04 Mar 19. Queens of the Drone Age. Christmas farce at Gatwick Airport was their first experience of a drone. Numerous sightings of an errant, unmanned aerial vehicle hovering in restricted airspace, with little discernible motive, brought the UK’s second-busiest airport to a standstill. Cue a media feast, the wrongful arrest of two local would-be drone operators, and thousands of stranded holidaymakers. And then the drone flew away. Gatwick Airport used “military-grade kit” to respond to the drone, according to an airport spokesperson and has since “invested several million pounds” in drone-related technologies. Gatwick would not confirm the identity of any companies involved in shoring up its anti-drone defences.
Drones have therefore, unfortunately, left a mixed recent impression on a largely ignorant public. According to think-tank Nesta, only around 30 per cent of the UK had a “good understanding of drones and their uses” as of December 2017. This could be untimely for companies developing drone technology, which will likely need public assent to be successful. Amazon (US:AMZN), for example, has invested heavily in unmanned vehicles, making its first ‘Prime Air’ delivery in December 2016, taking just 13 minutes between the time of the order and delivery. Since the Gatwick fiasco, the UK government has rushed to update arcane legislation surrounding unmanned vehicles. In February, the Department for Transport (DfT) and the Civil Aviation Authority (CAA) launched a partnership with retailer Jessop, with the aim of reducing the number of public misdemeanours with drones.
But for all the bad press, drones still offer huge potential for society. The military application of drones has been under way for over a century – in combat, drones offer a way to scout, attack and conduct bomb disposal without risking human lives. Anti-drone technologies, too, offer up a vast market for defence companies. And their potential in civil society is far greater than Amazon deliveries. Here, pioneers view the devices as forces for good. Under-pressure emergency services and transport networks stand to benefit immensely from drones, saving time, money and human resources.
Military drones dominate the market
A drone is often imagined as an unmanned aerial vehicle, but the existence of land and seaborne drones broadens this definition. The drone age is largely viewed as having started during the First World War, when the British began testing the Ruston Proctor Aerial Target, the world’s first unmanned winged aircraft. It was followed by the bomb-carrying Kettering Bug, which was built by the US and first flew in 1918.
In modern times, aerospace and defence engineer QinetiQ (QQ.) is undoubtedly a pioneer of military drones. Rival Meggitt (MGGT), admittedly, did some of the groundwork for it, selling its drones business to QinetiQ in 2016. QinetiQ Target Systems offers an array of drones for land, air and sea and supplies more than 40 countries, 15 of which are Nato members. QinetiQ is also active in the counter-drone space, and its OBSIDIAN radar is used by the British Army. In a 2018 trading update, QinetiQ said that Target Systems was “leveraging wider group capabilities to enhance its product portfolio”, and has recently won orders from Scandinavia.
When it sold Meggitt Target Systems to QinetiQ, Meggitt said that the disposal was “consistent” with its strategy “to focus on businesses of scale in attractive markets where leading positions offer greater potential for growth and operational efficiencies”. It now has no meaningful exposure to drones, but is not alone in this respect. While fleetingly active in some drone technologies, defence technology specialist Cobham (COB) does not have a significant interest in the market. Meanwhile, in an indication that some sections of society are still yet to be won over, in 2013 Ultra Electronics (ULE) saw investment from Edinburgh University cut following student concerns over social responsibility. Ultra has manufactured control systems for Predator and Reaper drones, which are used by the US military, for several years.
Defence engineers are joining forces
Drones also offer scope for collaboration between engineering groups. The Taranis military drone was jointly developed by BAE Systems (BA.), Rolls-Royce (RR.), QinetiQ, a subsidiary of General Electric (US:GE) and the MoD. Taranis can perform a range of functions including surveillance, marking targets, gathering intelligence and carrying out strikes in hostile territory. BAE’s activities in drones are so far limited to the military sphere. It is currently concentrating on integrating the Taranis, MANTIS and Herti drone programmes “into the future air combat strategy for the UK”, according to a BAE spokesperson. Rolls-Royce, meanwhile, has developed a number of engines for drone aircraft, and is also developing commercial drone ships in partnership with American tech giant Intel (US:INTC)
Graham Carberry, a partner at mergers and acquisitions specialist Livingston Partners, estimated the share of the UK drone market at around 75 per cent military, compared with the civilian space. Technological crossover between the military and civil drones is currently limited, according to Mr Carberry, but “the sensor technology that goes into them absolutely does get passed down” through the commercial chain, he adds. Restrictions on the use of military technologies also exist – the International Traffic in Arms Regulations (ITAR), for example, prevent suppliers from selling technologies used by the US military to other countries, “particularly non-friendly countries”, according to Mr Carberry.
Civilian drone market threatens radical social change
The thought of a giant robot bee dropping explosives is nightmarish. Yet it’s arguably less terrifying than the idea of airborne worker ants flying bags of human blood and organs around cities, and above our heads.
But that’s exactly where civilian-use drones are expected to land. Kathy Nostine, who runs Nesta’s drone research programme, is working with five cities to pioneer the use of drones in public service, including London and Bradford. In London, Crossrail has tested using drones as part of its construction process, while Transport for London has contracted rail maintenance provider Lanes Rail to conduct asset surveys using drones.
“They were especially interested in the potential public service use of the drones,” she says, particularly for the purpose of responding to emergency incidents, carrying items between hospitals and carrying out maintenance work. Here, the benefits of drones include cost savings and the reduction of risk to workers, Ms Nostine observed, while privacy and safety registered among cities’ concerns.
Cohort (CHRT), a holding company whose activities include defence consultancy and technology provision, looks to have entered this sphere already. Its subsidiary Marlborough Communications Limited (MCL) is busy adding to its order book for UAVs. It recently landed an exclusive contract to supply the Skyranger drone, built by US specialist Aeryon, in the UK. Approved for domestic use this year by the Ministry of Defence (MoD), Skyranger can be used in both the military and civilian spaces, according to Cohort chief executive Andy Thomis, offering assistance to firefighters and leaders of search and rescue operations. “MCL is already working with a number of major fire and rescue services in the UK”, Mr Thomis says.
Meanwhile, in December, Cohort acquired Chess Dynamics for £20.1m. Located near Gatwick airport, Chess provides drone surveillance technologies that have been credited with over 1,000 combat kills during two years of service in the Middle East. While predominantly concerned with military activity, Chess appears able to support civilian activity too. In January, its managing director told The Telegraph that “we are in communication with Heathrow [airport] and actively involved in finding a solution” with regards to drones. Chess Dynamics declined to comment.
The future of drones in the UK is exciting, but Ms Nostine recognises that we have ground to make up in regard to our regulation of drone use. “I think that the UK is definitely at the risk of being left behind,” she says, comparing regulatory advances made in the US, which have opened up airspaces for more pilot projects. She observed that China and Singapore are frontrunners, and pointed to Switzerland, which already uses drones in support of its medical services. “Using drones to perform those tasks seems like a no-brainer”, she said.
BAE Systems recently announced the conclusion of a $132m (£104m) signals intelligence programme for the US Army’s Gray Eagle UAV, and expects follow-on awards in 2019. The defence giant secured an overall order intake increase of £8bn over 2018, including the Australian government’s decision to award a contract for nine Future Frigates under its navy’s Hunter Class Frigate programme. It should be said, however, that concerns still exist over the future of the pan-European consortium working on the Eurofighter Typhoon in Saudi Arabia – for which BAE is the lead contractor – following the German government’s decision to impose an embargo on the sale of arms products to the Saudi regime following the murder of journalist Jamal Khashoggi.
At the time of writing, Ultra-Electronics was one of the most heavily shorted stocks on the UK market, according to data from Castellain Capital. In December, the defence contractor reduced its bottom estimate for full-year cash conversion, placing its range at between 65 per cent and 75 per cent. This was lower than the expected range of between 70 per cent and 75 per cent set at the time of Ultra’s half-year results. It pointed to increased working capital requirements arising mainly from the higher order book, underlying revenue growth and a constrained supply chain. A bad year for Ultra reached its nadir in April, when an investigation was launched by the Serious Fraud Office into suspected corrupt business activities in Algeria by Ultra, its subsidiaries, employees and associated persons. (Source: Investors Chronicle)