The Speed Advantage, with Zach Shore (CEO of Hermeus)

We went from first flight of our Mark 1 aircraft to first flight of our Mark II aircraft in 9 months. The ability to design, build, test and fly aircraft that quickly is the business. Our story looks more like early SpaceX, and that SpaceX was 6 years before they started really putting rockets up. And so it is a long, sort of slow, brutal march in these heavy hardware systems. Our thesis is you're what you're going to do is you're going to be spending more time on the front end of that curve. But that curve is going to hit way harder, way steeper, and way higher with these types of technologies. This is not a science project. This is an engineering project. You get into the Mach 6 worlds, you get into scramjets, you get into material science problems that don't scale. You know, in a Mach 5 aircraft, the aircraft can be built of titanium and Inconel. You can have a hot aircraft. You can mass-produce that. But if you get into like Mach 7, that airplane's got to be built out of unobtainium. So, we've really bounded our problem space to the art of doable, possible, and scalable.

Yeah, thanks so much for having me.

Yeah, I mean life comes at you fast, right? Like a lot of change, but blessed that it's it's good change. It's for you know for the for the best. Um I'm certainly very humbled to have been asked to take on this responsibility. It was never anything really that I sought or anticipated um or really aspired to. But um I'm really excited about the opportunity to lead the team. I'm excited to drive the growth in the business and yeah, the best is ahead. So it's it's a great time to to be the CEO of Hermes.

Yeah. So we'll start with AJ. So it you know one of the things we need now as the business is growing and scaling uh is one we need a lot more board sort of activity. You know you get into becoming a more credible real company, acquisitions, um comp packages, long-term strategy, investor relations, just there's a lot more work to be done. And I think for starters it was like AJ was already wearing that hat and the CEO hat um and so that that executive chairman role requirements continue to grow. I think on the other side me being president I had been taking on and even before being president a lot of operational responsibility given my past experience at Anduril and just my my previous life experience in in private equity and consulting and things like that. Um and I was already taking on a lot of that um role and responsibility. And so as we looked to the business, you know, one of the big things we were focused on was uh sort of like executive maturation and like bringing in more executive capacity is the term we used. And so if we looked at like how we wanted to and needed to divide and conquer the business to deliver the outcomes not just for our investors but for our customers and for the nation, it was a really natural thing. And so you know AJ and the board approached me about this uh you know a few months back. And you know for me back to the beginning of your question of my evolution, you know when I came in I was the VP of growth uh you know right after the Series B I want to say in 2022 and it was just go to market, go to market, you know stood up the lobbying effort, you know I was the only BD person, all that like zero to like not even one, zero to like 0.25. And um as the business starts maturing, you start getting traction, the amount of sort of um action and activity that I was starting to see that I was involved in, which I was happy to be, was far beyond just the sales motion. There was a lot of operational things in terms of just seeing what best practices were and bringing that from my time as being early and through through when I had had left. And so it became kind of a natural evolution as I was taking on more remit outside of simply you know the go to market motion that it was a kind of a natural expansion.

Yeah, other than there's so it's a nuance here because DIU can sometimes be a contracting shop for other people. So I would pull out like there's some replicator things where like on behalf of you know the the R&D group um research and engineering, you know they will transact on behalf of them. So in that way no, as far as like a pure play DIU originated to a sole customer, I'm not aware of a larger single award right now. Um and it's I mean if you look at what uh Owen West talked about when he took over uh and what the remit of DIU is, it starts to really make sense. And so, you know, those three priorities were high technologies that produce overmatch domination, check. Uh technologies that substitute machines, fires, or electrons for people, check. And capabilities that can scale quickly and dramatically reduce cost per kill, check. And so everything that we're working on hits the belly button of that remit. And we are now I think and we've really worked hard to do our part to say I'm not coming in with a PowerPoint. We've put now with this raise a half a billion dollars of private capital behind this. We're building high-speed heavy aircraft. In particular to that first point that are high technologies that produce overmatch. There's a lot of technology being built that doesn't produce overmatch. It produces match. And when you produce matched technologies, that's when you get stuck in a trench and American military might is ultimately premised on overmatch. And so, yeah, we're really excited to continue to grow with um DIU. I think there's a lot more ahead for us with them and and you know there's other things that I can't speak about here in terms of work with the services and getting into that transition path, but yeah, it's a really great sign and we're we're humbled to uh have that vote of confidence and we're energized um by that as well and we're going to do everything we can to deliver.

300 200 million in equity, 150 in debt.

that's a Yeah, the DIU piece was not a part of that. Um this the the current Series C round was a function of flight maturation and some other things that we had um and the opportunity for some investors to come in as as the DIU things were starting to mature. Um but no that was not factored in and so you know we've got this DIU round. There's a couple other things aces up my sleeve that we haven't announced. Supersonic flight is imminent and so you know we're excited like this is the beginning of the curve and I think you know unlike other companies in defense tech we actually our story looks more like early SpaceX and that SpaceX was six years before they started really putting rockets up ignoring you know the three explosions before they got there and so it is a long sort of slow brutal march in these heavy hardware systems and there's some reasons we made some changes that slowed us down that were the correct decisions but versus when you see some of these uh software programs or low-cost hardware programs, they go flash to bang a lot faster. Um but our our thesis is you're what you're going to do is you're going to be spending more time on the front end of that curve, but that curve is going to hit way harder, way steeper, and way higher uh with these types of technologies.

I don't think there's a misunderstanding. Um I think I think defense tech ultimately to take a step back is a game of information asymmetry. Um and I don't think there's any market air quotes market to the degree that defense is a market uh that has more asymmetry than than this and you know there's cultural challenges there's literally classification challenges and then there's like understanding the bureaucracy like this is the world's biggest bureaucracy and so I think a lot of times people on the investor side will say okay I understand the tech you know investors are very smart these are not stupid people by any means I understand your roadmap I believe it it's not science a lot of the things we're doing were done in the 50s right with the SR-71 and and things like that. The question often comes to um is the Department of Defense interested? Are they going to buy? Will it scale?

And you end up with this kind of chicken egg problem of like who's going to who's going to signal intent first? Who's going to say I'm going to invest in this before I have a level of clarity and certainty? Or the department saying, I want to show a little a little skin that like I'm interested in this. I'm not guaranteeing a contract, but like this is a thing I care about. And that is really the tension point. And so as you get further down the the the road in terms of demonstrating technology, each side feels more comfortable coming closer to the middle, right? It becomes more of a foregone conclusion that like, oh man, like you guys are flying. And I again, I can tell you that the US Air Force is definitely way more engaged with us since we flew Mark 2, since, you know, supersonic is imminent. And in part because they're thinking it's like, holy cow, you guys have done all of this without us at all.

Right. And we've got contractors doing less with more that we are engaged with directly. Okay, time to take this seriously. And so I think it's not a misunderstanding. It's sort of a chicken egg problem. And the other piece here is if we think about where Hermes is ultimately going. The the current airframes that we're manufacturing, the current problems we're solving on are simply the jumping off point for a larger go-to-market ideation, a bigger business, and that is the machine that builds the machines. We are building a company that will that is rapidly iterating on unmanned high-speed aircraft. So we went from first flight of our Mark 1 aircraft to first flight of our Mark 2 aircraft in 9 months. That that does not happen. Okay. The ability to design, build, test, and fly aircraft that quickly is the business. So we will prove that out with our current set of aircraft that we're working on with DIU. But that allows us to then go out and apply this to an end of aircraft problems, propulsion problems, specifically different types of aircraft, manned aircraft, unmanned aircraft, uh logistics aircraft, ISR aircraft, being able to build rapidly and iterate on aircraft is the value proposition. And so when you come back to the beginning of your question of like the investor piece, I think they all understand the technical, you know, the technical questions. They understand, you know, it's very straightforward. It's is the department ready and able to absorb that? And we're finally seeing the answer is yes. Uh and as long as you know we continue to fly and hold the bar end of the bargain, you know, we have a high conviction that that's only going to increase.

Oh, so the first word they they'd use is responsive. So I can go from point A to point B very fast. So if there is, you know, America has the benefit of being insulated by the Atlantic and the Pacific, but that also comes with the cost of we don't fight on the home field, which is great. I'd rather not fight on the home field. We fight away. So everything that we need to affect is far away which means if we want to do something it takes time to get there or you have to preposition things farther forward which has risk. So the number one thing is I a combatant commander could very quickly take a picture of something, put a bomb on something, make a decision and have an action. When you start peeling back responsive then it's okay at what cost am I paying for that? How and then how survivable is that system? How repeatable is that system? And so what a Mach 5 airplane gets you is low-cost reusable responsiveness and it also gets you into an altitude range in the you know 80 to 100,000 ft that is kind of a tech it's a gap right so you see a lot of competition in space certainly plenty of competition with manned fighters and 50 45,000 feet and down to down to the deck but that that that layer from 50,000 ft to 100,000 ft is kind of this empty layer of competition and so being able to operate in that space is also a very compelling uh value proposition. Um and by keeping the platform unmanned, you also keep the the aircraft uh lower cost, you don't have to worry about manned uh you know survivable systems and oxygen and ejection seats and you know human machine interfaces. And the other piece is if you lose the plane, I don't have to send somebody in to to run a rescue mission. I mean look what happened in Iran when that F-15 was shot down. The amount of work that went into that, the amount of man-hour to pull those two the pilot and the and the the weapons officer out was amazing and it and at worst case if they had been captured the geopolitical implications would have been catastrophic. So being able to have systems that allow you to remove that risk altogether is another benefit of a technology stack.

Yeah. So, we are getting into a Quarterhorse Mark 2 supersonic imminently. This this current vehicle arc uh will ultimately complete at a Mach 3 capability and that's that is the key for us. It's arguably the biggest technical unlock for Mach 5 and it has to do with our engine architecture. Um so, you know, we will be doing Mach 3 probably within the next 14 months is what my our timeline looks like roughly and its timelines are holding um from a technical standpoint. Um, and then the next piece is, you know, as we're continuing to build out our engine facility in Jacksonville, Florida, proving out that that engine architecture. We did it previously in like 23, I want to say, with a smaller engine that what we called mode transition. So, transitioning between a jet engine and a ramjet, and we did that previously, GE85 engine. Now, we need to do that with the F100. And what's interesting, and we haven't really talked about the the third aircraft that we are building on this current sprint. So, we call this aircraft Mark 2. We're building three. So, Mark 2.1, 2.2, 2.3. Mark 2.3 is a steel airframe. We can modify that airframe and put the mode transition engine in it. I don't necessarily need to build like a whole new airplane from scratch which pulls timelines in. So I think the really the bigger question than when are we going to go Mach 5 is when are we going to do mode transition? When am I going to demonstrate in flight for the first time, nobody's ever done it, the transition between a turbine engine and a ramjet engine. And we believe we'll be doing that before the end of the decade. Now, the difference between that flight and Mach 5 is just putting two engines on the plane, just getting more power. But once you've demonstrated the turbine-based combined cycle in flight, even the Air Force is like Mach 5 is a foregone conclusion. You're just going to have more thrust to to the aircraft and you'll get there. So really what we're anchored on is demonstrating that transition between uh the turbine engine and the ramjet in the air. We've done it on the ground and DARPA have done it on the ground. Nobody else has done that and nobody's done it in flight. So that's the next big unlock for us which would be our Mark III aircraft.

Yeah, great question. So turbine standard jet engine the we use the jet engine the F100-229 which is Pratt & Whitney's uh piece and we have a great relationship with them because uh RTX is an investor in Hermes and so that's the F-15 F-16 engine just fighter jet engine about 30,000 pounds of thrust. Uh we've been working with that engine for years. Uh we have a number of them in our facility in Atlanta right now for flying that actively uh on the Mark 2.1. The challenge with a turbine engine is that it doesn't get you to Mach 3. And the reason Mach 3 matters is a ramjet has no moving parts. It's oxygen, pressure, and fuel. But the the air has to be moving through at Mach 3. And so you have this challenge like, well, how do I get the air to go through at Mach 3? Historically, what you do is you use a rocket. The rocket boosts it up and the air is going through and you can light the ramjet. Now, there are a number of reasons why that's not super efficient. Ramjets are well-known technology used in missiles all over the place. The biggest challenge is when you boost a ramjet system with a rocket, you have to harden that for the like the massive G-forces on the acceleration and you also don't have like wings for for lift. You got to be really pointy and fast. And so what you end up with is a unfavorable mass fraction. It's got to be very stiff. So a lot of the weight goes into that stiffness that that firmness that you know the reliability of the system versus fuel versus wings. And so you don't get that great range. If you can if you can get to Mach 3 using a jet engine where you take off, you know, you climb, you accelerate, you're putting G's on it, but you're not doing like a rocket, you can have a much better mass fraction which puts more fuel on it. You can have some wings on it. And what that means is the the engine gets up to Mach 3. And we do this by we have a proprietary pre-cooler that sits in front of the turbine engine. It allows us to improve the performance of the turbine engine. And I like to call it too fast, too furious it, right? And I will now take a turbine engine that typically doesn't get you to Mach 3. It gets you to Mach 2, Mach 2 and change. I can get that engine to Mach 3 for 90 seconds, 2 minutes. At which point I can then single flow path, right? So the air is going through the turbine engine directly into the ramjet. I can light the ramjet. The ramjet takes over and we literally have doors that cocoon the turbine engine. The air routes around the turbine engine directly into the ramjet. And now we're at Mach 3 and I can light the ramjet and go. And then I can do it in reverse. I can decelerate. I can open the doors. The air goes through the turbine engine. And now I can take powered flight from under Mach 3 back down to the ground. But the key is how do I get a turbine engine to Mach 3? That is the key unlock. And that's why I made the comment earlier in our current build. What we're demonstrating is the ability to get a turbine engine to fly at Mach 3 for about two minutes. That is the big technical unlock to to get you into this flight regime.

Yeah. So, so as I was saying before, we've done it on the ground in 2023. DARPA did it um before that. Um and it's not something we invented. It's called the turbine-based combined cycle. TBCC.

Yeah. Pioneered this. And so this is also back to your question with like the the investors of we're this is not a science project, right? This is an engineering project. And ultimately that's where you want to stay. You get like you get into the Mach 6 worlds, you get into scramjets which have a lot of challenges. They're not there yet. You get new material science problems that don't scale. You know, in a Mach 5 aircraft, the aircraft can be built of titanium and Inconel, you can have a hot aircraft. You can mass-produce that. There'll be CMCs on some parts, but if you get into like Mach 7, that airplane's got to be built out of unobtainium.

I don't, you know, so what's the utility? This doesn't actually close. So, we've really bounded our problem space to the art of doable, possible, and scalable.

No, great question. So this this predated me. This was a decision the founders made which was totally the correct decision which is if you're going to go develop certify build uh develop build and certify a new fighter jet class engine that's going to cost you billions of dollars and take you a long time. And so like putting that on the critical path breaks your business. You know, having an engine program and an aircraft program at the same time is like like how do you get to you have to create you have to create some outcomes. You have to create economics. Investors are not going to float you forever before they see a return on investment. And so the idea was you need to create you need to make the aircraft and the integration of the turbine-based combined cycle the critical path not the turbine engine especially when there are turbine engines uh out there. And so having RTX as a partner makes it easy for us to work with Pratt and there's some things we're doing with Pratt to optimize that engine um that allow us to do that. And you know there are great the F100-229 is an incredible engine. I don't need to rebuild that. I can improve around it. There's things I can do to improve it but like I don't need to rebuild it. I don't need to create a new problem to solve that's been solved. In the longer term perhaps, you know, I don't want to limit what this business will do. But like ultimately what we want to do is deliver outcomes and that means like speed, reliability and scalability is where you anchor. And so the idea of taking on everything to take it on doesn't make sense. I mean Elon built engines because he needed to build engines. We don't need to build a turbine engine. Now we are building the bypass system around the turbine engine. We're building the ramjet. We're building the inlet. And so bringing all those components together is key. But I don't necessarily need to own every single part of that component tree to deliver the outcome.

Exactly. The reason there's one other piece there which I wouldn't say is unique to us but is incredibly important for us which is getting through transonic for supersonic. So that moment right before supersonic flight is also a really big risk moment um to make sure that the platform's stable. Once you get through transonic and you're on the other side of supersonic aircraft stability is very stable from Mach 1, you know, point 2 to Mach 3 like that you're great. Now you're in like an engine risk world, right? Um and so you know us getting through transonic here hopefully soon with this airframe and like making sure our vehicle stable and like our controls our software all that is good uh is a big piece but that's for us that would be any supersonic program not like that that's been solved you just have to prove that you have solved it for yourself then yes Mach 3 and like in our discussions with the air force and others it's nobody has any concerns about ramjets like I said before ramjets are well known we have demonstrated that mode transition on the ground between a turbine engine and a ramjet. And I'm not saying like there's not risk there, but if you're going to to your question, if you're going to categorize the one biggest unlock, it is the Mach 3 turbine because that has been the gap for reusability. And so, yeah, I would say that getting a stable Mach 3 flight that allows you to sit because you have to sit in that window. It can't be for like two seconds, right? You have to sit in that window long enough so that you can light the ramjet, close the doors, route the air, and then be stable. And that's not a long thing. When we did that on the ground, it was five seconds. Um so like you want to make that as smooth as possible. Um but you know getting on that condition for you know a minute or so more and demonstrating that the engine is stable, the vehicle is stable. That is yes that's the big the big piece.

Yeah I mean they're really focused more on the missile work. Um there is some work that I can't really talk about on other things but nobody's really working on this. Um, you know, there's a business model implication of if if a Lockheed or a a Boeing or somebody else wanted to work on this problem, the amount of internal R&D they'd have to spend ahead of the government doesn't really align with, you know, the way they do that with cost plus fixed fee contracts. Like I said, we spent a half a billion dollars to date on this. I wish we could spend more, right? We've had to it's venture you have to demonstrate success to you know bring on more money but there's we we certainly got more technical risk we want to buy down there's way more ahead of us and so for a for a you know an incumbent to work on a hypersonic aircraft would require a level of internal investment that they're not necessarily business model aligned to and so what you're seeing really is optimization around missiles right the Dark Eagle missile in the news potentially going to the Middle East for the Iran conflict um obviously Hikma, Arrow, Castellan great company doing you know hypersonic lower-cost missiles and so that's where you know the the space has been and the founders and why I was excited to join the company in the first place their view was like the whole world's going left and that makes sense but like opportunity typically does not live in consensus right this would be you know Peter Thiel zero to one have a monopoly you know create the thing that doesn't exist I've always liked that attitude like if everybody's going left left I inherently just want to go right and so that has been our approach and what's happening is you're starting to see as this works, you're like, "Oh like this plane is flying and like these things are happening." And you know, there was never really an argument about our our whether or not this was a useful product. It was could you build it fast enough, affordably enough, and would the government buy it? And it goes back to your question of like nobody's really in the US, you know, working on unmanned high-speed aircraft like this um that we're aware of. And all the hypersonics work has really been in the missile space.

That's probably the biggest challenge on that vehicle is is the thermal um and making sure we have, you know, you can heat sink the engine. There's things you can do with the fuel, trying not to have cryos on board. I mean, there's a bunch of questions there. There's no qu there is no doubt about that. That I think is the next big piece. Now, we're gonna learn a ton because the Mach 3 like the the Mark 2.1 that we're flying is an aluminum aircraft. Mark 2.2 will be an aluminum aircraft. Mark 2.3 will be a steel aircraft. And that is because you're starting to get into the thermal considerations at Mach 3 that like you couldn't have an aluminum airframe fly that. So, we're going to get some really good data and some really good learning at Mach 3. Granted, the conditions aren't the same, but understanding our vehicles, heat sinking, all the stuff that we need to start learning as we get into the next iteration. But yes, that is, I would argue, the biggest area for development uh and learning that we have. And people ask like, well, what's the useful life of the vehicle? I don't know, man. I got to fly this thing. Like, we don't have aircraft that have ever flown Mach 5. And so, we have to be seeing and pulling them down. There's a ton of analysis and benefit to do on, you know, material studies, materials innovation. But what we do know, like I said earlier, is I don't need CMCs. I don't need like really high-end materials that don't exist and can't be mass-produced. I can do this with