The Coming Next-Generation Military Drone Boom

While the future of drone technology may seem to be in commercial applications, military drones are poised to prosper.

May 24, 2014 at 7:48AM

It's no secret that many American defense contractors are facing difficult times as the U.S. military, the single largest purchaser of defense equipment, scales down its defense spending. However, the major military aeronautics firms do have one extremely bright spot on the horizon: unmanned aerial vehicles.

Drones are already a multi-billion dollar industry, and many observers speculate that civilian and commercial applications for drones, like parcel delivery or real-time mapping, could increase the drone market by orders of magnitude. They well may, but the commercial market has many regulatory hurdles yet to pass, and the Congressional Research Service forecasts commercial drones to make up less than 2% of global drone production through 2022.

The market for military and combat drones, however, is still in its infancy and poised to grow dramatically as armed forces and aerospace companies embrace a new generation of combat drones.

Reaper Drone

Photo credit: General Atomics

Despite their menacing reputation, today's combat UAVs—particularly the famed General Atomics Predator drones and their successors the Reapers, known as hunter-killers—simply aren't very formidable aircraft. The Predator was originally designed and developed not for combat, but for reconnaissance. The MQ-9 Reaper has a maximum speed of a leisurely (for aircraft) 300 miles per hour, but usually cruises along at under 200 mph, with a relatively light 3,800-pound payload and very little in the way of electronic countermeasures.

The hunter-killer role these drones have assumed is only possible because the enemies they target have virtually no ability to defend or even monitor their airspace. Drifting lazily in the sky stalking a target for days on end is not a viable strategy when your enemy has the ability to take drones down.

A one-sided battle

The American-led "War on Terror" has been marked by perhaps the greatest technological disparity between combatants of any modern encounter, allowing American and allied forced to gain complete control over airspace easily, often uncontested. During this period, military planners have become accustomed to the continuous real-time monitoring of battlefields and targets drones provide. Politicians have come to rely on the ability to strike at foreign targets without endangering the lives of American servicemen.

Military and political leaders want those capabilities in future conflicts as well, but today's drones are too feeble to offer them in contested airspace. According to General Mike Hostage, commander of the Air Combat Command, in a conflict with even "the smallest, weakest country with the most minimal air force," today's fearsome Predators and Reapers would be "useless."

This means, as General Hostage has called for, that the American military needs a new generation of drones. All drones will need to be stealthier, faster, and less susceptible to electronic countermeasures. Reconnaissance drones will need to fly higher, stay aloft longer, travel further, and have better sensing equipment. Combat drones will need to be tougher, deadlier, and more maneuverable.

No unmanned vehicle in regular operation today can meet the high standard of being able to operate successfully in contested air. Top defense contractors are already racing to produce an aircraft that can, and the market ahead of them is as vast as it is opaque.

A cloudy market

An important fact to grasp about the military drone market is that civilians don't really know how large it is or how quickly it's growing. Including the international market it's likely that nobody has a complete picture of the resources being put into drones. Many ongoing drone development programs utilize cutting-edge military technology, and the Pentagon has nearly $60 billion to spend on classified projects, more than half of which is officially allocated to the Air Force.

What's very clear is that it is growing. Various estimates put the size of the combat drone market at about $5 billion-$7 billion in 2013, projecting growth in the range of $18 billion-$20 billion through 2022. While dramatic, that growth could actually be conservative if next-generation UAVs can match or exceed the performance of manned combat craft, which consume over 90% of program funding allocated to military aircraft, $34 billion in 2013.

With the drones of the future requiring such dramatically different capabilities from the drones of today, this multi-billion dollar market is largely up for grabs. Today, General Atomics and Northrop Grumman (NYSE:NOC) are by far the United States' largest military drone providers, but their products are quickly becoming obsolete. They are racing to provide updated offerings even as other established aeronautical defense contractors, namely Boeing (NYSE:BA) and Lockheed Martin (NYSE:LMT), are introducing their own new revolutionary UAV designs.

With a massive new market opportunity and no clear incumbent, defense contractors accustomed to years of declining military revenue now have a blue sky opportunity ahead of them.

Top dividend stocks for the next decade

The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Daniel Ferry has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin and Northrop Grumman. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information