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Drone Technology Company Inks Agreement with Major Canadian Airline
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Peter Epstein In what he terms "huge news," Peter Epstein of Epstein Research describes a newly penned exclusive commercial agreement that he believes is transformative for the company and its investors, as well as the drone industry overall.

Drone Delivery Canada Corp. (FLT:TSX.V; TAKOF:OTCQB) announced blockbuster news: It has entered into an agreement with Air Canada, whereby Air Canada Cargo (ACC) will market and sell DDC's drone delivery services in Canada using ACC's marketing and sales platforms.

This is huge—the biggest news in the company's five-year-plus history. Securing Air Canada, a CA$10.5 billion market cap company and industry leader, as an exclusive partner (exclusive for Air Canada—DDC can work outside of the agreement) is a tremendous achievement and a win-win for both companies.

Talk about de-risking, talk about a vote of confidence, proof of concept, ramping up revenue, expanding the universe of prospective customers: It's all here in this one major agreement. This is perhaps North America's biggest drone sector news of the year. Please note, I've followed DDC for nearly two years and I don't believe I'm exaggerating in my description of this latest development. It's huge. Congratulations to the team for all the hard work.

From the press release: ". . .subject to DDC obtaining regulatory approvals, DDC will build and operate up to 150,000 drone delivery routes in Canada. Routes will include timetables, flight schedules, payload capacities, type of drones to be deployed and payment terms. DDC's services will be marketed as a premium offering, and Air Canada Cargo has agreed not to use or engage with any other drone delivery service providers.

"Air Canada Cargo has agreed to sell, market and promote DDC's drone delivery services on the agreed routes, leveraging Air Canada Cargo's expertise in the cargo world, brand presence and sales network."

Why am I so excited? This opens doors, lots of doors, not just in Canada, but around the world. If Air Canada has effectively signed off, that means Canadian regulators have largely agreed. . .agreed to let Air Canada help commercialize DDC's business model! This accomplishes a lot of important things. It lights a fire under other country's air transportation/drone delivery regulatory bodies to perhaps move faster. DDC becomes a case study in how to design, develop and deploy a software platform for drone delivery services. I can't stress enough how scalable this service is, or how many countries could adopt DDC's paradigm in coming years. DDC, with this tremendous stamp of approval, can save companies and government agencies several years and millions of dollars in getting to market with drone delivery services.

Again from the press release, CEO Tony Di Benedetto commented, "This agreement greatly accelerates our commercial roll out in Canada. . .our drone delivery services will be extensively marketed as we work to establish operations across Canada leveraging Air Canada Cargo's brand presence and their established sales network and marketing reach. DDC will benefit from Air Canada Cargo's expertise and ability to promote and sell DDC services through Air Canada Cargo's industry leading marketing and sales technology channels, which will support our efforts to establish DDC as Canada's first national drone cargo solution. Next, DDC hopes to pursue even larger markets in the United States and Europe."

Although revenue will not pour in this week or next month, this greatly enhances revenue projections from 2020 on. If the high end of the revenue range was, say, CA$20 million (CA$20M) in 2020, and there was thought to be a 20% chance of achieving that figure, now, I would put CA$20M as the mid-point of the range, and say there's an 80% chance of hitting it! But forget about 2020. Revenue estimates for 2021, 2022, 2023. . .can be thrown out the drone window (if drones had windows). Why? The likelihood of long-term, high-margin licensing revenue from abroad just soared overnight.

And, the size and number of revenue streams could be significantly larger. DDC's first mover advantage just became even more important because it can now be a first mover sooner, in more jurisdictions, than previously expected. Is this a game-changer for DDC? Yes. Some might believe that a deal with Air Canada was inevitable. Even if true, it could have happened in 12 or 18 months. So, yeah, this is huge news.

Now we know why the company prudently raised capital earlier this year. They have a strong treasury to fund working capital and growth initiatives. For instance, they will need to buy more phones to field all the calls that will be coming in!

From the press release: "The initial term of the Agreement is ten years from the effective date of May 29, 2019. The routes to which the Agreement applies shall be agreed by the parties and shall be subject to DDC obtaining required regulatory approvals. Once routes are approved by the applicable regulatory authorities, the particular terms of the routes, including payment terms to DDC, will be determined in the context of each applicable route and disclosed in subsequent press releases."

A 10-year agreement from the start. Wow. But wait, there's more. . .I haven't even mentioned the ACC sales force selling DDC's drone delivery services. Again, a giant stamp of approval, but also a highly experienced marketing effort to be undertaken. DDC's own sales staff can learn a lot from ACC's expertise. Readers, let's not take for granted that Air Canada chose DDC as their sole drone logistics provider. It could have developed drone delivery capabilities in-house and bypassed DDC altogether.

Tim Strauss, VP, Cargo at Air Canada commented: "Air Canada is pleased to partner with Drone Delivery Canada, a leading player in today's emerging drone industry. We believe drone technology has the potential to offer the cargo community cost-effective solutions to complex issues related to supply chain distribution in non-traditional markets, including remote communities in Canada. It is another way Air Canada Cargo is innovating and engaging with new technologies. . ."

This sends a strong signal to airlines and freight logistics companies that drones are now in play and teaming with a company like DDC is the way to go. Will UPS or FedEx be in trouble if they don't utilize drones next year or the year after? No. But giant companies have teams in place that make important, strategic planning decisions for decades into the future. I imagine a lot of prospective customers are reading today's press release.

Everyone is looking at drone delivery services. Today's news suggests that companies with fledgling programs will skip the years ahead of hard work, which may lead nowhere, and simply call Tony D. at DDC. Is there really the urgency that I tease about in this article? Well, yes and no. DDC has proved it can be done, but it took them five to six years—more like six to seven years—until meaningful commercial revenue.

The drone delivery model, the business proposition to end users, is getting stronger by the month. DDC benefits from this as well, as they outsource drone building. Simply put, drones are getting faster, lighter, quieter and more powerful, with no end in sight. That means longer range, larger and heavier payloads, and lower costs per km. At the same time, the costs of these ever improving drones are coming down because it's a highly competitive market. Finally, drones are green! Over time they will replace trucks and reduce traffic jams, (which are highly polluting). Once most drones are running on lithium-ion batteries, they will be even greener.

Drone Delivery Canada is truly in the driver's seat. They could provide consulting services to interested parties in domestic and foreign jurisdictions about how to get to the stage that DDC is at now. There are many steps, lots of hand-holding, lots of paperwork, lots of education and lots of waiting for people and various institutions to move. That's all behind DDC now. The sky's the limit. Congratulations once again.

Peter Epstein is the founder of Epstein Research. His background is in company and financial analysis. He holds an MBA degree in financial analysis from New York University's Stern School of Business.


Disclosures: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Drone Delivery Canada, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible under any circumstances for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Drone Delivery Canada are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.

At the time this article was posted, Peter Epstein owned shares in Drone Delivery Canada and the Company is a former, (but not current), advertiser on [ER].

Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he's diligent in screening out companies that, for any reasons whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover events & news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic.

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