Drones: The Next Growth Market in Military Technology

Michael Teague |

There is no wonder why unmanned aerial vehicles (UAVs), perhaps better-known as drones, have received such negative publicity in recent years. According to the Bureau of Investigative Journalism, confirmed civilian deaths from drone strikes in Somalia, Yemen, and Pakistan add up to a figure in excess of 4,000 souls, with the vast majority of the killings having taken place under the Obama administration.

Armed drones have become a central feature of the “war on terror” that was whole-heartedly adopted, if not in name, by the president upon his taking the oath of office in early 2009. Drone strikes have greatly contributed to the reduction of US casualties, and while they have arguably reduced the overall level of civilian casualties on the ground (when compared to the carnage that would ostensibly occur from the use of conventional ground forces), it is highly arguable that the fight against the US’s alleged enemies has become any more effective as a result.

Indeed, as the civilian death-toll, both confirmed and unconfirmed, resulting from drone strikes continues to mount, resentment against the West in the aforementioned countries (at least) rises accordingly, with many analysts warning of consequences such as the inflammation of anti-US sentiment to even greater levels than during the trigger happy years of former President George W. Bush.

For all the money and effort that has been put into drone warfare in an effort to sanitize the fight against America’s enemies, however, UAVs have become a subject of controversy that has been an increasing embarrassment for the Obama administration. This contention is supported by a story that, despite its horrific nature, garnered little attention in mainstream media outlets at the beginning of 2012.

Back in March of last year, The Nation magazine’s national security correspondent Jeremy Scahill, whose 2008 book Blackwater: The Rise of the World’s Most Powerful Mercenary Army is the bible on the excesses of the institutionalization of private security firms throughout the first decade of the 21st century, broke a shocking story about the personal involvement of the President in the prolonged detainment of a Yemeni journalist.

Abdulelah Haider Shaye had been sentenced to 5 years in prison by a Yemeni court after exposing US responsibility for a 2009 drone strike in the southern region of the strife-torn nation that was responsible for the deaths of 14 women and 21 children. At the time, Yemen was still under the brutal decades-old rule of “President” Ali Abdullah Saleh (the link provides an excellent synopsis of the bloody late 20th century political history of the country, along with Saleh’s role in it), who maintained a policy of claiming responsibility for all American UAV attacks.

One month after the original sentence, world-wide pressure from a number of human rights organizations forced then-President Saleh to promise to pardon Shaye. After a phone call from President Obama, however, Saleh changed his mind, and Shaye remained in jail until last month, when he was freed to serve the remainder of his sentence under house arrest.

The incident highlights the fact that the Obama administration sees drones as an extremely sensitive public relations issue, which it had at first attempted to keep as secret as possible, and then sought to legitimize through a variety of justifications once it was no longer possible to maintain secrecy.

It is perhaps in this context that one must understand last week’s Association for Unmanned Vehicle Systems International (AUVSI) 2013 conference that took place in Washington, D.C. between Aug. 12 and Aug. 15, just a hop, skip, and jump away from the White House. Billed by organizers as the largest drone conference in the world, the three-day trade fair showcased various UAV innovations from a wide variety of companies around the world.

One of the most salient features of the conference was the relatively small presence of military companies among the presenters. According to the conference website, only 16 percent of attendees were classified under “government/military,” with the overwhelming majority (75 percent) of attendees falling under the “commercial/industry” category. The focus of the conference was clearly on the “brighter side” of drones, a fact that was aptly pointed-out in an article published last Wednesday by The Los Angeles Times.

According to the article, the conference “featured nearly 600 exhibits intended to show how drones and other robots can help in law enforcement, search and rescue, traffic control, selling real estate, checking pipelines and forest fires, wildlife protection and other domestic duties,” with the goal of easing public fear of the remote-controlled devices by showcasing their positive applications.

And as the article points out, the conference took place in the wake of Congress ordering the Federal Aviation Administration to open US airspace to drones by September 2015. A quote from conference spokeswoman Melanie Horton underscores the cheery tone that the organizers were going for: "As the military wars wind down, people are seeing the value of unmanned systems — air, ground and maritime — and how they can be used in civil and commercial life," and added, as the inevitable hook, that “This is a growth industry.”

For those interested in the publicly-traded companies who presented at the conference, aside from the usual industry giants such as Boeing (BA) , Lockheed Martin (LMT) , and Raytheon (RTN) , the following is a partial list of lesser-known contributors:

Textron Inc. (TXT) – Is an aerospace/defense company with a market cap of $7.73 billion dollars, and shares trading at $27.25, up 10 percent in 2013. The company manufactures small aircraft such as Bell Helicopters and Cessna planes, and is currently developing a helicopter vehicle that can make vertical take-offs, thus making it ideal for commercial as well as military applications.

Aerovironment Inc. (AVAV) – The Simi Valley, California-based company has a market cap of $491.3 million dollars, with shares currently trading at $22.10, up 1.65 percent year-to-date. The company manufactures small drones for both military and commercial applications.

iRobot Corporation (IRBT) – The Bedford, Massachusetts-based company is the maker of the popular-ish disc-shaped Rumba automated vacuum cleaner, but has moved into drone technology as well. The $895.7 million market-cap company is developing drone technology for commercial uses, as well as healthcare, maritime and ground systems. Shares are trading for $31.52, up over 68 percent on the year.

Moog Inc. ($MOG-A) – The East Aurorora, New York company has a market-cap of $2.38 billion, with shares trading for $52.53. Moog develops unmanned vehicle components such as systems for flight control, navigation and guidance, weapons bay, and landing gear extension, to name a few. The company’s stock is up 28 percent so far on the year.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


Symbol Name Price Change % Volume
AVAV AeroVironment Inc. 23.55 -0.18 -0.76 107,185
BA Boeing Company (The) 143.31 -2.23 -1.53 7,857,081
IRBT iRobot Corporation 49.46 0.53 1.08 549,930
LMT Lockheed Martin Corporation 248.53 -1.56 -0.62 1,294,373
PGUZ Pegasus Pharms Inc 0.00 0.00 0.00 0
RTN Raytheon Company 136.28 -5.00 -3.54 3,892,591
TXT Textron Inc. 39.57 -0.28 -0.70 1,297,217


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