For four months we've known the results of the DARPA drone competition: AeroVironment (NASDAQ:AVAV) will not build the Navy's new "TERN" vertical-landing-and-take-off drone. Northrop Grumman (NYSE:NOC) will -- and will potentially turn every U.S. warship into an aircraft carrier in the process.
But now comes the second question: Yes, Northrop has won the rights to build TERN. But how long can they hold onto it?
A competitor on Northrop Grumman's "six"
Late last month, one company that wasn't even in the running to win DARPA's drone competition unveiled a new product that has the potential to upset the race, and displace Northrop's prototype. The company is Textron (NYSE:TXT), and its drone is the Bell V-247 Vigilant.
Described as a "Group 5 UAS" (the military's largest) Textron's Vigilant is derived from the company's groundbreaking V-22 Osprey piloted aircraft, which Textron builds in conjunction with Boeing (NYSE:BA). The U.S. Marine Corps loves the tiltrotor Osprey, which combines aspects of helicopter and airplane design into a single platform, one Marine Corps Maj. Paul Greenberg says "far outstrips" competing platforms.
According to Maj. Greenberg, Osprey can already "carry a significantly greater payload than the aircraft it is replacing, the CH-46, at twice the speed and range -- over 60% greater range than any other rotorcraft, and more with aerial refueling." And now, the Marines are looking to capitalize on those advantages in the form of an unmanned tiltrotor, Vigilant.
What the V-247 Vigilant is
Like Osprey, Textron says Vigilant "will combine the vertical lift capability of a helicopter with the speed and range of a conventional fixed-wing aircraft," providing "unmatched long-endurance persistent expeditionary and surveillance capability and lethal reach." (And that tells you Textron is designing Vigilant to serve as an offensive, weaponized drone.)
Weighing eight tons empty, and able to carry up to 13,000 pounds of munitions and fuel, Vigilant will sport a 65-foot wing span and 30-foot rotor diameter, permitting it to land on warships the size of an Arleigh Burke-class destroyer and larger. Vigilant is being designed to carry MK-50 torpedoes for anti-surface and anti-submarine warfare, as well as Hellfire and JAGM missiles.
Vigilant will run on a single tiltrotor engine, be capable of flying at speeds up to 300 knots for as long as 11 hours at a time, and boasts a combat range of 450 nautical miles. The drone will also be capable of mid-air refueling to extend range and endurance.
What it means for Textron investors -- and for Northrop Grumman
Here's what we know about the potential market value of Textron's new drone offering: According to the latest numbers on the United States' Navy's "battle fleet," there are currently 178 aircraft carriers, other surface warships, and logistics and fleet support vessels with deck space equal to or larger than a destroyer, and thus theoretically capable of launching and landing a Group 5 drone of Vigilant's size.
We don't know a specific price that Textron is quoting on Vigilant, but we can make a very rough guess. Based on wingspan, Vigilant appears to be about 50% larger than the TERN drone that Northrop is building for DARPA, and we estimate the price on that one to be about $18 million. Ballpark Textron's Vigilant at $27 million, therefore, and the total potential market size of putting one Vigilant drone on every naval vessel capable of carrying it, would appear to be similar to the size of the market opportunity TERN offers for Northrop Grumman: about $4.8 billion.
It's not known if Textron will partner with Boeing to build Vigilant, as it did with the V-22 Osprey. But even if it must split the business with Boeing, Textron only does $13.8 billion in annual revenues. The multi-billion-dollar opportunity to build a new military drone for the Marines makes this a market well worth going after.
At the same time, according to data from S&P Global Market Intelligence, Northrop Grumman only does about $23.6 billion in annual business. With nearly $5 billion in new revenues at stake, this is a contract that Northrop, too, would therefore very much like to keep to itself.
It's a pity Textron doesn't seem to have any intention of permitting that.