Eastern Ukraine is a war zone. Following Russia's invasion and annexation of Ukrainian Crimea last year, Russian-backed separatists, and reportedly actual Russian troops and tanks, have spent the last several months rampaging around eastern Ukraine, blowing up buildings and de facto annexing a large portion of the country into a region now colloquially referred to a "Novorossiya" (New Russia).
Despite the unsettled situation in-country, earlier this year the Obama Administration dispatched approximately 300 U.S. troops to Ukraine. Their mission: to assist in training Ukrainian military forces to repel further aggression and to put U.S. eyes on the ground, where we can see if the terms of a brokered ceasefire between Ukraine, and its antagonists, are being respected.
Next step: We're sending drones to Ukraine as well. Potentially, a lot of drones.
Drones for Ukraine
Following up on a March agreement between Vice President Biden and Ukraine's President Petro Poroshenko, the U.S. Pentagon announced last week that it has awarded a $9 million contract to Monrovia, California-based AeroVironment (NASDAQ:AVAV) to supply Ukraine with RQ-11B Raven unmanned aerial vehicle systems.
Now, admittedly, $9 million doesn't sound like a lot of money. But for a small company like AeroVironment, it's still relatively a big deal. According to data from S&P Capital IQ, $9 million is equal to about 22% of all revenues that AeroVironment collected from drone sales last quarter -- and 19% of all company sales. Historically, drone sales accounted for about 85% of AeroVironment's revenues over the past five years and 87% of gross profits. And this is a product that could yield a lot more than just $9 million for AeroVironment over time.
How much more?
The Pentagon did not reveal the precise number of drones to be delivered to Ukraine. But according to published reports, a complete Raven "system" -- including three actual drones, a ground control station, ancillary equipment, and spare parts -- costs $250,000. At the low end, therefore, AV will be supplying to Ukraine at least 36 complete drone systems, including 108 drones.
And it could be more than that. In March, it was reported that U.S. military equipment deliveries to Ukraine would include drones, radios, and counter-mortar radar systems totaling $75 million in value. Depending on how much money goes into radios and radars, that leaves a lot of room for more drone deliveries in the contract.
What's in the box
Leaving the question of raw numbers aside, what exactly will Ukraine be getting with this drone package? Well, first and foremost, it won't be getting any Hellfires. The Pentagon has announced multiple Hellfire missile contracts lately, for countries fighting ISIS -- but none for Ukraine. In contrast to Hellfire-armed drones, Defense Department describes the RQ-11B Raven as a 4.2-pound, 4.5-foot wingspan, "hand-launched, unmanned aircraft system" with:
- 90 minutes of endurance in the air
- a range of approximately six miles
- a 500-foot flight ceiling
- capable of recording and transmitting visual data in both color and infrared (for night flying).
The Raven is unarmed. Interestingly, though, AeroVironment does make a drone of similar size that does pack a wallop -- the kamikaze-like Switchblade UAV. With range, weight, and altitude characteristics similar to Raven's, the Switchblade has a much different mission. Guided by data from its onboard camera, it can be directed toward a target, and then instructed to ram that target, detonating a small on-board charge.
Conveniently, Switchblade can be controlled by the same Common Ground Control Station that guides AeroVironment's Ravens. Meaning that once Ukraine has been supplied with its initial delivery of Raven systems, "upgrading" the capability to add Switchblades should be as simple as shipping a different kind of drone in the next box.
Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 279 out of more than 75,000 rated members.
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