Who Will Build America's Next Super Drone Fighter?

Defense contracting giant Lockheed Martin (NYSE: LMT  ) builds both of the world's most powerful combat fighter jets, the F-22 Raptor and the F-35 Lightning II. But in the race to build unmanned aircraft, Lockheed has been a bit of a laggard.

Rival contractors Boeing (NYSE: BA  ) , Textron (NYSE: TXT  ) , and Northrop Grumman (NYSE: NOC  ) have enjoyed great success with their ScanEagle, Shadow, and Global Hawk drone aircraft, respectively. Yet, Lockheed to date hasn't developed a single unmanned aerial vehicle, or UAV, that has won significant sales success with the military. Rather, Lockheed's main claim to fame in the drone space has been its RQ-170 Sentinel  -- and that aircraft is most famous for getting hacked and captured by Iran!

But all that could soon change following a recent announcement from Lockheed.

Lockheed, meet AeroVironment. AeroVironment... Lockheed.
On Thursday, Lockheed announced it had signed a "memorandum of understanding" with one of the leading players in the UAV space. AeroVironment (NASDAQ: AVAV  ) is the company behind such well-known small UAVs as the Raven and Puma. It's also the company that developed the popular Switchblade guided-missile/UAV hybrid, as well as the Nano Hummingbird -- a small, aerodynamic UAV shaped like a real hummingbird.

AeroVironment Nano Hummingbird. Source: AeroVironment.

Initially, the companies say they will team up so that Lockheed can assist AeroVironment with its one sizable UAV, the high-altitude, long-endurance Global Observer drone. Farther out, though, the companies don't rule out jointly pursuing other projects in the UAV space.

AeroVironment's huge Global Observer at dawn. Photo: AeroVironment.

What it means to you
For shareholders of AeroVironment, this is big news -- and a big reason why AeroVironment shares rose 8% in the two days following Lockheed's announcement. As a small defense contractor with barely $210 million in annual revenue, AeroVironment is highly sensitive to small blips in defense spending patterns. Already, cuts in Pentagon budgeting have analysts, quoted on Yahoo! Finance, taking down the company's projected growth rate from 20% just a few months ago to just 14% today. A tie-up with a larger, more stable defense contractor like Lockheed Martin could be a real boon to AeroVironment.

On the other side of the coin, by joining forces with a recognized success story in the field of flying robots, Lockheed bolsters its own deficient exposure to the UAV sector. Farther down the road, Lockheed Martin could conceivably decide to buy AeroVironment -- with its $660 million market cap, it would be a small meal for Lockheed -- and give its own single-digit-growth rate a nice boost in the process.

AeroVironment's Switchblade could give Lockheed's growth rate a a shot in the arm. Photo: AeroVironment.

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  • Report this Comment On February 12, 2014, at 4:37 AM, LaryB wrote:

    Who will build America's next super drone? Probably the Chinese. They have stolen almost everything else.

  • Report this Comment On February 12, 2014, at 12:40 PM, Hecklrkosh wrote:

    The next Super fighter? You guys haven't figured out what's wrong with the F35 yet, and that plane cost, how much???

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Rich Smith

As a defense writer for The Motley Fool, I focus on defense and aerospace stocks. My job? Every day of the week, I'm monitoring the news, figuring out the winners and losers, and tracking down the promising companies for you to invest in. Follow me on Twitter or Facebook for the most important developments in defense & aerospace, and other great stories.

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