Robo-Economics: Getting from Here to There

1. Robo-Economics:Getting from Here to There Darryl Jenkins June 12, 2013

2. Flight Plan • I do believe that commercial UAV’s will change everything, • What I missed in the study, 3. The really important parts of my study A. Insurance: The 800 pound gorilla, B. Financing a growing industry • Phasing in the regulations • How the Privacy Issue may play out.

3. Why I did this report • I have spent my career in an industry that has destroyed billions of dollars of vale and the opportunity to be in one that creates value is exciting.

4. I am a True Believer • This will be a very big industry. • Over the next ten years people will become millionaires from this, and • Some who are currently in this business will fall by the waysides. • The most important part of my study was the necessary conditions. These are things which must happen and if they do not, then everything stalls.

5. What I Missed • I was never sure of which business models will prevail: Small owners vs. larger owner of many vehicles.

6. What I Missed • In the airline business, the largest owner of airplanes is a leasing company. • Will these exist UAV leasing companies? • Will there be capital vs. operating leases? • Over what time period will these leases be?

7. What I Missed • A lot of the answers to these questions will be a function of the rate of technical obsolesce and how important new break-thru is to users.

8. The Really Important Parts of my Study • The Necessary Conditions • For this industry to take off in the manner I envision it, a number of things must happen: • Well thought out regulations,

9. Trivia Question • In the movie Jurassic Park, why were the outside academic consultants called in?

10. Trivia Question • In the movie Jurassic Park, why were the outside academic consultants called in? • An insurance company threatened to pull coverage because the T-Rex ate one of the workers.

11. Trivia Question • What almost killed General aviation in the late 1980’s and early 1990’s?

12. Trivia Question • What almost killed General aviation in the late 1980’s and early 1990’s? • High Cost of Insurance Coverage

13. Insurance the 800 Pound Guerilla • The UAV industry will die in its infancy if the following forms of insurance are not available: • Manufacturers liability, • Hull Insurance, • Users and operators liability.

14. Insurance the 800 Pound Guerilla • If a company has uncovered liabilities: • You cannot get financing to grow!

15. Insurance the 800 Pound Guerilla • Currently, you can get manufacturers liability insurance in the United States. What we do not have is: • Hull insurance, and • Operators and users liability insurance

16. Insurance the 800 Pound Guerilla • We could probably without much effort get the following: • Liability for operators and users for rural areas.

17. Insurance the 800 Pound Guerilla • The likelihood for getting liability insurance for users and operators for UAV’s in non-rural areas out of the gate, is very limited. • We have little or no data and the potential liabilities are very high.

18. Insurance the 800 Pound Guerilla • Insurance will pick the initial winners and losers. • Those who have insurance will have a better chance of finding financing. • No insurance, no financing.

19. Insurance the 800 Pound Guerilla • This tells us right out of the gate that using UAV’s for home deliveries of pizzas and tacos is a total non-starter.

20. Insurance the 800 Pound Guerilla • Insurance may be the solution to some of the privacy issues. • If manufacturers, users, operators, financiers, insurers were to agree to an ethical standard of conduct then the fruitcakes can be marginalized.

21. Insurance the 800 Pound Guerilla • There is a law universally decreed before the foundation of this world, that fruitcakes (those who will misuse UAV’s) always appear at Holy times and when you do not want them. • This can be the biggest issue facing the long term regulation of UAV’s.

22. Insurance the 800 Pound Guerilla • The idea behind using insurance to marginalize the privacy issue is to get rid of the bulk of the fruitcakes as they can never be totally eliminated. • If we can do this we go way down the road on this issue.

23. Insurance the 800 Pound Guerilla • The issuance of hull insurance will be tricky and initially somewhat costly. However, bulk commercial purchases of UAV’s are impossible without hull insurance.

24. Insurance the 800 Pound Guerilla • An necessary condition for bringing down hull insurance costs is an industry wide database. • Manufacturers, operators, and users will have to share data. • This has its own privacy issues, but these are minor compared to the need and easily handled thru proper contracts.

25. Financing the New Frontier • Growing industries desperately need cash: • There is no growth without cash to finance inventory and capital needs, growing payrolls, etc.

26. Financing the New Frontier • For some this will not be a problem. • For others, the need for cash will be at the center of every decision.

27. Questions • Darryl Jenkins • airjenkins@aol.com • 540-364-6913