Defense contractor Lockheed Martin and AeroVironment Inc. have signed an agreement to jointly pursue opportunities in the unmanned aerial vehicle (UAV) space.
The announcement, made Feb. 6, 2014 at the Defense Expo in India, revolves around AeroVironment?s Global Observer, an aircraft with a wingspan of 175 feet that?s designed to stay in the air at 65,000 feet for one week straight, enhancing the capabilities of military aircrafts.
The deal will focus on integrating Lockheed Martin mission systems, ground systems and technology with the Global Observer to build an atmospheric satellite system for surveillance, communication relays and remote sensing purposes.
?At Lockheed Martin, we look forward to partnering with AeroVironment to potentially develop integrated solutions for the unmanned systems market,? said Paul Lemmo, Lockheed?s senior vice president of corporate strategy and business development. ?Using our expertise in systems integration and AeroVironment?s knowledge of unmanned aircraft solutions, we will together look for opportunities to develop innovative technologies that create value for new and existing customers.?
A Match Made in Heaven?
Lockheed has long been looking to grow its presence in the unmanned systems category. In Dec. 2012, Lockheed acquired CDL Systems, a Calgary-based unmanned vehicle control software maker used by Boeing, Textron, AeroVironment and Northrop Grumman.
AeroVironment has struggled with the Global Observer, which is a stray from the company’s successful smaller drones like the well-known Raven, Wasp and Puma. Lockheed has focused on larger aircrafts in the past, so this deal could be a great opportunity for the companies to learn from each other, or it could be a last-ditch effort to infuse new technology into the Global Observer to finally get it off the ground.
A US soldier launches an AeroVironment RQ-11 Raven unmanned aerial vehicle.
AeroVironment has described the Global Observer as being able to “satisfy numerous high value civil and commercial applications,” so Lockheed and AeroVironment could explore civil and commercial UAV opportunities as well.
Daily Finance takes this deal a step further, saying it’s great news for shareholders of AeroVironment because “farther down the road, Lockheed Martin could conceivably decide to buy AeroVironment – with its $660 million market cap, it would be a small meal for Lockheed – and give its own single-digit-growth rate a nice boost in the process.”
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For shareholders of AeroVironment, this is big news – and a big reason why AeroVironment shares rose 8% in the two days following Lockheed’s announcement. As a small defense contractor with barely $210 million in annual revenue, AeroVironment is highly sensitive to small blips in defense spending patterns. Already, cuts in Pentagon budgeting have analysts, quoted on Yahoo! Finance, taking down the company’s projected growth rate from 20% just a few months ago to just 14% today. A tie-up with a larger, more stable defense contractor like Lockheed Martin could be a real boon to AeroVironment.
Only time will tell, but AeroVironment has seen revenue drop in four consecutive quarters, reporting an 80 percent downturn in quarterly net income for its fiscal second quarter 2014. Drone sales for the quarter, which ended Oct. 26, 2013, fell 14.3 percent to $56.1 million from $65.4 million in the same quarter last year.
The Global Observer seen during a flight test. (Photo: AeroVironment)
Global Observer Struggles to Take Flight
According to InsideDefense, Pentagon spokeswoman Maureen Schumann said in April 2013 that “currently, no service or defense agency has advocated for it to be a program.? AeroVironment had spent $27.9 million in R&D for the drone since 2007, “which came to an end in December [2012] when the Pentagon closed down its development contract.”
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In February 2012, the Office of the Secretary of Defense told Congress the Pentagon was contemplating further exploration of Global Observer technologies by “returning to the tech base.” Asked last November about the status of Global Observer, Pentagon spokeswoman Lt. Col. Melinda Morgan told InsideDefense.com, “No decision has been made about the future of the program at this time.”
However, the following month, the Pentagon decided to pull the plug.
“Currently, no service or defense agency has advocated for it to be a program,” Maureen Schumann, a Pentagon spokeswoman, told InsideDefense.com on April 18. “The contract closeout actions were completed by USSOCOM in December 2012.”
AeroVironment had built two Global Observers prototypes, the first of which crashed during a test flight at Edwards Air Force Base in April 2011. According to Wired, the Pentagon “ordered a second prototype called the GO-2 before the first prototype?s crash, but then renegotiated with the company to buy back the drone before it was completed.”
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The Pentagon also envisioned many missions. The drone?s 380-pound payload of spy cameras and sensors could stare at a diameter of 600 miles of earth at once, while doubling as a communications relay. It could patrol the oceans and possibly track hurricanes – the Department of Homeland Security was interested in it too.
But now no one wants the giant drone.
And the competition is stiff for AeroVironment, too, competing with Boeing’s Phantom Eye drone and Northrop Grumman?s unarmed Global Hawk.
AeroVironment believes the Global Observer is one of its major growth opportunities for the next three to five years. With this deal, Lockheed and AeroVironment will look to sell the unmanned aircrafts overseas to provide communications and surveillance more cost-effectively.
?Numerous customers are seeking persistent solutions for wide area applications, such as border surveillance and communications, that are much more affordable than those available previously,? said Roy Minson, AeroVironment senior vice president and general manager. ?Lockheed Martin?s broad systems integration expertise gives us the opportunity to work together and develop innovative, end-to-end atmospheric satellite systems built around Global Observer that deliver breakthrough capabilities to customers.?
