In the last few years, as drone technology has improved and become accessible to the masses, everyone from hobbyists to businesses to investors has hoped that the Federal Aviation Administration, or FAA, would someday open the skies to drones. It's starting to do that, but its progress may not be at the pace some had hoped.
However, instead of stopping the flight of drones for commercial use in its tracks (hobby drones have been legal on a limited basis), the FAA recently proposed some fairly simple, albeit restrictive, rules on flying them. Here's what we know and what investors can expect.
What the FAA wants drones to do
Initial regulations from the FAA are essentially restricting drones to how a hobbyist might use one. Here are the four main restrictions. A drone:
- Must remain within line-of-sight of operator.
- Can't be flown over people not involved with the flight (think movie sets).
- Can't exceed an altitude of 500 feet.
- Can't operate at night.
Depending on who you are, these regulations could open up a world of possibilities or crash your hopes for wider drone usage. What's key is that the FAA is taking steps toward the coming drone revolution and will likely open the skies even more in the next year or two.
Where we'll begin to see drones
One of the early uses for drones that people will begin to see will be in the real estate business. We're already seeing videos of homes pop up around the country, and now it will actually be legal to fly drones to film a home that's coming up for sale.
Search-and-rescue terms will also likely be an early adopter of drones. Aerovironment's (AVAV -4.28%) Qube drone is one example, equipped with a visual and thermal camera, autopilot, and a visual control tablet. In the future, these could be a standard piece of equipment for police, fire, and SWAT teams.
Two other areas that have already been granted a few exemptions for drones are agriculture and oil and gas exploration. In the agriculture business, drones can survey a field far more efficiently than someone can from the ground or the air, increasing productivity and yield at a relatively low cost. The line-of-sight limitation could limit the scope and style of drones used, but it's something that's manageable for the time being.
Oil and gas companies are using drones to survey and map remote locations, and that usage is set to grow even under current regulations. But not everyone is excited about the new drone rules.
Amazon's drones will be grounded
For those who follow the FAA's regulations of drones, it should be no surprise that Amazon.com's (AMZN -3.31%) drones will be grounded for the foreseeable future. The line-of-sight provision is far too much for Amazon to overcome in delivering packages, as well as the fact that delivery drones would certainly need to fly near people.
The challenge for the FAA is ensuring safety for drones that may run automatically. It's currently unknown how the FAA could make sure drones don't run into trees, power lines, people, or one another. A crash landing could injure someone and damage property, so it's understandable that they're not just letting drones loose.
What we don't know is when more advanced regulations may begin to become available. So far, the FAA has slowly opened up drones to more testing and wider usage in a measured way. That will likely be true for automated flight, but it could be a decade before drones flying overhead is an everyday thing.
In reality, that's probably saving the drone industry from itself. Even one major accident with a poorly designed drone system could make the public lose faith in drones altogether, so even those wanting more drone flight should hope the FAA gets regulations right rather than fast.
Who is ready to take advantage?
There are a large number of companies working on drones, so picking winners and losers is tough at the moment.
There are a handful of publicly traded companies who will likely play a role in the future of drones, including Aerovironment and Boeing (BA 1.22%), through its Insitu subsidiary. Obviously, drones would be a small percentage of Boeing's revenue, but with its wide reach in aviation it could be a big player. Both companies are approved for limited commercial flight today and will be aggressive in expanding into this market.
Aerovironment is actually the military's No. 1 supplier of small drones and, as I mentioned above, has already launched a search-and-rescue product, Qube. With just $247 million in revenue over the past 12 months, the commercial drone market could have a huge impact on the company. I think this is a great way to get exposure to an industry with tremendous opportunity.
Parrot is a publicly traded company in Paris and makes products like the AR Drone 2.0 and the Bebop Drone (shown above). The company got a huge boost in 2014 when it began selling in Apple stores and could be a dark horse in the commercial market.
Then there's GoPro (GPRO -1.80%), which has been rumored to be making its own drone. At the very least, GoPro cameras are the standard video device on today's drones, so it has a lot to look forward to if drone sales take off.
Drones could be an $98 billion business in the next 10 years, according to BI Intelligence. For the companies that take advantage, it's a huge opportunity, so we'll see who takes flight first.