The Vertical Space

#73 Jeff Luckett, UPS Flight Forward: An inside perspective on early adoption of UAS and AAM in cargo

• Luka T • Episode 73

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Welcome back to The Vertical Space! In this episode, we’re thrilled to bring you a conversation with Jeff Luckett, President and founding member of UPS Flight Forward, a subsidiary of UPS. Since our podcast's inception in 2021, we’ve featured numerous OEMs and service providers from both advanced air mobility and traditional aviation. However, it’s not often that we get to hear directly from the buyers and industry leaders driving the demand for these cutting-edge technologies. Today, we dive deep with one of the key figures in the industry.

Jeff shares his journey leading UPS Flight Forward, where he’s been instrumental in evaluating over 850 different companies to identify those best suited to meet UPS’s unique challenges and opportunities. He reveals the criteria used to differentiate the companies that made the cut from those that didn’t, offering advice to any company looking to collaborate with major players like UPS.

Throughout our conversation, we explore the crucial role of cargo-centric operations in the future of advanced air mobility. Jeff discusses why he believes the cargo market is poised to materialize more significantly in the near term compared to the passenger taxi market. He also emphasizes the importance of understanding the specific needs of organizations like UPS when marketing new technologies and services.

Jeff delves into the operational aspects, explaining why what happens on the ground is just as vital as what occurs in the air. We discuss the anticipated timeline for the introduction and scaling of future aircraft within UPS, UPS’s approach to insourcing versus outsourcing, and his thoughts on integrating new aircraft into the National Airspace System (NAS).

Jeff:

So when I look at solutions that come across our inbound, when someone is very keen to think about a product that's centered around the cargo mission, it gets really interesting because you get to take advantage of efficiencies that weren't planned in the original aircraft. You don't have to worry about passenger egress necessarily, or passenger comforts that don't necessarily play a role in the cargo market. If I was to focus on one area, I'd say that's where the most significant gain for us will be, is products that are really designed around our needs.

Jim:

Welcome back to The Vertical Space, we hope everyone is enjoying their summer, and welcome to our conversation with Jeff Luckett, President and one of the founding members of UPS Flight Forward, a wholly owned UPS Subsidiary. Since our beginning back in 21, we've had a lot of OEMs and providers of services on the podcast, both in advanced air mobility as well as in more traditional aviation. It's always special to hear from people like Jeff and the organizations they represent the buyers and recipients of the value of these organizations making products and services. At the end of the day, it's organizations like UPS who are driving the demand. It's their use cases, their business challenges and opportunities and their cash that drives the funding and building of these vehicles and services. And with UPS, we're talking to one of the trailblazers and leaders and with Jeff, we're talking to their leader as the President of UPS Flight Forward. So listen to this. Jeff talks about evaluating over 850 different companies to determine those who could best meet UPS', challenges and opportunities. So, I bet you want to hear about how he differentiated those who made the cut and those who didn't and what advice he would give to those companies. A consistent theme throughout our discussion are the requirements of cargo centric operations. And the importance of listening to these unique requirements when marketing to organizations like UPS. Jeff believes and he is in the company of many that it's the cargo market that is more likely to more substantially materialize in the early years versus the passenger taxi markets. Jeff starts off discussing what happens on the ground is as important as what's going on in the air. And when you think about the UPS mission, and after listening to Jeff's explanation, you'll have a better understanding as to why. Listen to when Jeff sees his future state aircraft entering service and when he expects them to scale. An important consideration, Jeff discusses why UPS decides to insource and outsource its operations key to understanding some of the roles of future advanced air mobility operations. I like how Jeff describes UPS's role and appetite to invest in integrating aircraft into the NAS and his response draws upon the successful role UPS played with the introduction of ADS-B. So many thanks to Jeff for joining us and to our guests, we hope you enjoy our talk with Jeff Luckett as you innovate profitably and The Vertical Space. Jeff Luckett is President and one of the founding members of UPS Flight Forward, a wholly-owned UPS subsidiary incorporated on June 14, 20 19 established to work with regulators and OEMs to move the UAS advanced air mobility industry forward. On September 27th, 2019, UPS Flight Forward became the first company to receive a standard 1 35 air carrier certificate, approved by the FAA for UAS operations and has continued to be an industry leader, accomplishing many of the industry firsts occurring in the US, including the first Part 1 35 UAS revenue delivery in 2019 and the first Part 1 35 UAS revenue BVLOS delivery in 2023. Jeff's responsibilities also include oversight of the UPS Airline Technology Support Group. Prior to his current leadership roles, Jeff's 34 plus year career at UPS has covered several areas, including UPS Airline Flight Operations, Engineering, Network Planning, Long Range Planning and Aircraft Acquisitions. Jeff has also held supporting roles with the UPS Airline Emergency Response Team, DOD CRAF Program and Humanitarian Air Relief Charters. Jeff graduated from University of Louisville and has an MBA in Aviation from Embry-Riddle Aeronautical University. He also served two tours of duty in the U S Navy during the first Gulf War. Jeff, welcome to The Vertical Space. Great having you on.

Jeff:

Great to be on with you all today.

Jim:

Is there anything that very few in the industry agree with you on?

Jeff:

Yes, there's a couple things I could highlight. First, I would say we entered the space and we're really interacting primarily, initially, on the small UAS side, and we believed all along that the lessons that we learn in the small UAS space would apply and help inform, the shift to larger AAM solutions, and we're seeing that, but that was some resistance, I think, we felt early on. The other thing I would highlight is that we believe that the importance of what happens from touchdown to takeoff, is as critically important as what happens in the air for us with the solutions being developed. We're seeing a lot of technology companies develop great solutions that do incredible things in the air, autonomously and sustainable, but it's the solutions that also have to take place for the ground, For it to make sense for us and to be economically viable.

Jim:

Thanks. Jeff. Talk about smaller UAS and why that was your focus.

Jeff:

So our initial pass at small UAS was kind of dictated by guidelines. So, under 55 pounds was really that initial focus. And we looked at aircraft that fell under that FAA limit at the time and that still had a meaningful payload and range for us. So, really when we think small UAS, it's things for more final mile campus delivery type solutions in a reasonably small geographic area.

Jim:

I would probably say many listening would be a little bit surprised that UPS, that was the focus because you've created so much noise in the larger spectrum. And then what you're saying is the ground operation is as almost important as the air. Talk about that.

Jeff:

Okay. and just the, I guess to go back to the previous question, small UAS was what we were able to do first. there are still no AAM solutions type certified. So it wasn't that we weren't looking at them, but it was a matter of what we had available to us to use. But as we jumped in and started going after those small UAS operations we had to form partnerships and, get that kicked off, but we worked with Matternet on that initial, small UAS, stand up. And that was how we went about getting our Part 135 certificate partnered with Matternet. And that is still our only aircraft on our certificate.

Jim:

Matternet we've had them on the podcast.

Jeff:

Excellent.

Jim:

So talk about the ground operations. One thing you're doing different is the on to in, the out to off is an area that you're focused on and for some they'll understand why, but talk about that briefly.

Jeff:

Sure. So when we look at our current day operations, they're still very labor intensive. And when I say that, we do have the ability to do BVLOS now, but even with that unlock, we have crew members at the ends of each route. The Matternet, as we use it today, requires us to load and unload the aircraft, do pre flight, post flight type inspections, and, reload, batteries for flight. So with all those things in mind, it's still a very labor intensive operation. So we want to see things progress in the industry that allow lighter lift on the ends of the route. And we know Matternet's working on solutions today, and in their Swiss operation, they've got a station that the aircraft interacts with, and that's, moving the direction we're thinking. But, in general, we just need to see the ability to automate more of the process on the ground.

Jim:

Thank you, Jeff. What are the origins of the mission of UPS Flight Forward? How did it come about and why?

Jeff:

Our origins really, we've been an airline now for quite some time, a 121 airline. And as the company leadership started to acknowledge that things are changing and that there's new technologies coming to this industry, that was recognized and a small team was asked to tackle this new frontier, if you will. So UPS Flight Forward was pulled together from a small group of subject matter experts from our 121 Airline. We initially stood up operations, from a part 107 perspective. We pursued our Part 135 certificate and formed a new company, a wholly owned UPS subsidiary. And as all that came together, I would say part of the origin was from an ask from the FAA. The FAA asked us to participate, and we joined the, IPP program in North Carolina as that avenue to help us, integrate into this new space. So, partly an FAA ask and partly leadership acknowledging these new technologies coming to the market.

Luka:

So, Jeff, as you looked at this new technology to solve some of the problems that UPS is facing, can you talk about what those main pain points are that UPS was trying to solve with this new generation of aviation.

Jeff:

Absolutely. So, when we look at current day operations, we're challenged with aging aircraft, pilot shortages, which some will debate that topic. Even our own 121 Airline, they've got a line of pilots out the door. But when you look at feeder aircraft operations, part 135 operations, they're challenged every day because as people get their hours, they're moving on, up into, to 121 operations. So we still see that as a problem. And in fact, COVID amplified it because we saw furloughs happen during that time. It delayed training and set back the industry in some ways, and it's still catching up. there were people that chose not to enter that field during COVID because of the scale back, and I don't think we've caught up as an industry. So, the pilot shortages is a key piece, and then just cost in general. What we're seeing is year over year costs increasing fairly significantly, for our small feeder aircraft operations. So these solutions bring new things to the table that can help offset those costs. And we know we're going to have to address some of the aging aircraft, as it stands today.

Luka:

And the impact of the pilot shortage is that more stuff is being moved in the ground or what's the impact of this?

Jeff:

Part of it's cost. I mean, I'd say the biggest driver there is cost, because you're having to pay more to keep people in seats, rather than them progressing onto the 121 space. So, cost is a big piece. we are having, in some cases, we do look at ground as an alternative, but we're a time definite business. So when our next day product arrives at a jet gateway out in our system, if it can't make it on the ground in time, that's where we leverage that feeder aircraft network and it's how we maintain that service to our customers.

Luka:

The feeder part of that chain of moving cargo is where most of the problem is today. Is that correct?

Jeff:

When we look at the solutions that are coming to market and things we're trying to solve for, I'd say that is the biggest problem that we're looking at today, yes. There's also another angle that we're digging into, and that's new revenue opportunities. One of the challenges that we will have as an industry is paying for the new tech. And if we're just putting it in as a plug and play, to existing operations, that may not be all we need, because our current utilization, these aircraft are based around one rotation a night for our next day product. And that may not support, the cost requirement for these new aircraft. So we're looking at ways to leverage these new technologies and new fleets of aircraft to support new revenue opportunities and potentially offset costs elsewhere.

Luka:

And just to paint a more vivid picture of how urgent these problems need to be solved, or at least what's the perception at UPS, on a scale of 1 to 10, how would you rate the urgency to introduce these new technologies to solve some of the problems that you're talking about?

Jeff:

Great question. It depends on who you talk to. Within our organization, we're a company of 500, 000 employees and a global footprint. We service 200 countries. So, the feeder aircraft piece of the equation is small in the grand scheme, but it is important. we currently vendor out our aircraft. So, we're relying on that vendor fleet, to support our current feeder aircraft needs. And what we're seeing in that market space is consolidation of both operators, as well as some of the aircraft leaving the market. And I think that's becoming a driver. So we need a solution. And again, if you talk to airline staff that are familiar with our feeder aircraft network, I'd say it's going to fall on the higher end of the importance and then, those that are dealing with the ground volume, probably won't see it as big of a priority, but, again, we're a large organization and I think it's relevant, which party you're talking to and understanding, the needs to make service.

Jim:

If the business justification for the feeder network is the priority, and we talk about the small UAS to start and then larger vehicles afterwards what are the 2 or 3 areas of the next 3 to 5 years where you're saying we're going to get the greatest financial return, and from what vehicles and what would the return be?

Jeff:

The first bet we've placed is on Beta. We were interested in engaging in the eVTOL Space, and when we look at the aircraft available in the market that are coming to market. We needed something that could hit our mission requirements, and our contract was based on 250 miles of range, a good payload and a volume that was meaningful to us. We know we may not hit all those targets, with the first delivered version of the aircraft. Battery energy density is changing and improving year over year. But what we do know is that from a volume standpoint, the aircraft can hit some of the marks that we need on the lower end of our feeder aircraft spectrum. And what that does for us is in today's world, I mentioned if we fly our next day volume, if it comes through our hub and leaves here on a jet, those jets land at regional airports servicing cities, and once those land, if we can ground the volume on time to its destination, that's what we do. That's typically the cheapest way to handle it. But if you can't, and you have to put that volume on a feeder aircraft, that aircraft is going to fly from that jet gateway to a GA airport in a smaller, super rural town. When it lands, there's going to be a vehicle meet that aircraft, they're going to hand off load the aircraft onto a vehicle, and it's going to drive to one of our centers. And at that center, the volume would be sorted down to the package cars for delivery. In future state, what we would do is take an eVTOL directly from that aircraft arrival, and fly to the center where the volume needs to go. So we take a ground segment out of the mix and reduce the handles of the packages, which we see as a financial benefit on both. And a potential time savings for the network. When we look at other solutions, so we are looking at, retrofitting existing aircraft as well, so there are a lot of missions that we're not going to cover with an eVTOL in today's world, just because of the amount of volume, the payloads required, and the ranges. So for those solutions, retrofitted aircraft may be a great way for us to move forward. And as you look at the industry landscape, many are focused on the Cessna Caravan, and that's a workhorse of our feeder aircraft network. It is still in production, which makes it even more attractive. And there's solutions that are going to help advance both autonomy capabilities for those aircraft and sustainable power plants. So we think, really, there's a great opportunity for savings there and efficiency. When you look at the cost of operating feeder aircraft, and I'm going to generalize this very high level so, those in the industry can dig into the numbers. They may see something slightly different, but high level, if you take the variable costs that we deal with daily and bucket those, you can roughly, create buckets that tie 20 percent to crew, 20 percent to maintenance, and 20 percent of fuel. And that 60%, roughly, of the grand total, are numbers that we can influence with some of these new technologies. So I think that's really a focal point for us when we look at those retrofitted aircraft, taking advantage of something that already exists. But making it better and more efficient. So those are, when we look at eVTOLs and then traditional aircraft, I think that's the two approaches that you'll see us focus on.

Peter:

Okay, Jeff. And when you look across these different types of aircraft, given how you're going to employ them in your operations, which, what I interpret as, improving the end quality of service, increasing efficiency and saving cost, looking at the different aircraft, what is the early end of the time window when those aircraft will actually deliver the bottom line savings, given their own evolution and scale up and the refinement of their operations? And then what are the other aircraft that are at the outer end of that timeline and how far out is that when those things are going to be delivering these savings for your use case.

Jeff:

So when we look at the industry landscape today, everything's going to be predicated on type certification. When will the FAA approve these solutions? Clean sheet aircraft, in general, I would, will expect to take longer. We've been partnered now with Beta since, 2019 ish timeframe. So, that aircraft is evolving, the production line is there, and they're going to start pushing aircraft out the end, by the end of this year. So, those are happening, but you still have to get through that type certification process. When we look at the retrofit side, those aircraft exist and they're basically going after STCs. So, at least to scale, I think that some of the STCs may move faster than clean sheet aircraft just because more of the aircraft's already accepted, but we hope that they run in parallel. I think you've probably heard about Innovate28 and some of those initiatives to get aircraft moving, in that time horizon with the FAA. And, for me, the 2026 to 2028 time frame is when we expect to see these aircraft entering service and, starting to do meaningful routes in the network and then scaling up from there. So, I don't know if that helps give you the color you're looking for.

Peter:

It does. It helps me sort of think about the company's time horizon, in terms of your expectations. And can you walk us through when you decided to embark on this, how you thought about, hey, let's lean in and be an early adopter of this and, in a way, pioneer the operations versus, I'm sure there's another school of thought, in the space that says, hey, why don't we wait until, these are a little more scaled up. We can wait until 2030 or whatever and, and then adopt. How did you guys work through those set of considerations and come to the conclusion to say, all right, we want to lean in?

Jeff:

From UPS's standpoint, this was a clear opportunity for us to take advantage of an invitation from the FAA to participate. And then as we did, we acknowledged that there were several benefits. One, we could set the safety bar. and we've done some of that as we've proceeded with our operations. We're the first carrier to have an FAA accepted, SMS program. So, that was a big step for us and we're working through our ASAP program as we speak. So working with the FAA to know that as these new technologies come to market, they're being done safely. And for us, it's protecting our 121 operation as well. We've got, one of the largest jet air fleets in the world. and when we think about those operations, we want to know that the new technologies coming aren't going to put those at risk. So we kind of wear two hats in that sense. So we've been able to participate in the rulemaking and establishing what safe and good operations look like from the beginning. So I think that's a big piece of it. And then the other significant item is, as we've looked at all the companies out there building these new solutions and creating new opportunities, we're able to inform those products. And we want to inform them from a cargo operator's perspective. the initial eVTOLs were all built around air taxi use cases. And for us, a lot of those cabins don't conform well for package. So for us, being able to, on the front end of solutions being developed to influence those OEMs, to create products that are meaningful to us, I would say is the other big element to the equation.

Luka:

Jeff, it sounds like your desire is to take some of these advanced aircraft, electric aircraft, and replace some of the feeder routes with it. And, altogether, bypass some of the ground legs in the process. Have you explored the idea of just, changing the paradigm of how cargo is moved, in terms of breaking up a single load that a Caravan might fly into multiple drones and somehow redefine and reimagine the network themselves as opposed to taking a new technology and plugging it into an existing framework.

Jeff:

That's a great thought and we have done that work. We've got an operations research team that has helped us develop modeling and simulation efforts and in that process what we're able to do is plug in aircraft specifications, capabilities and cost. And run models that compare the different solutions. So we have undertaken some of those efforts and in some cases, it will choose to replace a larger aircraft with multiple smaller craft and take more volume direct to a specific destination rather than consolidating in some cases. So, yes, I would say that is an opportunity and we continue to evaluate it. I would say. Entry into service, though, will look probably a lot more like plug and play on an existing route, until we get to some sense of scale, and then reimagining the network becomes a bigger opportunity at that point, once, once we're able to scale some of these technologies.

Luka:

And what are the driving factors that would influence that decision in your modeling and analysis?

Jeff:

We're a time definite service, so we have to know that the solutions are going to meet the time requirements, involved, and then I would say cost is going to be one of the most primary considerations. Anything that we do that's new has to show some return on investment, cost savings or new revenue generation. So I think that's where this is going to become extremely important as well. It's one thing to reduce our carbon footprint, for example, with a sustainable power plant, but if it does so at a higher cost, we've got to weigh that into the equation. So, we're looking at it from all angles, and cost will be a driver, safety will be a primary consideration, and then time.

Jim:

So, let's say we, we go to your whiteboard. And on the left side of the whiteboard are the use cases, the business justification and the use cases for where UPS needs enhanced capabilities. On the right hand side are the, it sounds like 850 different companies that you've evaluated to fit those near term, perhaps long term use cases. How many of the 850 we're almost perfectly situated for the use cases you've identified.

Jeff:

it's a pretty small number. I think that, again, the focus of some of the industry's been on things that aren't in our plans necessarily. So, again, getting people to think about cargo versus air taxi, that was a big issue for us to find solutions that work. What we are seeing and I think becomes extremely important, there are companies that are focused on cargo centric aircraft. And in my career, I've spent time in our aircraft acquisitions division of UPS multiple times. And that's where we evaluate what fits the network need for the air solution part of our network. And there's limited options there. Most of the conversations are with your Boeings and Airbuses of the world. And, they've got a product offering and you're typically, in the past, we've competed those two brands and found the solution that meets the need. But almost in all cases, and when you look at the history of the cargo market, we were getting aircraft that were originally designed for passengers. And for those companies, typically a new production line is based on passenger need first. And then cargo is an afterthought. In many cases, early days, it was all retrofitted aircraft, converted aircraft for freighters. They did start building production freighters with the introduction of some of our early fleet. The 757s was an example of, us entering the market with new, mission built freighters, if you will. But they were born out of a passenger aircraft. So when I look at solutions that come across our inbound. When someone is very keen to think about a product that's centered around the cargo mission, it gets really interesting because you get to take advantage of efficiencies that weren't planned in the original aircraft. You don't have to worry about passenger egress necessarily, or passenger comforts that, don't necessarily play a role in the, the cargo market. If I was to focus on one area, I'd say that's where the most significant gain for us will be is products that are really designed around our needs.

Jim:

As you evaluated the 850 and you said there were very few that were cargo centric. Did you go to any of the, let's call them the, the non cargo OEMs, have you made recommendations to them on changes that they should be making, and have any of them changed their ways to adapt to your requirements?

Jeff:

In most cases, I would say the majority of the market has been very receptive to our feedback, and I think that's one of the value ads we bring to the industry. If you talk to people that have met with us, I think they'll tell you we've given them very direct, clear feedback about what's important to us. And it may not align with their core mission. So, and we're okay with that. people are designing aircraft for different reasons and different needs. The air taxis of the world, most of them were already far enough down a path that type certifying their first aircraft isn't going to pivot easily to cargo, version. So it's not that they haven't taken the feedback. But I would say that, there's limited opportunity to adjust aircraft that were already started down that pipeline, where I think there's a huge opportunity is the second generation of these new aircraft. I think people will think about them differently and, we'll see them scale up in size to meet more of a cargo configuration and even larger passenger, consideration. There was one thing I was going to bring up on this topic, though, when you think about the aircraft and what they're capable of, one of the challenges I think that the air taxis are going to see, and we've heard voiced already, is they've built them around the passenger load, but in many cases, they can't accommodate baggage. That's becoming a, I think, a consideration that the amount of baggage that someone will be able to take on an air taxi to get to that mainstream airport. may not align with what they would want to or can bring when they actually get on the jet. So I think that's one of the issues that market will have to address, as they move forward so that, the solution actually makes sense for the customer.

Luka:

Earlier, you mentioned, utilization of the feeder aircraft. Can you talk a little bit about what utilization you expect from this next generation of vehicles and how big of a risk is that in your overall business case?

Jeff:

So right now, our feeder aircraft network, as I mentioned, it's very tightly tied to our next day air network, and when those aircraft land at those regional gateways, that's when we use those feeder aircraft. They do a rotation out. And back. And that one rotation is going to be a challenge to pay for. So, that's where we start looking at how would we utilize these aircraft potentially different. And as the new technologies come in, these advanced air mobility aircraft, they'll start out crewed in most cases. we do know there's a couple OEMs out there that want to start with autonomy capable or remotely piloted aircraft. But in general, they'll start out crewed. But as we do transition to aircraft with capabilities of remote piloting, now you don't lock the asset, or landlock it, I should say, at an airport while the crew's in rest. And that's where I think it can get really interesting for the industry, because, when our CEO looks at things that our company does, one of the terms Carol will say, or phrases she'll use with us, is sweat the asset. And when you buy these, high price, new technology things, you want to be able to use them and make good use of them. So I think that's where we'll look for new use cases. And one of our core principle areas that we're focusing on here at UPS is healthcare. So if we move our normal rotation for the next day volume, and then we have this asset, can we onboard new healthcare revenue for other purposes, time definite goods, but that may not fit into our existing network today. There's also other opportunities. When we look at, especially eVTOLs, and you look at the coastal areas of the U. S. and island chains or geographically challenged areas, it creates new opportunities to connect those communities that otherwise are a much longer ground or even ferry included transit. So I think there's different ways that we can support other business and revenue cases with some of these technologies.

Peter:

J Jeff, did UPS ever consider the use of helicopters for any of these routes or operations in its network? And as you look at eVTOLs to fill this type of a role, is it their reduced operating cost that you anticipate is going to be the lever?

Jeff:

Yes. So UPS has looked at helicopters in the past. And the prime example I'll use is when our jets arrive in Newark, those aircraft land in today's world, we offload that volume into trucks, and those trucks contend with bridges, tunnels, and traffic to get into the city. In future state, what we would like to do is take an eVTOL from the jet aircraft arrival, and eventually go directly to the roof of the 43rd Street Hub in Manhattan and get that early am custom critical healthcare type volume directly there to the sort facility. We know that's not going to happen right away and there'll be step functions. In today's environment, we know that we're having to look at other solutions like barging some of the volume across to make time and that's not necessarily attractive when you're looking at those early am custom critical type deliveries that we need to get out early in the morning. So, that is a big opportunity for us with those eVTOLs to exercise that capability. That is one of the use cases that we've looked at helicopters for in the past, and the operating expense just doesn't justify. One of the step functions I think we'll see happen though is the Stockyards VertiPort for example. I think people will look to leverage those type sites to get to the city until we graduate further down the road to actually landing on structures again in Manhattan.

Peter:

So, many of the OEMs or startups that are producing these vehicles reason at this point in time that they want to be the operator. How does UPS think about working with companies that are at that stage? Can that be a fit, or is that not?

Jeff:

So for our Part 135 operations that I think all these advanced mobility solutions would fall into, we're open to both. We're open to partnering with people that are operators and OEMs. We're also interested in onboarding technologies to our certificate. So I think we can go either path. Our current feeder aircraft fleet is all vendored out. We've got a pool of vendors that have aircraft that we source from. And what we've done in the advanced air mobility space right now is we've tried to, in some ways, play matchmaker. We'll look at vendors that operate for us and new technologies and start to create interest there for onboarding some of the new technologies to their fleets. But we've got very little control over that. And so for us, I think we want to go down both paths. We want to encourage operators to look at new technologies while at the same time. us participate in bringing those to market.

Jim:

What's the healthcare market that you see yourselves going into, and how much of it was driven based on the capabilities of the vehicles that you're talking about?

Jeff:

So UPS is very focused on the healthcare market in general. We've got a whole division of the company that's very focused on healthcare solutions. And for us, we want to be another item on the menu for those healthcare customers where we can provide a service that may not be capable any other way. A lot of these products are time definite. We looked at solutions in the very beginning, that we actually do today in some ways. So, hospital campuses, for example, when you look at small UAS, we've got the opportunity to expedite service for those patients, whether it's their lab samples getting from a clinic to the main hospital lab and being processed in time, that the doctor can diagnose before they leave. I mean, that's a change. We also have done roles where medications are formulated and under hoods and very sterile environments in labs, and then they have to get from there to the clinic. And we've also expedited those movements of those specialty medications for patients using drones. So those are a couple examples of things that we actually do today. As you, you scale up from small UAS, we think there's going to be room for those medium size vehicles to come into play and help balance loads and networks for these health care providers. Stock rotation and expediting those is critically important. These are expensive goods and, as they start to reach maturity, and have to be cycled out, I think that's a way that we can help support some of these customers and providers by expediting those movements

Luka:

What is the reason that part 121 owns the jets and the part 135 operation being vendored out and how does that impact your thinking whether to outsource or bring in house some of these AAM vehicles.

Jeff:

When we look at our 121 operations, those are very stable operations, meaning the locations we fly to, those don't come and go and ebb and flow that drastically. We see growth. But when we assign a jet to a route in a market, it's meeting a particular demand level and that we see, some pretty significant consistency there. Not that the network doesn't change over time. Our jet fleet is made up of different aircraft types that we can gauge up and down. But when we look at feeder aircraft markets, those are more likely to ebb and flow. During COVID, we saw a flex up. The demand was higher in some of these smaller markets for goods, to be flown, as we saw COVID wrap up, some of that demand subsided. So we can't adjust, as quickly if you own the assets and deploy them. With vendored operations, those are contract driven and we've got the flexibility to increase capacity very quickly or draw back if necessary. And with a pool of providers that, allows a lot of flexibility. So that's kind of why we've gone down that path. The future could look different. And as we look at the mature markets for feeder aircraft that have some consistency, those may be areas that we choose to operate ourselves, but we're open to exploring both paths. And I think it'll be a financial decision in the end, what's more attractive for us to pursue and what solution fits the needs. And you bring in remotely piloted operations, I think that will be a, a differentiator. if you own the asset and you're running a remote operation center that's just staffed, you have the opportunity to keep those assets moving, more of the day at a lower overhead cost than just, another contract for another route. So, I think as these scale up, there is an opportunity to look at the cost differently, with own versus vendored operations.

Luka:

One of the common things that we hear when we're talking to entrepreneurs that are, pitching large logistics players like UPS on cargo drones of various sizes, is that, those logistics giants don't really want to engage until there is end to end readiness in the chain. Not quite interested in exploring a few routes here and there. The message appears to be, okay, well, sounds interesting, but come back when we can rely on this a hundred percent and when there's ways that we can plug it in seamlessly and integrate into the existing workflows.

Jeff:

Yeah, so for these solutions to really make sense into our networks, they're going to have to be reliable. They're going to have to solve for the mission set that we see today. So reliability will come with, weather capabilities. These aircraft are going to have to be able to fly in the same conditions that traditional feeder aircraft fly in today to service our mission. Our customers won't be happy if there are certain days that we can't service their volume. Obviously, in today's world, there are limitations to existing aircraft, including our jet fleets, and that's kind of understood, but if you create new limitations based on a new aircraft entering service, I don't think that's going to go well. So we, we need these solutions that come mature to the market with the capability of operating in wind and, precip conditions that existing aircraft handle today. And when we think about integrating these new technologies into our network, I mentioned once already that, for us, there's a huge importance on what happens from touchdown to takeoff. It's that window of time that we need to have clear understanding of what's required to make the operation successful. If it's an electric aircraft, that's going to include charging infrastructure, regardless of what type of aircraft, you're going to have to know that plan for fueling it and keeping the aircraft moving. How we interact with the aircraft is another big question. If it's an autonomous, capable, or autonomy related aircraft that's remotely piloted, how does the ground crew know when to approach the aircraft? What functions are performed by the ground crew versus someone remote? And, you think about things as simple as, approaching the aircraft to chock it, opening the aircraft, and then once you've unloaded the aircraft, on the other end, who preflights it? How do you weight and balance the aircraft? How do you ensure that it's conformed with that weight and balance plan? There's a lot of considerations that I think as we want to integrate these new technologies into the network, we've got to be very thoughtful about what happens on the ground. I don't know if that kind of covers what you're looking for there, but that's a huge importance to us.

Luka:

Have you come forward to certain OEMs and say, Hey, these are our requirements. Can you build something to these specs as opposed to, inversing the problem and evaluating hundreds of companies and concepts that don't necessarily start from your use case?

Jeff:

Yes, to some degree. We've not gone out to your typical, new entrant OEMs and posed those type questions, but the long term players in the market, we've shared those views with. So yes, we have on the front end talked about what product needs look like for us. And I guess, big picture, we do have established standards that, if we're wanting to tackle the feeder aircraft use case, for example, we do have standards that we will share with those that we meet with about what good looks like. So, it's not just about adapting their current product, but we'll tell them what we're looking for. So, in some cases, as I mentioned, it may not impact their current product offering that they're trying to type certify, but it helps them inform that future aircraft that they have on the drawing board.

Jim:

Jeff, if you're going to scale operations with advanced air mobility vehicles by 2030, do you think you've already talked to the OEMs who are going to be part of that scaling process? Do you think you're already in conversations with those, or do you think a new OEM is going to be at scale by 2030?

Jeff:

It's a pretty time consuming process. So I would say if they aren't already, in heavy development of their product, they're probably not gonna make that horizon.

Jim:

So you've probably already talked to them. It's a OEM that you're already talking to, like a Beta.

Jeff:

Right. I would say that's the case. Yes.

Jim:

And if you had all 850 companies listening right now on the podcast, and you were going to give them a vision of where you see yourselves going and changes that you would like them to make, you've already given some of it. What else would you want to tell them to be able to meet the requirements of UPS so that you can scale by 2030, 2035? They're all listening now.

Jeff:

I would give the advice to not just listen to UPS, but listen to the operators in general to make sure that the products that are being built meet the needs of the cargo market. And for us, this will be more specific to UPS, when we look at our air network, we are typically volume limited and not payload limited. On our typical fleet, that's what we see come out. And that being said, a lot of the aircraft being built are very sleek and aerodynamic, which is great, but they don't conform to the large volumetric needs that we need. So I think as products come to market, that volume consideration is just as important as payload and range can be, because if you can't contain the volume, the solution may not be an option to even consider.

Jim:

What else would you tell them?

Jeff:

Focusing on that reliability piece and knowing that what they're bringing to market can meet the same or better reliability standards that we have today, and that safety is also of paramount importance. We want to see this industry successful. And we don't want to see it hit hurdles unintendedly because, corners are cut or safety isn't a priority. So for us, that's one of the most important things. And there's the aircraft side of it, but there's also, some of the infrastructure pieces and whether it's the ground support needs for the fuel or whether it's UTM and the requirements to integrate into the airspace. I think those are all important. So, depending on the vendor type, we're expressing those interests, relevant to the solutions that are being created.

Peter:

So Jeff, I would imagine that some of the military logistics missions whose requirements are being scoped out and that are being developed for by companies might also serve the mission profile that you describe. Are you seeing a good fit there and do you see a path where the technology is going to mature in the military domain area and fit right into what you guys want to do with it?

Jeff:

We do see some parallels, and I'm excited about those. The challenge for us is that, the military variant aircraft won't have to hit the same type certification requirements that commercial aircraft will. So the paths do look different, but I think the work that's being done with the DoD is extremely important because we've seen a couple of things happen in the industry. We've seen VC money dry up and challenge that vendor pool. We've seen consolidation as a result, and a lot of the efforts going on with DoD projects are a way to fund the industry forward. And I think, of significant importance to them because they have ways to bring new capabilities to the battlefield and support missions differently, and in some cases without putting as many people in harm's way. And for us, I think that's proving grounds that will help create scalable solutions, for the commercial market. So I think there's great benefit there. It's still early. We're very familiar with our partner, Beta, on some of the work they've already done with the military, and I think it's, it will pay dividends, I think, not just for Beta, but others that are participating, because I think it will help fund the progress of their product, and, they're able to do real world use cases ahead of the commercial market. We can participate in proof of concept operations, but they're very limited. The military can put aircraft through their paces and in real world situation, more readily available. it doesn't require all the same.

Peter:

No, that's true. And they can operate them in very different ways than you have to operate in the National Airspace System. When you guys think about flying relatively large autonomous aircraft in the NAS, what are your assumptions around that operation? I mean, I assume it's going to be above 500 feet AGL and so it's going to be interacting with other air traffic. Is this going to be a remotely piloted operation or is it going to be some other level of autonomous flight? How are you guys mapping that out and what are your expectations for what that's going to look like in the coming years?

Jeff:

Sure. So the small UAS operations that we have, current day and expectations moving forward will still be limited to keep those below 400 feet. But when we look at the advanced air mobility solutions that meet our feeder aircraft needs, those do enter that traditionally, crewed aircraft space. We think that the solutions we will start to introduce in many cases, they're going to start crewed and be seamless to ATC as it stands today and other crews in the airspace. We've already see that play out with multiple vendors in proof of concept operations where ATC nor other pilots in the airspace really acknowledge or know the difference between that aircraft in operation versus anything else. And I think that's the goal is a seamless integration. I think there's great promise in what UTM solutions can bring to the table. And, potentially helping bridge the gap between current ATC and what the future could look like. The early state, the goal is to be irrelevant. I've heard, Jeffrey Vincent talk about it, and, he's leading that UAS effort with the FAA and boring is good. When they think about operations in the air, they don't want it to be unique and different. I think they're looking for solutions to fit the mold current day. And then. help evolve what the system in the future actually looks like as you digitize more of the information.

Peter:

I think we have a pretty clear path emerging for what autonomous flight below 400 feet is going to look like. From your perspective, what is the biggest aircraft that we're going to be able to fly down at those altitudes before it gets to the point where everybody says, okay, this has to be pushed up higher for a bunch of safety and operational reasons. What's the biggest aircraft that you expect is going to be flying at or below 400 feet AGL?

Jeff:

If you would have asked me that, several years ago, I would have said 55 pounds. I mean, that, that was kind of the standard known and accepted. But as we've seen new aircraft come to market, including Amazon's solution, they're getting larger, right? And I think with those larger solutions, there will have to be determinations on what the use case is, and if they're final mile, they're going to be in that airspace, and, I think as the OEMs look at what's required, and I'll give a couple examples. For small UAS to be successful, you have to get that utilization high, and one of the ways that you can do that is making more than one delivery with an aircraft when it goes out, on a route. So to do that, what we've seen is you're probably going to have to go above 55 pounds. What that upper threshold limit is going to be, I'm not sure. We heard some of the early conversations this week at the FAA Symposium about Part 108, and I think that will help inform what this looks like moving forward. I'm also familiar with the ARC recommendations, a little while back that, I don't know if I'm recalling exactly, but I think it was around 1300 pounds was going to be a limit maybe for Part 108, but that doesn't necessarily mean you're operating in 400 foot and below altitude. So I think there's still a lot to, to play out in the regulatory process to know what that's going to look like. I do think from our perspective, I don't think we would want to use very large aircraft for final mile use cases. I know personally, if I had an aircraft arriving at my home, I think there's limits to what I would want to see above my home, and I think that'll start to inform some of it. Right now, a lot of the activity going on in Dallas, at the site city efforts for UTM, I think that's going to be very informative to the industry to see how those start to take shape. Several operators, same airspace, delivering a variety of products to a pretty broad array of customers. So I think we'll learn more as that plays out and the rulemaking processes as well.

Peter:

Yeah, certainly it's a big question in my mind and the people that I've been speaking with in terms of, okay, where is that upper gross weight limit going to be placed for beyond visual line of sight flight, according to part 108, whether it's below 400 feet, which is one scenario or up higher. Agree with you that, a 500 pound aircraft going and doing a last mile delivery over someone's house, that's just going to be too loud. That's not going to be accepted. And there are probably few use cases where that would even be required. But for long range logistics missions that are between, other points, like a depot or something, then you could see a use case for a substantial aircraft making that journey. And it would be simplified, because we have the rules already emerging if you can fly it according to part 108, and especially if you can fly it at 400 feet or below, but I haven't seen a lot of clarity on what that's going to look like yet from the people in the community.

Jeff:

Yeah, I mean, just my personal opinion is I don't think we'll see those larger aircraft in that 400 foot and below altitude. I think that'll be, more so restricted to the final mile type path. Now, again, the 55 pound limit that we've talked about and that has existed, I think that threshold is going to be too limiting. So I do think it'll go north of that. We, as I mentioned, delivering one, more than one package on a trip. I think that's a capability that could be needed. And then you also start thinking about the onboard detect and avoid capabilities that you want to have on the aircraft, and all of that just competes for real estate. So, I could easily see, like I said, the solutions going north of that 55 pounds, but, that upper bound limit, yeah, I think as you approach that hundred pound mark, I think that's going to be a ceiling somewhere in that ballpark is just my opinion.

Peter:

Is your expectation that this will be spelled out in the anticipated Part 108 NPRM that we're waiting for?

Jeff:

I would hope so. I think the more that the regulation can inform the industry, it sets course that's actionable. And I think that's good for the operators and the OEMs to know, where they need to focus their effort.

Luka:

Jeff, when we're talking about integrating remotely operated or autonomous aircraft into the national airspace system, can you talk about the technologies that you see playing a critical role in supporting that effort and where do you see the maturity of those technologies and what is the appetite on the UPS side to invest in some of this infrastructure?

Jeff:

I think participating is our sweet spot. Trying to give feedback about what good looks like, I think is where we would want to play. As far as investing, you know, UPS played a big role in ADSB's rollout to the industry. And I think that's a good example of how we wanted to see new technologies evolve, but we understood for it to scale to the global market, we couldn't be the owner, at least it wouldn't necessarily be well received and, so for us, I think helping inform the product is the space that we would be in and then encouraging it's, growth and maturity. But I, at least from my point of view, participating in its, development, deployment view right now at Flight Forward, I would not say we're going to heavily invest in that infrastructure piece, especially when you're thinking about like integration to the NAS. The ground infrastructure, there's places that I think will be important for us to consider. If you're thinking about ground charging infrastructure stations at airports, uh, we'll want to leverage some of the network being built in FBOs, for example, that will have some of that infrastructure. But if we've got certain points in the network that are time critical, we may find that those are locations that we want to put our own, shovels in the ground and, have that capability there.

Luka:

Just recently the FAA approved certain drone operators to operate within the Mode C veil just based on ADSB In information below 400 feet AGL. What do you think the means of achieving, adequate detect and avoid capability outside of the Mode C veil will look like?

Jeff:

Well, we, believe it or not, when we first started Flight Forward, we tackled a project out in Utah, that was at a healthcare campus, and our proposal was ADS B as the primary source. We thought we were on a good path and ended up not, being approved for it at the time, so I think we were a little ahead of the game, in our request. But we've always thought that was a good approach to hit a good amount of the population, when you think about those Mode C veil areas, it covers the majority of the population in the United States. Not geography, but population. But to hit the areas outside of those locations, we've already gone down the path, and last November achieved BVLOS using ground based radar. And we're looking at various solutions that allow us that flexibility, and I think it'll be a combination of both. as the industry matures to hit the markets we need, but that's, for us right now, ground based radar is that next solution. And then, as we talked about just earlier, the size of the aircraft is going to dictate what you can have on board. And as the solutions get smaller and lighter weight, if you've got the ability to carry that detect and avoid onboard the aircraft, I think that gets very interesting as well. There's a lot of factors to weigh into that cost of an individual aircraft. Again, the penalties you take from a payload side, but, I think those three paths are clearly what's out there, and they'll all serve their own unique purpose, depending on the environment.

Jim:

Jeff, if you were going to have a redo, let's say it's five years ago, and you're going to define your business cases, and you're going to look at the you anticipated 850 different interviews with different OEMs out there, what would you have done different?

Jeff:

I think, we learned, it took a while to learn this, but we learned that there was what we call vaporware. There was a lot of people we met with that we spent a lot of time, and it, in a lot of cases, they weren't far enough along for us to spend a lot of time with. So I think I would have, you know, and I love the question because, looking in the rear view mirror, you can't change anything but you, you do kind of re-envision decisions and it, in some cases it can help you look forward and make sure that you're doing things that you would've changed in the past. So I think focusing our effort, on more known items, and then also I think earlier on, pushing a little bit more on the AAM solutions to meet needs. What we've, again, what we've found is a lot of the entrants were focused on air taxi. And I think they've, a lot of them have realized that cargo cargo will likely move first before people. And because of that, I think we could have shifted a little focus earlier on just my opinion.

Jim:

And the use cases within UPS, if you had to do it over again, are there use cases you thought would develop within UPS that didn't develop and why?

Jeff:

Well, so final mile, I think, was more challenging than most thought it would be. And we tackled one of the most difficult problems first. So some of our earliest testing involved integrating a drone in a package car. And what we quickly came to learn is that was one of the most complex use cases you could have because you've got a moving point A and point B continuously as the route continues. And at that point in time, a lot of the OEMs were presenting versions of small UAS integrated vehicles. And so I think that was a big learning curve, item for us and the industry. So again, I think it is the small package final mile effort. One of the things that we've learned is that the cost per delivery is a challenge in some cases for small UAS. Depending on the product that's being moved, what we're seeing right now, at least in industry state, to have a return on investment, it's going to have to be a higher value and bring with it a higher required, cost to serve. In the industry, we are seeing other providers deliver things like food and groceries. Some people are willing to pay that premium because they want that just in time service. I think healthcare falls into that category as well, where, there are niches in the market where people are willing to pay that premium. But when we look at how we deliver today, and the efficiency of our drivers, If they're in an urban area, higher population density, they're very effective. Our drivers are great at their job and they can service those high density areas very well. What we also find is as the drivers have to go off of main street USA, the further out they have to go, those rural and super rural, type deliveries, those cost us and them time. And those are the ones that we looked at picking off. But you've got to have enough of those to deliver from a location to make sense of standing up that UAS operation. So those are some things that, we've thought about that. I think there was belief that it would have more applications sooner, and there's been more challenges than expected in that area. And then you layer on top of it weather capability, that's been a challenge, too, that OEMs are starting to solve for, and we're seeing improved aircraft capabilities, but at least at the time of us initiating, there were more challenges than solutions, I would say.

Jim:

And guys, we've heard some of this on the podcast as well. Some of the pushback and some of the areas where we thought there was traditional use case. Jeff we really appreciate this conversation. Is there anything that you were dying to talk about that we haven't talked about? Or do you just want to get off the podcast?

Jeff:

No, it's been a great conversation. It's funny. I could talk all day about these topics. You can just ask my family, But no, these are near and dear topics to me. I think that there's a lot to come in the near term as we see rulemaking start to take shape. And I'm excited to see those things happen because again, for a company like UPS, we follow the rules. We just need the rulebook. and, it's kind of, it's been a tough place for us to really accelerate in when not all the rules exist yet. We've done a lot of things by exemption and, that process is painful and it's really not scalable. So I think as the rulemaking, comes to the market, I think that's going to really help accelerate things for us and others.

Jim:

So a lot of people would say the UPS is kind of first through the wire when it comes to advanced air mobility use cases. Yeah, obviously, especially in the cargo side. But, if obviously you're one of the leaders, but who does Jeff Luckett listen to as it relates to advanced air mobility or in aviation general, who are the people you pay most attention to?

Jeff:

Wow, that's a great question. There, there are several great partners in the industry. We've clearly had a great partnership with our Beta team. And so, they've brought a lot of industry experts, to their company. and we hear and learn a lot through those partners like Beta. But I would say, last week, as a prime example, I had the opportunity to attend the FAA Symposium, and having key leaders from the FAA and industry, both from an OEM and operator perspective, all in one place that's the venues for me that are most important, where you can actually collaborate and discuss the problems and challenges that we have all in one environment. So I wouldn't say it's any one particular individual that I hang my hat on their opinions, but it's getting industry together and, collaborating in ways that we all help move things forward because, for me if the competition has a win, that's great that's not a problem for us. We want to see everyone succeed because, we really need that to happen for the industry to move forward. And, I don't know. I think that's for me, the collaborative effort getting the right industry players and regulators all together, I think, is a key piece.

Jim:

Jeff, is there anything else you'd like to leave our listeners?

Jeff:

As a final thought, it's been very important for us to interact with the OEMs during development, and I just want to refocus on a couple things. First, safety. is critically important for us in the industry to be successful. I think that everyone also needs to focus on solutions that have a return on investment. If we can't prove the ROI, it's not going to be successful. And then the last piece is just to listen to the customers, not just the cargo customers. But, if a solution is being designed, those doing so should really listen to the people that they plan to sell to, because I think if they start earlier in the process in forming the product, the end result's gonna serve everyone's purpose better and be more successful.

Jim:

Jeff, thanks for joining us.