Hey! Who's Flying This Thing?

"There are those that see JSF as the last manned fighter. I'm one that's inclined to believe that."
-- Adm. Michael Mullen, chairman of the U.S. Joint Chiefs of Staff

And the good admiral isn't the only one. Ever since we started this series (way back in January of '08), the story of the unmanned aerial vehicle has only gotten bigger. The past few months have been no exception, so let's get up to date on the wide, wide world of flying robots ... that kill.

Will the real Predator please stand up? (Please stand up. Please stand up...)
This week, we're going to focus on two leading companies in the UAV industry -- one you can invest in and one you can't. Beginning with the latter, the U.S. Army recently added a new robot to its toolbox. First in unmanned flight, first in the hearts of (frustrated) UAV investors, privately held General Atomics is revamping its vaunted line of Predator drones with a new iteration, dubbed the "Gray Eagle."

Nominally a UAV, the Gray Eagle belongs to a subset of armed robotic aircraft termed unmanned combat air systems, or UCAS. After weapons tests were completed in the U.S. last summer, four Gray Eagle drones were deployed to Afghanistan in late 2010. There, the UAVs are being incorporated into the Army's new MUSIC (manned-unmanned systems integration capability) system, teaming with Boeing (NYSE: BA  ) Apache attack helicopters, Textron (NYSE: TXT  ) Shadow drones, and United Technologies (NYSE: UTX  ) Black Hawks.

Probably the greatest technological advance of the Gray Eagle is that it seems capable of flying out of reach of the Pentagon budgetary axe. Around the same time that Secretary of Defense Robert Gates was rolling out his latest round of spending cuts, the Defense Department announced plans to actually "accelerate [deployment of] the Gray Eagle from two companies per year to three companies per year." Five aircraft are already on order.

All Northrop, all the time
Of course, participating in the General Atomics growth story requires that the individual investor exercise a certain amount of "creativity." GA being a private company, your only real option is to invest in public companies that do business with it -- for example, Honeywell (NYSE: HON  ) , which builds the engines for at least one Predator variant. If you're looking for a more direct entry to the UAV industry, though, our next idea may interest you more...

You can hardly open a newspaper these days without reading a story about new initiatives that Northrop Grumman (NYSE: NOC  ) is making in UAVs. There's the company's ubiquitous Global Hawk, for one. For another, there's the Fire Scout. Northrop's robo-helicopter completed its 1,000th hour of flight testing with the Navy late last year and is hard at work about the USS McInerney performing drug interdiction in the Pacific. Early this year, a pair of Fire Scouts begin a second deployment aboard the USS Halyburton.

Northrop isn't resting on its laurels, either. The company's already looking to upgrade its robotic whirlybird, teaming with Bell Helicopter to transform the Bell 407 utility helicopter into an "optionally manned" UAV (a chopper that, like UTC's robot Black Hawk, can carry a pilot, or not, as conditions warrant.) The new bird would be called the Fire-X and, according to the Navy, could enter service as early as 2016.

Anchors away!
Clearly, Northrop is getting along famously with its naval customers. So why not double down?

Precisely. Why not? In fact, Northrop is expanding its unmanned offerings. This month, Northrop's new X-47B UCAS passed initial flight testing in California. The tailless X-47B is the kind of plane that makes Admiral Mullen's heart go pitter-pat: Not only is it unmanned and not only does it come fully armed, but the robotic bomber is specifically designed to launch from and land on aircraft carrier flight decks at sea.

Northrop is building and testing the plane under a previously won $636 million Navy contract and hopes to begin carrier landing trials in 2013. That gives Northrop pole position to win further contracts from the Navy, but it's not the only contender. Boeing is expected to field an alternative, self-funded UCAS -- the Phantom Ray. Raytheon (NYSE: RTN  ) has a "KillerBee" UAV that shares a common ancestor with the X-47B. Also, General Atomics is tweaking a Predator drone, known as the "Sea Avenger," to compete for Naval UAV contracts.

And now, for something completely different
While on the subject of the Navy, let me slip in one last item before we close. Last month, DARPA granted Northrop a $2 million contract to develop the concept for a new kind of anti-submarine vessel -- a robot sub. (It's not technically an unmanned aerial vehicle, but seeing as it's Northrop that builds it, we'll let that slide.)

Robot subs began getting press ink last year, as they swarmed in to respond to the crisis caused by BP's Deepwater Horizon oil spill. In particular, Motley Fool Rule Breakers recommendation iRobot (Nasdaq: IRBT  ) lent BP a hand by deploying Seaglider subs to track movement of the underwater oil plume. And yes, saving the earth is laudable -- but it's not really DARPA's shtick. Less interested in plugging holes in the sea crust than poking holes in enemy vessels, DARPA wants Northrop to build it an "anti-submarine warfare continuous trail unmanned vessel."

Whether Northrop will still be interested after spinning off its shipbuilding unit (now up for sale) remains to be seen. Whatever the fate of this DARPA contract, though, one thing is clear: At any altitude above sea level, Northrop's not lacking for work one little bit.

Want to keep abreast of Northrop Grumman's activities in the UAV industry? Add the stock to your watchlist.

Fool contributor Rich Smith owns shares of iRobot. The Fool owns shares of Northrop Grumman, Raytheon, and Textron. iRobot is a Motley Fool Rule Breakers recommendation. And yes, The Motley Fool has a disclosure policy.

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