Russia's $9 Billion Drone Program Looks Like a Bluff, but Should You Laugh It Off?

Just how serious a threat does Russia's drone program pose to U.S. defense contractors?

Feb 23, 2014 at 10:00AM

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Russia has high hopes of developing its own home-grown drones, such as this Dozor-600 being developed by St. Petersburg's Tranzas Company. Photo: Wikimedia Commons.

This month, for the first time ever, Russian Defense Minister Sergei Shoigu revealed how much Russia intends to spend on building a fleet of high-speed, long-endurance, combat "drone" aircraft: $9 billion.

So reports Russian daily Vedemosti, in a report that got picked up by DefenseNews.com just this past week.

Nine billion dollars? That sounds like a lot of money. It means that, over the next six years, Russia will spend approximately $1.5 billion annually on its drone fleet -- splitting this roughly 50-50 between research and development, and actual purchases of actual drones. As Vedemosti notes, this is "only a few tens of billions of rubles less" than what the Defense Ministry has spent on all of its entire fleet of manned fighter planes over the past six years.

I'll see your $9 billion, and raise you ...
But here's the thing: The U.S. Pentagon is spending about $2 billion a year on UAV R&D alone. That's before accounting for additions to its drone fleet -- billions of dollars a year spent to accumulate an arsenal of General Atomics Predators and Reapers, Northrop Grumman (NYSE:NOC) Global Hawks and Fire Scouts, Textron (NYSE:TXT) Shadows, and Boeing (NYSE:BA) ScanEagles.

Viewed in this context, Russia's $9 billion drone program doesn't sound quite so scary. The more so when you consider some of the other revelations -- and implications -- from the Vedomosti report. For example, according to the paper, Russia currently boasts a fleet of "nearly 500" drones. Many of them, however, probably look less like this ...

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A Forpost UAV on display -- actually, a rebadged Israeli Searcher Mk 2. Photo: Wikimedia Commons.

... and more like this:

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Historically, Russia's drone program has fallen somewhat short of high-tech. Photo: Wikimedia Commons.

Should you be scared of rusty Russian weaponry?
Vedemosti sheds even more light on the state of advancement of Russia's drone program. For example, "not all" of Russia's drones currently meet Defense Ministry standards of being able to keep eyes on-target for 100 hours continuously. According to one Defense Ministry source, Russia "needs another three to five years" before it can field armed UAVs capable of "deploying weapons against ground targets" like "analogous American systems." But even that objective may be optimistic.

The U.K., while also behind the U.S. in drone technology, has been studying and using the aircraft for years, and is developing its own new stealthy, weapons-carrying drone: the Taranis. The British, however, don't expect to be able to field the Taranis before 2030. It seems unlikely that the Russians will be able to beat that target by a decade. Especially given that, as recently as 2010, Russia's former Deputy Minister of Defense Vladimir Popovkin lamented that Russia had basically wasted the 4 billion rubles spent on UAV research up to that date, and had nothing to show for it. This suggests that what drones Russia does have, are of very low technological capability.

The upshot for investors
A recent report out of market researcher Teal Group predicted that global sales of UAVs will total $89 billion over the next 10 years -- with U.S. defense contractors winning 65% of those sales. Russia's push to spend $9 billion developing its own drone technology suggests the country would like to compete for a piece of this market, as well as upgrade its own defense capabilities.

Yet despite Vedemosti's assertion that Russia has "500 drones" in its arsenal, and is investing in more, the last big drone development we heard out of Russia was that the country had had to go out and buy drones from Israel to outfit its fleet. Vedemosti says that even these drones are all "obsolete." And now we hear that Russia's next big move will be to buy even more drones ... from the United Arab Emirates of all places -- a country better known for its beaches than for its expertise in military aviation.

And that's probably the real upshot of this story. Until we learn that the UAE has overtaken the U.S. in drone technology, there's little to fear from the country that's buying its drones from them: Russia.

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UAE's Adcom Systems Yabhon UAV. Photo: Wikimedia Commons

There's big money to be made in defense stocks -- but you can win the investing arms race
UAVs are an exciting new industry, no doubt. But are there even better ways to make money from the global rivalry among nations? U.S. News and World Report says this trend "will drive the U.S. economy." And Business Insider calls it "the growth force of our time." In a special report titled "America's $2.89 Trillion Super Weapon Revealed," you'll learn specific steps you can take to capitalize on this massive growth opportunity. Act now, because this is your shot to cash in before the fat cats on Wall Street beat you to the potentially life-changing profits. Click here now for instant access to this free report.

 

Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Northrop Grumman and Textron. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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