Boeing: Can't Join 'Em? Beat 'Em!

Fellow Boeing (NYSE: BA  ) investors, it's time to face facts. Boeing may be top o' the heap in commercial airliners and military transports, and it may even do a decent job on helicopters. But when it comes to the next big thing in aeronautics -- unmanned aerial vehicles -- our company's looking like a bit of an also-ran.

Rivals are, quite simply, eating Boeing's lunch in this space:

  • Archrival Northrop Grumman (NYSE: NOC  ) practically owns the space, offering everything from the stratospheric Global Hawk to the down-to-earth Fire Scout.
  • Lockheed Martin (NYSE: LMT  ) has the popular Desert Hawk and is working to create a "drone" version of its Joint Strike Fighter.
  • Textron's (NYSE: TXT  ) Shadow UAV helped push the company's defense business to new heights last quarter.
  • Rocket specialist Raytheon's (NYSE: RTN  ) got a new toy that is at least as much a UAV as it is a missile, while Honeywell's (NYSE: HON  ) T-Hawk (aka the "flying coffee can") is ramping production.
  • And everywhere the big boys miss a niche, AeroVironment (Nasdaq: AVAV  ) swoops in and fills it.

Things recently got so bad for Boeing that, apparently at wit's end as to how it's going to break into this industry, the company shelled out $400 million to purchase partner Insitu and its ScanEagle franchise. But you know what they say: If you can't join 'em, beat 'em.

Specifically, shoot 'em down
Now, maybe this was the answer. Maybe the ScanEagle purchase will work out as well for Boeing as buying UIC worked out for Textron a couple of years back. But just in case it doesn't, let's give Boeing a cheer for its decision to hedge its bets on the UAV industry. Maybe Boeing can't build the things, but it sure as heck can kill 'em.

And so, last week, Boeing announced the successful testing of a new system designed to shoot down other people's UAVs ... with a laser gun.

Han Solo would love this stuff
Regular readers of my defense columns will already be familiar with Boeing's best-known laser, the airborne laser (ABL) system that it's jointly developing in cooperation with fr-enemies Lockheed and Northrop. That one's a monster, though -- big as six SUVs and about as agile, designed to shoot down ICBM's using a Boeing 747 as its platform. The very thought of using the ABL against UAVs invites parallels to siccing an eagle against a hummingbird.

So instead, Boeing took a more scaled-down approach to the UAV problem. Scavenging its 20-year old Avenger short-range air defense system for spare parts, Boeing came up with the "Laser Avenger" -- same concept as the original, except this one uses a laser gun instead of SAMs to shoot down bad guys.

Last week, Boeing's Laser Avenger successfully acquired and tracked three UAVs in a test firing, then shot one of them down "from an operationally relevant range." (Industry-speak for: "Hush up. We're not going to tell the bad guys how far we can shoot.") According to Boeing, this was the first time ever that a laser had killed a UAV in-flight in this manner.

[Lonely] is the head that wears the crown
So, kudos to Boeing; it now has an effective weapon that can neutralize the UAV squadrons of Textron, Northrop Grumman, and Lockheed Martin. But here's the problem: Boeing's not at war with any of these companies (at least, not in the literal sense).

The way I see it, Boeing's Laser Avenger is now a superb solution ... in search of a problem to solve. And that brings us to today's investing lesson. Right now, the U.S. is top o' the heap in military tech. We've got the best UAVs in the world, and of the countries that have their own, limited UAV fleets -- most of 'em are our allies (Austria with its Camcopter, there's also Germany's Barracuda, and of course Israel's Elbit Systems).

Sure, a few potential "bad guys" have limited UAV capability, too. Iran has the Mohajer-4, and Hezbollah recently fielded the Mirsad-1 in its tiff with Israel. Russia has the ZALA family of UAVs, which by all rights should be the best UAV, technologically speaking, among all the potential opposing forces. But as last year's Russia-Georgia spat demonstrated, ZALA can't hold a candle to even Elbit's offerings. Simply put, the challenges that Laser Avenger might be called upon to overcome look few and far between -- limiting the Pentagon's need for the system, and limiting Boeing's ability to profit from its development.

Foolish takeaway
I don't mean to detract from Boeing's achievement. But before investors can truly profit from it, we simply have to stop progress for a while, and give the rest of the world a chance to catch up. Sometimes, being "too good" is just as bad as being not quite good enough.

Want more Foolish insight into the issues of lasers, UAVs, and other ways to invest in stuff that goes "boom"? Read:

Fool contributor Rich Smith owns shares of AeroVironment and Boeing. AeroVironment is a Motley Fool Rule Breakers pick. The Motley Fool has a disclosure policy.


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  • Report this Comment On February 24, 2009, at 6:23 PM, mschaffroth wrote:

    I really don't understand why you failed to mention the Predator UAV, from General Atomics. This UAV has had a bigger impact on the war on terror over Iraq and Afghanistan than any other UAV.

    General Atomics has sold roughly 10x more Predator UAVs than Northrop Grumman's Global Hawks and Fire Scouts combined.

    For more information look up UAV in wikipedia.org, or go to General Atomics home page at uav.com.

  • Report this Comment On February 24, 2009, at 6:30 PM, mschaffroth wrote:

    BTW, I only commented about Northrop Grumman, because you said it, "practically owns the space". Northrop does create a wider variety of UAVs than General Atomics, but to not include GA in your list of UAV leaders is ridiculous.

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