By Christopher Hinton, MarketWatch
PARIS (MarketWatch) -- The market for unmanned aircraft has become one of the hottest opportunities for U.S. military contractors. Low operating costs and a reduced risk for crews, who can be stationed a continent away from the battlefield, make them an attractive alternative to traditional military aircraft.
The Teal Group, an independent research firm for the aerospace industry, has projected that the global market for unmanned aerial vehicles, or UAVs, will double over the next decade to $8.7 billion, totaling more than $62 billion in sales for military contractors.
NOC 46.85, -0.89, -1.86%At the cutting edge of that market is Northrop Grumman Corp. The Los Angeles-based military contractor makes the RQ-4 Global Hawk fixed-wing drone, in use in Afghanistan, and the unmanned MQ-8 Fire Scout helicopter.
At the Paris Air Show, Gene Fraser, vice president of Northrop's strike and surveillance division, sat down with MarketWatch to provide a bird's-eye view of what's happening in the UAV market.
Following are the highlights:
MarketWatch: What kind of role are unmanned vehicles playing in the grander scheme of intelligence, surveillance and reconnaissance, or ISR? And do you see yourself partnering up more with other businesses to develop the full potential of your products?
Fraser: One of the strengths of Northrop is we have that capability indigenous within the company. You have your basic ISR platform and then you have integration of payloads upon that platform, and then you have the integration of the platform and the payload into the bigger system. In some cases we are partnering up on communications and network, in other cases we're doing it ourselves. It depends on what they bring to the mission.
Are you looking for any partnerships right now -- particularly to help you enter foreign markets?
We're in constant discussion with our customers about where it would be good to form a partnership. EADS is a good example with the German Global Hawk. For international markets it's always good to have a partner from that region to help you get into that market. It's no different than in any other business. ... If you want to go into another country and offer them an F-35, for example, [they'll want you to cooperate] with their indigenous industry. ... The only slight nuance is how much they would like to get as far as developing their own UAV capability, and that's similar to other areas of aerospace.
What's the potential for the intelligence, surveillance and reconnaissance market going forward for unmanned planes?
This is tough to predict for two reasons: Clearly there is a growth opportunity. The question is really being driven by how much more quickly is there going to be an adoption of unmanned systems into the fight. When you hear Secretary Gates say he wants more ISR platforms, he didn't necessary say he wanted more unmanned ISR platforms.
When you look at what an unmanned airplane can bring to the fight: relatively low cost and a relatively low footprint for the capability you can get. We see that's when the customer begins to appreciate more fully [the unmanned system]; that's where the upside is.
We also see the upside internationally. Our systems are very scalable in that you don't have to buy very many unmanned systems to get significant capability. They are suited for smaller economies, where they may just need a few Global Hawks or a few Fire Scouts systems.
Where's the real growth right now? Is it with the U.S.?
The defined growth is with the U.S., where the undefined is international, but we think it has a rather large potential. It's just not clearly defined because we think the adoption of the systems is not quite where it is in the U.S. market.
How much revenue comes from overseas?
Less than 1% overall. And if you look at our plans going forward, there isn't significant international growth [planned] because it's been very difficult for us to figure it out, so international growth is all upside for us.
How do you see that ratio changing over the next five years?
In the 10-year time frame, we see it's significant. One of the things we're trying to understand is that if you were to go back in history and look at what the [U.S. Department of Defense] plans were for acquiring unmanned systems, you wouldn't see anything near like what you see now.
In 2010 it is somewhere just above $7 billion, but if you went back 10 years ago to the [Pentagon] plan you wouldn't see anywhere near that number. And we see a similar type of growth in international, maybe not analogous in a total dollar figure, but we see that where there's hardly any plans today you'll see significant growth in the future.
What's driving that growth?
It covers the whole gamut from civil applications to what we call theater types of operations.
How are unmanned airplanes in terms of operation and support?
In the Vietnam era they'd send 100 airplanes to take out a bridge, including all the support airplanes.
In the first Gulf War we saw how many targets a particular airplane could take out. For example, a B-2 carrying 16 bombs can take out 16 targets by itself.
And now today we're talking about how many unmanned systems can just a single operator or a pair of operators fly at one time? You don't have to have an operator engage with the airplane 100% of the time. The airplanes are autonomous. So now you're seeing an economy of scale from multiple airplanes going across to a single target to basically a single airplane going to multiple targets, and now you have lower-risk crews operating multiple systems against multiple targets -- fewer people to man and manage the mission, fewer people to maintain, fewer people to hold the logistic trail of training and getting the system ready to go.
The general rule of thumb is that [the manpower involved in flying an unmanned system] is between 25% and 30% of what it would take to fly a manned system.
Geographically, where have you seen interest outside the U.S.?
Where haven't we seen it? Europe, the Middle East and the Pacific are all areas with extreme interest. And every one of those has customers who are at the point that when [the U.S. Navy completes its] operational evaluation of Fire Scout [for maritime aerial support], they will be there to go for an acquisition agreement. On Global Hawk, it was the same thing.
Any particular countries you haven't been able to form partnerships in?
No. It's been a remarkably warm welcome.
