September 1, 2009  

Industry Pulse: The crowded skies

Almost overnight, everyone wants a part of the UAV market

Defense Secretary Robert Gates wants a lot more of them. Boeing has created a new defense unit to make them. EADS wants to get into the business. And so do any number of other companies here and abroad.

Unmanned aerial vehicles (UAVs) have been in operation for years, but have gained attention with the general public during the wars in Iraq and Afghanistan. Gates, in his proposals for the new budget, wants to shift some traditional procurement program funding to systems that he believes are more suited for high-tech intelligence and terrorist interdiction. UAVs are part of this new strategy. Defense contractors are therefore shifting their product strategies into the new lines of weaponry and intelligence and reconnaissance fitting this vision.

Combat forces are increasingly in need of real-time situational awareness. Designing UAVs with greater endurance, which is limited by propulsion, reliability and onboard capabilities, is essential. The armed forces, the Central Intelligence Agency and the Department of Homeland Security are increasingly using UAVs.

The Air Force now has a school dedicated to training unmanned drone pilots at the Air Force Weapons School, a version of the Navy’s Topgun Strike Fighter Tactics Instructor program. These pilots operate the Predators and the more heavily armed Reapers in Iraq and Afghanistan. The increasing reliance on UAVs places pressure on the armed services to find more UAV pilots.

Suddenly, it’s getting crowded up there.

Boeing Integrated Defense Systems (IDS) not only sees opportunities in UAVs, but must also diversify in the face of potentially losing future fighter aircraft market share to the increasingly dominant Lockheed Martin F-35 Joint Strike Fighter. Boeing also makes the C-17 and is a major subcontractor to Lockheed Martin on the F-22. These two programs alone account for about 16 percent of Boeing’s earnings before interest and taxes, according to one analyst estimate. But the Senate and the House, after much heated debate and in the face of a threatened presidential veto, have fallen in line with the wishes of the White House and Gates and stripped financing for seven additional F-22s from the defense authorization bill. That would end the program at 187 planes, and Lockheed Martin is making preparations to close down the production line after these are delivered by the end of 2011.

Similarly, the Senate also voted to stop C-17 production at 213 aircraft, which would see that production line shut down by the end of 2011.

Dedicated to UAVs

It’s not surprising, then, that Boeing has created a new IDS unit dedicated to developing UAVs. Chris Chadwick, president of Boeing Military Aircraft, said at the Paris Air Show in June that the UAV market was worth $60 billion to $100 billion over 10 years. Chadwick sees the UAV market “as very immature” and “wide open.”

“In the unmanned arena, you have a plethora of companies and none is dominant,” Chadwick said. .

Not everyone agrees with Chadwick’s assessments. One Defense Advanced Research Projects Agency (DARPA) contractor who specializes in UAVs said that, at best, this is a $50 billion market and includes small UAVs that large contractors could never make money producing.

Phil Finnegan, director of corporate analysis for the Teal Group, specializes in UAVs. He pegs the UAV market at about $62 billion, which includes $25.9 billion in research and development and the balance in procurement.

The DARPA contractor also disagrees with Chadwick that there is no dominance. Northrop Grumman, maker of the Global Hawk, and General Atomics, which produces the Predator and Reaper, control 70 percent of the market by revenue, this contractor says. Boeing’s new UAV division is “late to the party.” AeroVironment, whose products include the man-portable Raven and Dragon Eye UAVs, “has more share than Boeing,” he said.

Finnegan comes down in the middle. Northrop clearly is the No. 1 UAV producer and General Atomics has a solid footing, but Finnegan said he believes the UAV market still is “pretty fragmented.”

“In different segments there are major players,” Finnegan says, but otherwise “it’s fair to say it’s not dominated.”

Chadwick says the Global Hawk and Predator have “strengths and weaknesses” and other UAVs “don’t have reliability.” Boeing “can find 80 percent to 120 percent of the solutions.” By this, Chadwick means that Boeing will increase reliability, endurance and capabilities in the UAVs it produces.

Lockheed Martin’s UAV programs are largely classified, but in 2006 it revealed the B-2 bomber-like “Polecat” technology demonstrator. During the Paris Air Show, Lockheed Martin chairman, president and CEO Robert Stevens said the company’s principle focus with UAVs was on the ISR aspects.

“We’re comfortable with where we are on the product portfolios we have. We have the appropriate amount of emphasis on unpiloted vehicles in all the domains,” he said.

EADS, meanwhile, has resumed flight tests of its Barracuda UAV, calling it “the largest UAV ever built in Europe.” Manufactured in Germany and Spain, the Barracuda will serve as a technology demonstrator for EADS’ future advanced UAV projects. This is part of what EADS calls an Advanced UAV programfor a single-fuselage, twin-jet with an endurance of 24 hours, a ceiling of 50,000 feet and a payload of 1,000 pounds. Proposals have been submitted to Spain, France and Germany (member states of the EADS ownership) for 15 systems at a development cost of 1.5 billion euros ($2.1 billion). Turkey has expressed interest. But, like Boeing, EADS has to play catch-up. Finnegan notes that European governments aren’t yet as interested in funding UAVs as the Pentagon. Also, Finnegan notes, EADS’ previous efforts have been delayed or beset by reliability issues; the first Barracuda prototype was lost in a crash.

Staying power

The need for UAV endurance is driving creative solutions. Horizon Fuel Cell announced a new Aeropak fuel cell system at the Paris Air Show designed to increase flight endurance by as much as 300 percent. The U.K.’s QinetiQ is developing a long-endurance solar-powered UAV, while Virginia-based Aurora Flight Sciences is producing a five-day UAV, and Boeing has tested a hydrogen-powered UAV.

AeroVironment posted revenues of $247 million for its fiscal year ended April 30, compared with Boeing’s IDS revenue of $32 billion last year. Yet this California company is a worthy UAV David against any Goliath and is developing the hydrogen-powered Global Observer, which it calls a Stratospheric Persistent UAS that will have an endurance of about one week.

Not that Boeing isn’t willing and able to do small. Boeing’s A160T Hummingbird is a UAV to watch, the DARPA contractor said. Boeing is testing the A160T under a $5 million bridge contract with DARPA. This helicopter-type aircraft is 35 feet long with a 36-foot-diameter rotor and has reached speeds of up to 142 knots. Payload is about 1,000 pounds with a hover out-of-ground effect at 20,000 feet.

Some UAVs are not so much small as tiny, weighing less than 50 pounds. The smallest UAVs won’t come from the likes of Northrop, Boeing and EADS, say the DARPA contractor and Finnegan.

Further afield, in Asia, the low-end, low-cost UAV segment is rapidly expanding. Asian producers, eventually including China, will be able to churn out UAVs for $5,000 to $10,000 or less, the DARPA contractor believes. “There are a bunch of small U.S. and foreign companies trying to push their way into the low-end market.”

Five years ago, there were 5,000 UAVs in Japan, used to deliver fertilizers and pesticides. Now there are 7,000. While these are for civilian use, they could easily be adapted by law enforcement agencies, the military — or terrorists. The latter is why the Federal Aviation Administration has so far refused to grant the authority, even to law enforcement agencies, to operate UAVs in the U.S. The explosion in numbers will be at the small-scale end, with China building UAVs at 20 percent of price and which will fit in a suitcase, the DARPA contractor says.

Finnegan predicts that in the next five years, the major UAV players will be Boeing, Dassault, EADS, Elbit Systems, General Atomics, Israel Aircraft Industries, Northrop Grumman and Lockheed Martin.

Scott Hamilton is a consultant with Leeham Co. www.leeham.net.