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I have enjoyed putting down my thoughts from time to time on reddit as it 1) helps me double check my own conviction in a newer position and 2) allows me to share an idea with a bunch of regards usually at a price that’s lower from when I bought in. It has worked out well enough in the past and I am building confidence in this young company currently trading near its lows since going public, leading a sector that will get lots of attention over the coming years. I’m a big fan of companies tackling unique needs with a large TAM, and the asymmetry is here for a very realistic multibagger. Timing will likely depend on when they hit their milestones.
Merlin Labs was founded by Matt George, who had previously worked in the executive office of the president and started building the company after a near miss with a JetBlue plan when he was learning to fly. Matt said that he created Merlin to “deliver the world’s first defense grade autonomy stack and advance towards delivering the operating system of record for aircraft big and small. Our national security represents the highest stakes proving ground. Defense airframes log over four million flight-hours per year, AI that has earned trust there earns it anywhere”.
Merlin is building autonomous flight software for existing military and commercial aircraft. Traditional autopilot handles steady state cruise while Merlin’s aircraft agnostic AI listens to live air‑traffic control radio, interprets complex human instructions in real time, and executes entire missions from taxi to landing. Unlike traditional autopilot, Merlin is designed to make real time decisions, operate in GPS denied environments, and reduce the need for as many pilots on critical missions with a potential end state of removing the Pilot altogether. They’re retrofitting existing aircraft to help reduce pilot workload and have made a good short term decision to focus on taking the military aircraft from just 2 to 1 pilot vs going fully autonomous. It helps alleviate the pilot shortage + provide immediate savings and AI autonomy efficiency for the integrated aircraft. The key thing here is they are not trying to build new planes, purely focusing on retrofitting existing aircraft fleets with autonomy software that can eventually reduce pilot workload and move toward single pilot or autonomous operations.
Since Merlin is a pre revenue SPAC and get thrown into the basket of trash until they provide more concrete evidence to the contrary. The technology is actually flying today, they have military contracts tied to platforms like the C130J (secured a $105 million contract) and KC135, and they have partnerships/integration relationships with companies like GE Aerospace, Northrop Grumman, and Honeywell. One thing I also like about Merlin is they decided to skip the SPAC craze from a few years ago and focused on building during that time vs just launching with the other many companies who took advantage of that euphoria.
Merlin’s first “product” is the Condor which is specifically aimed at “large airframe cargo” markets first. This is what they’re currently using for the 105M contract and they also announced an MOU with World Star Aviation Limited to consider Condor on their cargo planes
On their first ER, management confirmed they were working towards several other products after Condor and I’m looking forward to learn more about those soon. Management also emphasized they are pursuing FAA/New Zealand certification milestones and recently completed fully automated takeoffs in both countries.
The company is currently primarily defense-focused and if they can prove this technology works reliably in military environments first, then commercial cargo applications become much easier later. Ballie Gifford also invested in Merlin prior to it becoming a SPAC and they also participated in the PIPE two times when it got upsized. This is the firm who was early investors in Tesla, SpaceX and Amazon, I never think it hurts to have smart people along for the ride.
Currently trading near the lows at a \~$650 million market cap. They have a tough path in front of them with lots to prove and regulatory + gov business can always have delays, but the asymmetry feels real. They have about $180 million on the balance sheet which should be good for the medium term, and while future dilution and timing delays are real risks, these levels feel like a tremendous area to build out a position. Or the company could completely fall to pieces, which I mean, is always a possibility. This is still very early and high risk, but that’s what makes a market. If it was already proven with multiple government contracts then it would already be at $50/share.
Position:
4100 shares
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