Submitted by Roger Hannington as part of our contributors program.
A Look At Some Of The Players In The Drone Space
The suggestion by Amazon CEO Jeff Bezos towards the end of last year that Amazon could start delivering packages via the Amazon Prime Air drone technology by 2015 caught the attention of the global media, and with it, that of retail investors. The use of drone technology, however, is far from limited to package delivery Indeed it is already widespread across the military and could soon be introduced in areas like forestry and crowd control. Here is a look at a few companies that might benefit from the mainstream adoption of drones.
Lockheed Martin Corporation (LMT)
Lockheed Martin recently announced the introduction of three new unmanned aerial vehicles (“UAVs”) systems to its portfolio. These three additions comprise two versions of the Indago vertical take-off and landing (“VTOL”) quad-rotor drone, in addition to a commercial avionics suite for unmanned aircraft. The key to the success of these latest technologies is the altering of the current US Federal Aviation Administration (“FAA”) regulations to allow Lockheed’s unmanned drones to take off in US airspace. Those in the industry expect this to happen by the end of 2015. This will unlock a large commercial market, and could become a key revenue driver over the next 10 years. Lockheed has supplied the US military with unmanned drones, tethered blimps and software related to both technologies since 2004, and as such, already has the resources and manufacturing capabilities in place to take advantage of any change in legislation as soon as it occurs.
While drone technology undoubtedly has the capability to boost Lockheed’s revenues there is another company that offers investors a more direct exposure to the space. Californian technology company AeroVironment focuses on the design development and manufacture of UAVs, and is quickly developing into one of the leading organizations in the space. Earlier this month, oil and gas giant BP (BP) announced that the FAA had approved the first commercial drone to operate over US airspace. The drone, called the Puma drone, is made by AeroVironment and is currently also approved for military operations. BP intends to use the technology to improve safety and reduce maintenance costs in oilfields. AeroVironment signed a $20 million contract with the U.S. Army during 2012 for the drones that BP will use, and while the latest approval is unlikely to result in a contract of that magnitude, AeroVironment announced alongside the approval that it had been awarded a five-year contract to supply BP with the technology. At $400,000 per UAV, the contract could prove lucrative for the company as a revenue driver.
Cisco Systems, Inc. (CSCO)
A less obvious exposure to the drone space is Cisco. For the last decade, Cisco has been the leading provider of UAV communication technology to the U.S. Air Force. There is an unquestionable need for enhanced communication technology, both between UAVs and their operators and UAVs themselves. In addition, there will likely be the need for some sort of drone network, which both the FAA and drone operators can tap into to ensure that in-flight drones avoid collision. As the current market leader in the space, Cisco looks to be the front-runner for development of both of these technologies. As a result, the company could see large revenue growth in that sector of its operations as the drone industry expands.
Drone Aviation Holding Corp. (DRNE)
Investors looking for more of a high risk-high return exposure to the industry might consider the final company on this list, Drone Aviation. Drone Aviation owns and operates Lighter than Air Systems (“LTAS”), a Florida-based company that designs develops and manufactures tethered drones. Tethered drones are a form of drone that, as the name suggests, connect to a ground-based vehicle or structure. LTAS already provides its technology to customers across the commercial, governmental and military space, with a number of contracts already in place that see its range of tethered UAV technology sold to the U.S. Army, police departments and departments of transportation across the US. One major advantage of the LTAS technology is that its UAVs are already legal to launch and FAA guidelines due to their being tethered. While the drone space is likely to expand as the FAA approves more and more applications, the process will be drawn out, as at present every company looking to fly an unmanned and untethered drone must submit a unique application. This offers drone aviation something of a first mover advantage in the space. The tethering also answers a number of the current questions surrounding the drone space, specifically drone safety and flight time capability (the drone is powered through the tether, and as such does not rely on a battery to stay in the air). Drone Aviation is a relatively new company with a low market capitalization, but if it can secure contracts in the previously mentioned spaces it could expand rapidly, and with this expansion could come an upside market revaluation.
Analysts expect revenues over the next decade in the drone industry to hit just shy of $100 billion, and this growth represents an opportunity for both companies and investors. The companies listed are a selection, both big and small, of some of the companies that will be in the race to capitalize from the drone industry over the next five years.