The Boeing subsidiary Insitu's ScanEagle UAS at work in Iraq in 2005. Since its acquisition, Insitu has grown exponentially but has had a negligible impact on Boeing's profit margin.

Unmanned aerial systems have revolutionized not only the conduct of war but also the aerospace and defense industries. The project that Israeli engineer Abraham Karem began in the garage of his Los Angeles home in 1980 has become the most dynamic growth sector of the aerospace industry, with expenditures in the global market projected to reach $89 billion in 10 years. Despite the UAS industry's spectacular growth, the U.S. market remains shielded from the scrutiny of public investors due to the prominence of privately held companies in the industry and the diversification of the publicly held corporations that have a hand in drones. Investors, however, do have options.

The titans of industry
Boeing (BA 0.78%), Lockheed Martin (LMT 1.01%), and Northrop Grumman (NOC 1.12%) dominate the aerospace and defense industries as leading government contractors. They are major stakeholders in the burgeoning UAS market, with research and development projects and products that are driving innovation and growth; however, they all trail privately held General Atomics, the leading U.S. company in the global UAS industry. The influence of the UAS market on the earnings per share of Boeing, Lockheed Martin, and Northrop Grumman's common stock is difficult to determine. Each company operates multiple business segments, and the UAS side's costs and profits are lumped together with other aerospace products, obscuring their impact on financial statements.

Boeing
Boeing is renowned globally for its aircraft products; to maintain its edge in aeronautics, it has entered into the UAS market through a series of acquisitions and internal R&D projects. Boeing acquired Frontier Systems, founded by Abraham Karem, in 2004. Four years later, Boeing acquired the Washington state start-up Insitu, its longtime partner and co-developer of the small, long-endurance ScanEagle UAS. Insitu reported annual revenue of $400 million in 2011 -- an increase of over 200% since its acquisition. Boeing's Phantom Eye, a high-altitude, long-endurance UAS that was funded internally, began test flights in 2012. The company also has an ambitious plan to refit F-16 fighter jets as drones.

The impact of Boeing's UAS activity on its profit margin, however, is couched in the Boeing military aircraft, or BMA, segment of its defense, space, and security business. BMA delivered $16 billion of the $33 billion in revenue the defense, space, and security business brought in last year, according company's 10-K for the year. The financial data, however, encompasses a variety of manned and unmanned aircraft that puts Insitu's ScanEagle alongside the well-established Apache and Chinook brands. Despite Insitu's spectacular growth since joining Boeing, its revenue contribution to BMA is minimal.  While the subsidiary does not account for the full scope of Boeing's foray into the UAS industry, it does indicate that drones are a relatively small factor in Boeing's overall operations, with minimal impact on earnings per share.

Lockheed Martin 
Since its foundation, Lockheed Martin has been at the forefront of advanced technology systems in the aerospace and defense industries. Its UAS product line, which spans air, land, and sea, is a testament to its continued commitment to remain relevant in an industry revolutionized by drone technology. Its K-Max power-lift helicopter is one of the first UAS designed for cargo delivery in military operations. Its Hybrid Airship is designed for the commercial market with applications such as transportation. Its high-altitude long-range drones, such as the HALE-D, are designed for the intelligence, surveillance and reconnaissance operations of the post-combat era. 

Lockheed Martin's UAS activity, however, is buried in its aeronautics business segment -- one of five segments that compose its overall operations. Aeronautics contributed $14.3 billion in revenue to the corporation in 2013 and comprised 31% of overall sales. The majority of sales, however, are directly related to its manned aircraft programs. UAS is relegated to its advanced development programs, aka SkunkWorks, which does not produce public financial reports independent of the aeronautics division. The impact of Lockheed Martin's drones activities on its overall operation and stock performance is impossible to determine.

Northrop Grumman
Northrop Grumman has 18.9% of the global UAS market, bested only by General Atomics. Its unmanned systems dominate the intelligence, surveillance, and reconnaissance programs of the military and intelligence community. In 2012, Northrop Grumman signed a $1.7 billion contract with NATO for its Alliance Ground Surveillance system to provide high-altitude, long-endurance surveillance for multinational operations.

Northrop Grumman's aerospace systems division, which incorporates its UAS activity, brought in $10 billion of the company's $24.6 billion in sales in 2013. Despite Northrop Grumman's predominance in the UAS market, overall sales in the division were stunted by the decrease in demand for its unmanned systems. The slight increase in Northrop Grumman's aerospace sales report came from its manned aircraft programs. The scope of aerospace products offered by Northrop Grumman has protected its balance sheets and investors from the tumultuous UAS industry. It has also limited investors from learning about the extent of their personal stake in the emerging market for UAS.

Investor options
Investors have options when looking for an opportunity to become part of the market that has revolutionized warfare and the aerospace and defense industries. The titans of aerospace and defense have made sure they have a presence in the UAS market. However, the size and scope of Boeing, Lockheed Martin, and Northrop Grumman have diluted the impact of their UAS activity on their financial data. Investors will be hard pressed to determine these corporation's actual stake in the UAS industry. 

To read part II and other articles by Abigail Adams on the UAS industry visit:  http://www.fool.com/author/12744/index.aspx