We have written about the big and small duopolies in commercial aircraft. But it is too simple to think that this four-player OEM world will remain stable and dominating the space forever. Obvious new entrants are firms that are new developing commercial programs, including COMAC in China and UAC in Russia. These two alone will disrupt the duopolies over the next two decades.
But there are a host of potential future competitors that are not on anyone’s radar now. These are the very large number of UAV makers in the world. Developing new aircraft is very expensive and becoming even more so since aircraft have become more technology advanced. However, many of the technologies in aerospace used to manufacture UAVs and commercial aircraft are similar and likely transferable.
Development and manufacturing costs are driven by scale, and scale economics. UAVs today are making use of the latest communications technologies in order to enable these aircraft to fly remotely anywhere in the world. That technology could be provided for commercial aircraft, as some suggested (see here) in the wake of the Germanwings crash that has been initially alleged to be a pilot suicide. To make a vehicle fly, whether a small UAV or large commercial aircraft, requires overcoming the same fundamental laws. To control it remotely requires the same type of software.
We were astounded to find that there are currently 222 firms worldwide (no doubt changing frequently) developing commercial UAVs. There are over 300 developing military UAVs – no doubt many of the firms are entrenched in both markets. Clearly there is a lot of engineering talent being put to use making aircraft – which is in the end what a UAV is, just without a pilot.
In terms of the top ten countries (by volume of firms) involved with UAV development, there are some names one does not expect to see. For example, Norway is not known as an aerospace center, yet they have eight firms working on programs and make the top ten. Not on the list is Israel (listed at 21) which only has three firms. But it is the second largest exporter of military UAVs after the United States. The UAV business is nuanced.
The UAV industry is also diverse. UAVs are divided into categories – Nano, small, medium, large, fixed wing, VTOL, lighter than air and rocket powered. In other words we have devices that range from a Nano device weighing 0.016Kg to a device weighing nearly 23,000Kg . The range of capabilities is as broad as the range of sizes.
Spurring on the development of UAVs are firms like Amazon who want to be able to deliver items to customers using these devices. Amazon has been public in its anxiety for the FAA to move much faster in evolving its regulations – it does tests outside the US to avoid breaking US law. This is similar to the regulatory delays that have been seen before with the deployment of Electronic Flight Bags (EFBs). By the time a device is approved, the technology has moved forward two generations. Aviation, especially commercial aviation, does not operate at the speed of technology development, particularly with computing and software technology that seems to evolve a generation annually. Rather than view this as a problem, we believe it to be a regulatory hurdle that can and will be overcome. But that is a separate matter from the focus of this story.
Of course, a UAV is not a panacea for labor costs, as it often takes more, rather than fewer people, to operate a UAV when compared to a manned aircraft. There are flight controllers sitting at a computer, personnel monitoring the operating conditions of the vehicle, and other support elements, including the communications network operations that are critical. But as technology improves, the future competitiveness of unmanned flight, or single pilot computer aided flight, will impact the industry over the next 20-25 years.
The Bottom Line
Will we see a commercial aircraft from a UAV manufacturer like General Atomics or Northrop-Grumman in the next few years? Maybe. As technology for software and security of that software improves, and the potential to enhance safety increases, there will be additional automation installed in commercial aircraft for safety purposes.
The question is whether the existing large commercial OEMs (who also develop and work with UAVs) have an insurmountable barrier to entry for new firms. Scale certainly helps to act as a barrier, as it is very expensive to develop a new commercial aircraft. But if competition is to arrive in the commercial aircraft market, a new entrant will likely to be found among the plethora of UAV makers who want to take on a larger challenge.
Creativity tends to be driven by smaller firms, who may not have the resources or scale of large commercial OEMs. But they may be the source for new ideas and projects that could change the future of aviation and could catapult them into the commercial space market, either as a platform OEM or perhaps a major systems integrator. If the next aerodynamic or software improvement comes from this market, and needs to be integrated into the next generation of commercial aircraft, a creative firm may have a natural advantage in technology.
All it may take is for a firm like Amazon to order 15,000 UAVs capable of carrying up to 50Kg to turn a nascent UAV firm into a much more capable organization. While such an order would be probably be approximately the current value of a mid-size commercial jet in dollar terms, it would change the UAV industry overnight. But once Amazon starts on this path, we would expect to see UPS and FedEx rush into the market as well, and more complex logistical problems than simply flying airport to airport being solved.
If the path to commercial success for the UAV makers is via freight deliveries, the natural extension will be larger freighter drones, possibly eventually growing to a size to replace today’s aircraft. Once that occurs, would passenger aircraft be far behind?
It is only 112 years since the Wright Brothers brought us their celebrated first powered flight. We’ve come a long way since, and the future looks bright with innovation and new designs just around the corner. Commercial aerospace will be technologically driven, and will remain so, driven by advances and technology transfer between military, UAV, and civil applications. Just don’t be surprised when the next invention comes from a name with which you may not be familiar.