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European Disunion: Can Europe Ever Build a Workable Drone?

A couple months ago, a video depicting the (very short) flight of a new Portuguese Navy drone began circling the Internet. I'll pause for a moment and let you take a look:

Okay, now you'll understand what I mean, when I say that...

Europe's drone program is like Portugal's, writ large
For years, America has had a near-monopoly on the use of advanced unmanned aerial vehicles in combat. Sure, other countries have "drones" -- mostly small, reconnaissance birds that have more in common with a hobbyists model airplane than with a General Atomics' Predator.

But for real-world surveillance work in hostile environments, Europe generally has to buy drones built by American companies. Britain, for example, flies Global Hawks from Northrop Grumman (NYSE: NOC  ) . France recently announced the purchase of Reapers from General Atomics. Germany leases Heron unmanned aeriel vehicles from Israel (aside from the U.S., the only other manufacturer of really high-quality drone aircraft).

General Atomics' Predator drone. Easily the most recognizable drone aircraft in the world. Photo: Wikimedia Commons.

But as reports, there's great interest in Europe developing a homegrown drone-building program "to add reconnaissance and strike capability at lesser cost and risk to service members." Italian company Alenia Aermacchi, a subsidiary of Finmeccanica (NASDAQOTH: FINMY  ) , has argued that a "European made UAV" is essential for "European operational sovereignty and independence in the management of information and intelligence."

And at last month's ILA Berlin Air Show, both Dassault and Airbus (NASDAQOTH: EADSY  ) announced a plan to collaborate on developing a medium-altitude, long-endurance, or MALE, drone similar to General Atomics Reaper and Predator drones. According to news reports, the new drone will feature long endurance and good maneuverability, and will emphasize reconnaissance capability over the ability to carry weapons. Their target date for first flight is 2020.

How to get to there from here?
The problem is that these three companies hail from three different countries -- Italy, France, and Germany. (Airbus is traditionally viewed as a French-German company, and S&P Capital IQ reports that even after its recent reorganization, the governments of both France and Germany own stakes in Airbus). And so these companies are asking three different governments to help build their drone.

Sources suggest that development of the drone could cost $68 million in just the first two years of the project, and potentially as much as $1 billion -- and that's just the development cost. Actually buying drones would cost even more money. Unfortunately for the companies, their host governments don't seem eager to foot this big of a bill. As German Defense Minister Ursula von der Leyen said, "At the moment there is no pressure to make a decision."

Too many irons in the fire
Further complicating matters, one of the corporate coalition's three members, Dassault, is already trying to build an unmanned combat drone in cooperation with Britain's BAE Systems (NASDAQOTH: BAESY  ) . Given that it's already financing half the cost of building one drone "on spec," Dassault may not relish the thought of anteing up a third of the development costs of a second drone -- with no certain buyer. The more so, given that Dassault is under financial pressure after repeated failures to find international buyers for its Rafale fighter jet.

What it means for investors
If all of this makes it sound like Europe will have a hard time getting a homegrown drone program off the ground... well, that's my read on the situation, too. (Remember that poor Portuguese drone?)

This is good news for investors, though. It means that we can continue to focus in on the leaders in drone technology, and know that at least for the time being, U.S. firms such as Northrop Grumman and General Atomics will continue to dominate the drone space.

In fact, they might do even better than that. Reportedly, President Obama is currently considering signing a bill that would ease U.S. export restrictions on drone technology -- and in particular, on drones capable of being armed with air-to-surface missiles such as the Hellfire. To date, these restrictions have hobbled U.S. drone-makers, making it difficult for them to capture all of the market share worldwide that their superior drone technology would ordinarily win for them.

Industry analysts estimate that the global market for drones could exceed $60 billion in value over the next seven years. If President Obama approves expanded drone exports before Europe gets its drone building act together, I'd give good odds on U.S. companies winning a large portion of those sales.

General Atomics' Reaper drone is silent, deadly -- and profitable. Photo: Wikimedia Commons.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 14, 2014, at 2:32 PM, ospreycbk wrote:

    Every bit of the drone technology including that for the Global Hawk and the Predator are available on the internet and/or aviation trade publications, so why is it going to take 6 years for any of the European companies to build their own drone. All the R&D, the most expensive part of any weapons system, has already been done and all that data is already in the public domain. If the US wants Europe to have their own drones then give the technology as part of a military aid package, where do you think Israel got the technology from to build their Heron unmanned vehicle.

  • Report this Comment On June 17, 2014, at 10:04 PM, McBearsNY wrote:

    I don't see the problem, its a common misconception that drones are a recent tech development when western nations used drones/UAVs as far back as WW2 (wiki--history of unmanned aerial vehicles) project Aphrodite and during the cold war jet powered drones were developed furthermore the French and English (project taranis) are already fielding jet powered flying wing or "batwing" configuration drones which require very sophisticated computers to fly---even the Israelis still haven't been able to field jet powered or flying wing configuration drones

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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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