Market for unmanned airplanes appears to be ready for takeoff

May 14, 2006|By JAY HANCOCK | JAY HANCOCK,SUN COLUMNIST

In what can only be described as a power dive, United Industrial Corp.'s stock went from $67.80 last Monday to $53.99 on Tuesday - a 20 percent drop.

The immediate cause was a profit report that missed analysts' forecasts. In the background was worry over the Iraq war.

Only in this case, the worry was that the war will wind down, at least for the United States and for United Industrial's Shadow unmanned aerial vehicles. The second Iraq war has done for UAVs what the first did for Patriot missiles: put them in the news and poured riches upon their manufacturers.

But prospects for UAVs and the companies that sell them go beyond the current conflict and even war itself. Expect UAVs to multiply in number and use in coming years. Look for United Industrial to thrive and eventually be bought by a giant such as Lockheed.

United Industrial's main division is AAI Corp. of Hunt Valley. AAI's big product is the Shadow 200, an overgrown toy airplane with optical and infrared cameras that do jobs once performed by reconnaissance patrols and spy satellites.

It weighs 330 pounds, has a wingspan of 13 feet and stays airborne for hours while transmitting intelligence to a command console.

The Shadow symbolizes the lean robo-military that Defense Secretary Donald H. Rumsfeld has championed. One plane does the work of a platoon. Whereas an F-15 fighter costs north of $35 million, a Shadow goes for $500,000, although communications and computer gear adds millions to the cost of a four-plane "system."

The Army has bought more than 150 Shadows in recent years and has 80 more on order. The planes have flown nearly 18,000 Iraqi missions, the company says. United Industrial's stock went from $12, as the war began, to nearly $70 last week, before the disappointing quarter and last week's tailspin.

The news that first-quarter profits were only $8.9 million, down nearly a third from a year earlier and a nickel a share under what analysts predicted, returned the stock to its price of two months ago. But the profit drop was misleading because last year's first quarter included a $7.2 million gain on a property sale.

Even so, the real story on AAI and United Industrial isn't about the last quarter or Iraq or the possible supplemental federal budget that everybody is drooling over. The real story is that they are in the middle of an industry that has only begun to hit its flight path, although they have many competitors.

The pilotless airplane is in the same state of development as, say, the bomber in 1930. The possibilities - for good and ill - are wide open.

Agencies and industries are waking up to the potential of an atmospheric matrix of satellites and global positioning systems that can steer UAVs with amazing precision.

Any situation in which it would be safer or cheaper to go airborne with no human is a potential market.

UAVs are scouting forest fires and weather systems. People are talking about using drone planes for crop-dusting.

The U.S. Border Patrol recently bought a Predator drone, made by AAI rival General Atomics, to look for illegal immigrants on the Mexican frontier. There are little surveillance UAVs that soldiers in Baghdad carry in backpacks and launch around the corner with a bungee cord.

In short, the future of aviation looks like the last few decades of space travel: unmanned flight makes a comeback.

The Pentagon brass loves UAVs.

"The potential for other missions for our unmanned systems is limitless ... homeland defense, disaster relief, combined arms operations, stability and support operations, and contingency operations to name a few," Brig. Gen. E. J. Sinclair said in an Army news release last week.

In January, Aviation Week & Space Technology magazine said worldwide procurement of UAVs is expected to average $1.7 billion a year from 2006 through 2013, with spending rising as time goes on. That's up from less than $1 billion estimated to have been spent last year.

There is no guarantee that AAI will get much of this work, but it seems in a good position to bid. The company is well-run, has a terrific balance sheet and is starting to make overseas UAV sales. Its medium-size UAVs are a great niche: not big enough to compete with drones that are basically regular aircraft, but large and complex enough to prevent easy entry to potential competitors. At last week's close of about $54, the stock sells for 19 times earnings - not bad for a growth company.

It's hard to believe that Boeing, Northrop Grumman or some other behemoth won't try to someday snap it up. In any event, the product it makes will probably be here long after Rumsfeld and Iraq are remembered mostly in history books.

jay.hancock@baltsun.com

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