1984 is famous for describing perpetual war; an un-winnable, but ever-present conflict. In the Second World War the globe saw total war throughout every continent. Nation’s entire economies and societies reoriented themselves around military objectives. Now, the world is slowly entering into a new stage of less obvious, but perpetual conflict through drone warfare. A number of military contractors are setting themselves up to benefit from this new system.
Unclear Legalities are a Boom for Military Contractors
The 2001 Authorization for Use of Military Force has been liberally interpreted and used to engage in a U.S. drone war from Pakistan to Yemen, killing thousands. Yet, the U.S. has never officially declared war against Yemen or Pakistan. Firing thousands of missiles isn’t cheap. The ability of the U.S. to engage in significant armed operations in various nations without congressional approval is great news for military suppliers. The need for congressional approval would further limit the number of armed conflicts the U.S. can engage in and the need for company’s goods and services.
Currently, unmanned aerial vehicles (UAVs) are just slightly less expensive than manned aircraft, due to the large number of workers required to babysit UAV systems. Second generation drones are increasing their autonomous capabilities and decreasing the number of man-hours required per hour of operation. These systems are a great fit with the U.S. military’s push to decrease costs, and progressive military contractors recognize the profit opportunity.
The Boeing Company (NYSE:BA) sells unmanned drones in addition to their popular civilian aircraft. It developed the X-45 as a test, but in the end it didn’t win the Navy’s contract. Through its INSITU subsidiary it sells a number of low cost and easy to launch surveillance drones. These little drones are great export products as UAVs are the latest must-have toys for any respectable military.
The Boeing Company (NYSE:BA) is a good company to watch as it gains a large portion from its revenue from civilian aviation contracts. These contracts help to limit the impact of short term Pentagon cuts. Also, its civilian operations give Boeing a large amount of experience in aircraft production that can be transplanted into its future UAV products. The Boeing Company (NYSE:BA) boosts a return on investment (ROI) of 26.3% and a gross margin of 18.2%. Its total debt to equity ratio of 1.77 is rather high, but The Boeing Company (NYSE:BA) is stable multinational with a large order book.
Northrop Grumman Corporation (NYSE:NOC) produces the popular RQ-4 Global Hawk reconnaissance drone and is developing the MQ-4C variant for the U.S. Navy. These high flying surveillance aircraft are more flexible than satellites, yet don’t require the U-2’s complicated oxygen systems. Northrop Grumman Corporation (NYSE:NOC) won the important X-47 contract to develop a carrier drone. The development of this drone is an important landmark, because it shows that drone technology is maturing to the point where it can deal with challenging carrier takeoffs and landings.