Welcome to another edition of Company Spotlight! This article will focus on Kaman Corporation, or “Kaman” (KAMN) for short.

Kaman is an aerospace company headquartered in Connecticut, U.S. with multiple locations supporting its 12 business divisions.

I will open this article by stating that I would have loved to write this post two years ago, but I had official occupational duties at the time that may have given the perception of a conflict of interest. Those duties are now complete so I may freely write opinions, being cautious to limit information to that which is freely available to the general public.

One unfortunate consequence of my timing limitation is that prospective retail investors missed an incredible opportunity: the company announced, in January 2024, that it had entered into an agreement to be taken private by private equity firm Arcline Investment Management. The stock (KAMN) saw an overnight increase of over 100% (to nearly $46 from roughly $22). The sale was completed in April 2024, and KAMN is no longer tradeable on the open market. I wish I could claim credit for my clairvoyance in foreseeing the strong potential buyout opportunity, but that would be an act of charlatanism on my part. The truth is that I had no idea this was coming and simply got lucky. I like the company, I like their products, I like their people, I like their history, I like their future growth prospects, and the stock delivered a solid dividend as long as I held it.

Kaman Corporation was founded in 1945 as a helicopter manufacturer. The company’s namesake, Charles Kaman, invented a novel form of helicopter rotor control, using his patented servo-flaps in lieu of the pitch link and swashplate approach favored by other manufacturers. Servo-flaps simplified the mechanical design of the rotor controls and eliminated the need for a complex hydraulic system within the flight controls. Kaman’s intermeshing rotor design also eliminated the need for a tail rotor. Ultimately, the helicopter industry favored the swashplate and tail rotor design favored by rival Igor Sikorsky; Kaman’s helicopters were often relegated to niche roles such as external lift. The company produced helicopters for several militaries around the world as well as a few commercial customers. Kaman also became a supplier to industry rivals Sikorsky and Bell.

Fun fact: founder Charles Kaman was an avid guitarist, launching side company Kaman Music Corporation (KMC) and developing the revered composite-body Ovation guitar.

I first became aware of Kaman around 2014 during the waning days of a U.S. Marine Corps (USMC) Afghanistan proof-of-concept deployment. USMC desired to experiment with using unmanned aerial vehicles (UAVs) for logistics transportation in a combat theater to offset dependence on manned flights and road convoys. Two of Kaman’s legacy K-1200 K-MAX helicopters were modified to an unmanned configuration (nomenclature CQ-24A) and deployed for combat operations. The unmanned K-MAX accumulated an inordinate number of flight hours and moved 2,250 tons of cargo, saving countless lives and dollars. Anecdotally, it is the first recorded instance of a “drone pizza delivery” that I am personally aware of. The experiment was deemed highly successful by all measures, and the aircraft performed admirably. USMC ultimately elected to discontinue the unmanned cargo transportation experiment with the legacy K-MAX aircraft due to funding shortfalls and a desire for emerging technology; however, the seeds of innovation had been planted with Kaman’s leadership.

Kaman announced in 2023 that it would discontinue its production of the K-1200, which was its flagship product and final manned helicopter.

What could possibly replace a helicopter manufacturer’s flagship product? Why, a drone, of course!

Enter the Kargo UAV, which by all accounts, appears to be Kaman’s bid for success for the company’s future. In a rare move, Kaman went from being a “Drone Diversified” company to a “Drone Dedicated” one!

Given that Kargo’s unveiling and performance specifications seem to align with the Marine Corps Unmanned Logistics Systems-Airborne (Medium) (ULS-A(M)) program (later rebranded as Medium Aerial Resupply Vehicle—Expeditionary Logistics (MARV-EL)), it does not take a great leap of the imagination to determine that Kargo UAV was specifically designed in response to published military requirements. After all, if a military requirement is published, there is a reasonable expectation that it will also receive funding.

The Marine Corps is somewhat unique among the services in that it specializes in ship-to-shore operations. Kaman’s concept art certainly appears to capitalize on that fact and it appears that the air vehicle was designed with this use case in mind.

“Drone Delivery” has been a staple of public conversation in the U.S. since two retail giants and two transportation companies first announced plans in 2015. Most Americans’ imaginations are limited to a small multicopter dropping a 5-pound load of fast food at their front door; however, I see the real game-changing use cases further upstream in the supply chain, the “middle-mile”–the cost-efficiency of aerial delivery tends to increase as the load size increases. The less-than-truckload (LTL) transportation segment is of particular interest to me: small loads (150 – 15,000 pounds) are often transported by Class 4-6 vehicles and generally cost within the range of $0.15 – $0.50 per pound-mile (depending on how full the truck is packed and how far it drives).

If an aerial delivery provider were able to reduce this figure to, say $0.10 – $0.30 per pound-mile, and conduct the delivery faster than a road vehicle, THAT would be significant for all parties involved. Or, better yet, an aerial delivery provider would open up delivery options to those for whom there is no conventional “road vehicle” option.

The previous paragraphs regarding middle-mile, LTL fright transportation were limited to land-based use cases. Now, let’s free our minds, and see the world the same way as the Marine Corps: flight between ship and shore.

Kaman revealed, in spring 2024, that its first commercial partner for Kargo was PHI Aviation, with the intent of transporting supplies for offshore oil rigs and gas platforms. PHI Aviation has a rich presence in the Gulf of Mexico, an area ripe with offshore platforms.

Platforms certainly present a lucrative opportunity for the commercial Kargo, and I’d like to expand the concept to include operations aboard freight vessels.

As I write this post in May 2024, there are two events from recent memory in which freight shipping was adversely impacted by port conditions: the Port of Los Angeles backlog of 2021-2022, and the collapse of the Key Bridge in Baltimore Harbor in 2024. Each of these events saw significant bottlenecks in ships’ ability to berth and transfer (onload or offload) cargo; this negatively affected the revenue streams of the port, the freight carriers, the ship owners/operators, the follow-on land-based freight carriers (trucking and rail), the cargo producers, and the cargo consumers. It is estimated that the events in Baltimore (at the time of writing) are costing some $15M of lost daily economic activity.

How meaningful would it have been for these ships to have a means to onload/offload cargo from anchor, instead of from pierside? Let’s imagine that the port operated a civil variant of Kargo with similar performance specifications.

By taking to the air, the cargo does not necessarily need to be stacked on the pier in the same manner it would with a crane—it could be delivered more directly to the railyard, or even directly to its final destination if it happened to lie within the flight radius. That would eliminate an entire middle-mile segment (the truck) along with three unloading-loading-unloading cargo handling operations. Every point the cargo is handled requires personnel, equipment, and facilities, thus increasing the overhead on transferring cargo between vehicles. Increases in speed, coupled with reducing the double-handling of cargo during vehicular transfers….this would be about as game-changing as it gets for port operations.

The images above depict the Kargo’s advertised 143 nautical mile (NM) flight radius with a 600-pound load, originating from the port. From Los Angeles, Kargo can easily range most of Southern California. From Baltimore, it can range most of the mid-Atlantic region, coming just shy of New York City! Moreover, it could make the flight in about 75 minutes—as opposed to hours spent offloading via crane and rail, followed by a 3-hour truck drive for the same trip.

Of course, I do not advocate for an entire freighter load of 80,000 tons to be onloaded/offloaded by a drone, 800 pounds at a time—that would require about 200,000 lifts! Mass movement is still accomplished most efficiently via crane and rail. However, certain classes of high-value material could absolutely be onloaded/offloaded via drone: perishable goods and sensitive materials come to mind. The carrier could even charge its customer a premium for priority handling at the port; this perk alone could fund an entire drone operation.

I would normally look at a company’s financial position as part of a Company Spotlight article, but that would be a waste of time since this company is no longer tradeable on the open market. Instead, I’d like to offer some observations and lessons that we investors can learn.

1. It is never too late for a company to pivot into a new or different market segment or business line—even companies that are 80 years old.
2. Mergers and acquisitions happen with companies of all sizes and maturity levels.
3. Dual-use (military and civil) technology presents a very powerful combination to attract funding and rapidly build a customer base.

As of April 2024, KAMN is removed from the DRONES Index, and remains a success story for the U.S. Drone Industry and its investors.

As always, please conduct your own research and consult a Financial Advisor for any potential investments.