Giant defense contractor Lockheed Martin (NYSE:LMT) is turning to a much smaller partner, AeroVironment (NASDAQ:AVAV), to advance its drone capabilities abroad. In an announcement made this morning, the two companies said they would "jointly pursue opportunities in unmanned aircraft system development."
While we don't know what the impact of the partnership will be at the end of the day, we can take a few things away from today's release. AeroVironment is looking to Lockheed Martin's system integration as a way to sell more drones around the world. Thus far, AeroVironment has been a small contractor that doesn't have the infrastructure to integrate the way Lockheed can in defense systems.
For Lockheed, the company wants to bring the Global Observer into its systems and develop new unmanned aircraft to meet security needs around the world. The release mentioned that border surveillance and communications would be a target market now that drone costs have become affordable for these buyers.
The bigger opportunity for drones
We don't know exactly what the financial impact of this deal will be for either Lockheed Martin or AeroVironment, but we know they're both making big moves into the drone market. Clearly, this is a military play for now but eventually I think the bigger market is with local governments and commercial applications.
AeroVironment's miniature drones would be ideal for local or commercial security and as products improve and regulations are written, I think this market will open up. The FAA is writing drone regulations now and when they're released in the next few years this market will open up.
Lockheed has thus far focused on larger drones so learning from or teaming with AeroVironment to advance its drone offerings is the upside for the company.
The drones are coming
Military and national markets dominate drones now but commercial applications are the bigger opportunity for Lockheed Martin and AeroVironment. Eventually, I wouldn't be surprised to see this partnership turn in that direction because AeroVironment has the drones to win in the market and Lockheed has the infrastructure to bring a fleet of drones together.
Down the line, AeroVironment may even be a takeover target for Lockheed Martin.