Can Commercial Drones Help Propel Textron Systems To New Heights?

-0.80%
Downside
95.93
Market
95.16
Trefis
TXT: Textron logo
TXT
Textron

Drones have been part of the military for quite some time now. Earlier this year, Textron System’s Shadow drone logged in its 1 millionth flight hour. Nearly 85 percent of these hours came during combat operations with the company’s U.S. and international military clients. However, in the recent past, unmanned aircraft have created quite a niche for themselves in the commercial market as well. How is Textron expecting to take advantage of this opportunity going forward?

While Textron (NYSE:TXT) recently secured a $116.5 million contract to provide the U.S. Army with 24 more Shadows, the company is also reviving its push into the still nascent market for commercial drones as military spending continues to remain constrained. The management expects commercial contracts to become a fast-growing division that could eventually make up about half its drone business.

Textron has been manufacturing a commercial drone, Aerosonde, for many years now. It is primarily used by customers for aerial survey, disaster response and meteorology. However, under new liberal regulations from the Federal Aviation Administration, the market stands ready to grow exponentially in the U.S. According to Global Market Insights Inc., with a wide variety of possible applications, the commercial drone market is projected to expand more than $2 billion by 2023.

Relevant Articles
  1. What’s Next For Textron Stock After 10% Gains This Year?
  2. After A 17% Fall In 2023 Will RTX Outperform Textron Stock?
  3. With 10% Gains This Year Should You Pick Textron Over Lockheed Martin?
  4. Should You Pick Howmet Over Textron Stock?
  5. Should You Pick GD Stock Over Textron?
  6. Will Textron Stock See Higher Levels Post Q1?

See our complete analysis of Textron here

The commercial possibilities of drones are endless:

  • Unmanned aircraft are used to conduct maintenance checks on oil pipelines. It could save oil companies a lot of time and effort.
  • Utilities use the drones to check on power lines and ensure birds aren’t setting up nests in dangerous places.
  • There are also applications in real estate and construction as companies could use drones to snap 360-degree view of buildings and sites.
  • A new and exciting application is expected to be found in the new logistics applications. Amazon.com, Inc has already presented its own drone which it hopes will one day replace human couriers.

All the positives aside though, Textron has quite a few challenges to overcome in order to flourish in the commercial marketplace.

  1. Increasing Competition: The competition in this emerging market will be extremely fierce. There is a general recognition that this area is going to grow extremely rapidly, and companies will want to get in early. There is bound to be a lot of venture capital investment and start ups in this direction, apart from a push by larger companies like defense contractors that have been in the drone business for years. To overcome the competition, Textron would need to identify the problems that can be solved with drone technology and then develop the solution to these problems before other competitors.
  2. Faster Than Usual Execution: Furthermore, doing business in a dynamic and volatile commercial market could catch Textron by surprise, as the company is used to the government’s slower, more laborious pace. In comparison to the military work, the commercial development process will be much quicker. While Textron could have spent months fine-tuning one aspect of a project for a defense client, a commercial customer would want to see their products as soon as possible.
  3. Leading Innovation at a Low Cost: Furthermore, government clients know exactly what they want and hire defense contractors like Textron to make them. They are looking primarily for performance and precision. For this, the government is willing to pay for expensive upgrades and services. Commercial clients, on the other hand, may be more cost conscious.

Thus we believe that entering the commercial market is a good opportunity for Textron, however, it is up to the company to make sure it can generate value in the market. Only time will tell whether Textron can break into the commercial drone space and capture a significant market share.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research