The UAV Market Is Good for Northrop, But Expanding Drone Missions Poses Challenges

Last Updated May 5, 2010 10:11 PM EDT

Northrop Grumman (NOC) reported its most quarterly results last week, and unlike competitors Boeing (BA) and Lockheed Martin (LMT) it boosted its projected income for the year. A good portion of this improved performance reflected sales of its Global Hawk drone -- one of several unmanned aircraft that are becoming an increasingly important part of the U.S. arsenal.

Over the last two decades, the U.S. has made a significant investment in such unmanned aerial vehicles, or UAVs, spurred by the Israeli success at using drones to counter enemy air defenses. A UAV can go where a manned aircraft would face considerable risk to conduct reconnaissance and surveillance missions.

Since 9/11 the United States has heavily used UAV to conduct intelligence, surveillance and reconnaissance missions over Iraq and Afghanistan. These have been expanded by arming UAVs for precision missile strikes and target-of-opportunity attacks. In addition to the Army and Air Force, the Central Intelligence Agency (CIA) and Homeland Security are also longtime customers. The UAV have a longer range, higher endurance and are much more stealthy than aircraft and helicopters. The U.S. plans to expand the number and missions of the UAV over time.

Northrop's Global Hawk is a large, strategic reconnaissance drone developed to fly from the U.S. at high altitude. It was developed for the U.S. Air Force but is also coming into service with the U.S. Navy as well as being considered by Australia and other countries. Northrop says it expects Global Hawk sales of as much as $9 billion over the next several years.

Two other drones popular with the U.S. military are the Predator and its larger cousin the Reaper. These are made by General Atomics, a private company originally established to do research in nuclear technologies. The Predator fleet has been used in Afghanistan and Iraq to conduct surveillance and strike missions and recently passed 1,000,0000 flight hours as a fleet. The Air Force alone by 2008 had spent over a $2.3 billion on 292 Predator and Reapers.

The U.S. military will continue to invest billions in UAV systems over the next decade as they use these systems to conduct more and varied missions. The Army has already discussed plans to have unmanned aircraft fulfill some traditional helicopter missions, including troop transport.

That's a rather extreme example, since there are significant safety considerations when operating unmanned aircraft with people on board or in airspace with significant commercial air traffic. Air traffic frequently relies on visual flight rules, which require pilots to keep visual contact with other aircraft. The operator of the UAV obviously will have issues seeing the airspace around him without some sensor system built into the aircraft offering 360 degree view. These kind of issues will have to be worked out.

Wherever UAV systems will end up operating, companies like Northrop and General Atomics will continue to rake in revenue and profit. New companies that offer breakthrough systems or improved capabilities will also see growth opportunities. The UAV will become a more common system over the next several years as it expands its mission portfolio.

  • Matthew Potter

    Matthew Potter is a resident of Huntsville, Ala., where he works supporting U.S. Army aviation programs. After serving in the U.S. Navy, he began work as a defense contractor in Washington D.C. specializing in program management and budget development and execution. In the last 15 years Matthew has worked for several companies, large and small, involved in all aspects of government contracting and procurement. He holds two degrees in history as well as studying at the Defense Acquisition University. He has written for Seeking Alpha and at his own website,