about some of those nuances on consistency and control. But, it all comes down to being mission-focused.

Yeah. I mean, it's there's a lot of different ways to answer that question. On the day we went public, we had enough money if we kept our burn rate exactly the same for like 80 months, which is an insane runway. It's too long. It means you're not making the investments you need. So, of course, we said we're going to further investments in vertical integration, in deploying aircraft, and that reduces our runway. At the same time, we're starting to produce a trickling of revenue. And, you know, from '24 to '25, we doubled our revenue. We added our merchant supply. We are...

It's still an insignificant amount of revenue, but it's organic revenue from the products that we've developed, which gives it a huge potential to continue in the upward trend. So, what's our runway is an interesting question. It all depends on whether we focus on selling motors, batteries, inverters today or developing the aircraft, and we have a mix of that.

What's been really fortunate recently is we've gotten pretty much all the defense primes come to us and say, "You have a high-reliability propulsion, energy storage, and flight control system. We want to buy that." And now, we've sold it to multiple other aircraft programs and undersea vehicles. So, now we're in a place where we're making a trickling of revenue, high margin, low volume on organic products that we've developed.

All the while, we're continuing the development of the Sea Hawk and the V-tail aircraft, conventional takeoff and landing, vertical takeoff and landing aircraft. Our runway is a daily conversation, Simon. It is a daily conversation as we determine how we fit into the budget and how we manage opportunities as they're presented to us.

One of the biggest ones that just came up is the Trump administration issued two executive orders, one about a year ago called American Drone Dominance, where they kicked the door open for pre-certification in the US. We went and did all the work to apply for those in December, worked with the federal government. We won or we are on seven out of eight of the selected programs. Seven out of eight of them. We crushed it.

And now we're starting to deliver on those things. We bought the materials, we're building the airplanes. That was an unexpected opportunity that reduces our runway, but it accelerates our path to profitability and the market.

There is one thing that we don't have control over, which is the staffing and investment by the FAA. So, we're hedging a little bit with some military opportunities. We're selling the components internally, but it's hard to forecast that break-even time because, you know, the level of effort that the FAA puts into our business and our industry, it will determine our pace of development.

We have airplanes flying all over the world. They're safe, they're reliable. I fly them. I fly my family in them. You know, my daughter's a pilot, she flies them. Like, we care a lot about safety. They're ready to go, but there's a process of validation and verification that takes a lot of time with the FAA. And that's really the uncertainty of this business. So, you got to have a stomach for a regulated environment if you're going to invest in this, but you have to see that it can be done and that our track record is getting these things done in this incremental way. So, I didn't mean to not give you a number, but it's a complex answer.

The equivalent of the FAA in Europe got after this very early and they started writing some rules called SCV tool. They were extremely restrictive. And they made it so that the businesses like the Volocopters and the Liliums, they had to get basically to safety levels of transport category aircraft like you're carrying 300 people on an aircraft that was carrying four, which is not aligned with the safety continuum.

And then they added all these really restrictive things and they precluded operations, for example, in IFR and all weather. That torpedoed the commercial viability of the aircraft. In the US, we actually applied something called the safety continuum, which is hey, if you're carrying less people, you get to take credit for that when you think about the overall engineering that needs to be dumped into this thing. You will kill innovation if everything has to be a 747. It's just unviable. It's like there's a reason that buses have different safety standards than motorcycles. You're carrying 60 people on it, you've got to be safer. It only makes sense. It's kind of a morbid thing to talk about, but it's the reality of any type of safety critical system that you develop.

So, the FAA has come about this pretty thoughtfully. However, the FAA has been a bit of a state of flux. Unfortunately, recently, with Brian Bedford coming in at the helm, he's gotten it stabilized and focused. And you're absolutely right, Simon. They opened up a new office focused on advanced air mobility. They opened up the EIPP. And we have gotten more certifications and approvals in the last 6 months than we did in the prior 6 years.

And we are knocking these things down very quickly. It doesn't mean that they're not holding us to a very high safety standard. It's just that those things become clear and we start banging them down. So, the regulator has a massive effect on whether the UK, the US, Asia, EASA in Europe, somebody in India can get through to win at the future of aerospace. We aren't perfect in the US. I've got a whole litany of complaints I can throw at the screen, but we're doing pretty good. And yes, the US has three of the top five companies in this space. We're just over half of them.

It's a damn good one in the UK called Vertical and a really good one in Brazil called Eve. Here in the US, we've got Archer, Joby, we've got Wisk, and we've got Beta. All doing really, really good things and they're doing it under the FAA's guidance.

Oh, yeah. I mean, China's got three major things: minerals, AI, and the low-altitude economy. A lot of smart people in China working really, really hard. I will say that I have audited what they've done. I've looked closely at the designs, seen some of these machines. There's going to be a big learning curve in safety-critical and mission-critical high-reliability systems.

And it comes down to the little nuances of design that we've learned in aerospace over many, many years. We call them best practices. And it's things that you don't immediately expose with engineering analysis that you have to put things into the field to get right. And it's hard to build high-reliability power electronics and electromagnetics. China's doing good work. The people in China are smart engineers, but I happen to think that that environment is not one for innovation and really pushing the envelope the way that we do in the US.