Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Northrop Grumman Corporation (NOC), The Boeing Company (BA): Will Obama Help Increase Foreign Drone Sales?

In the late 1980s, the United States, along with more than 30 countries, signed an agreement called the Missile Technology Control Regime, or MTCR. The goal of the agreement was to control the Cold War-era proliferation of weapons of mass destruction, or WMD.

However, the MTCR also stifled foreign sales of unmanned aircraft because of what’s called “presumption of denial.” Basically, that’s when a company decides not to compete for a foreign arms contract because it knows it’ll be denied under the terms of the MTCR. But if the Obama administration is successful with its Export Control Reform initiative, the rules that govern the sale of unmanned aircraft systems, or UASes, could be re-examined. That’s potentially great news for Northrop Grumman Corporation (NYSE:NOC) and General Atomics.

General Atomics MQ-1 Predator. Image: U.S. Air Force, via Wikimedia Commons.

Navigating the arms-race fallout
The MTCR was designed to limit WMD delivery system sales by creating two categories. Category 1 items, which include UASes capable of delivering a payload of 500 kg to a range of 300 km, are subject to “unconditional strong presumption of denial regardless of the purpose of the export and are licensed for export only on rare occasion.” In other words, the U.S. government — specifically the Department of Defense, Department of State, and Congress — almost always deny exports of these types of systems. Clearly, this is bad news for Northrop Grumman Corporation (NYSE:NOC)’s Global Hawk, and General Atomics’ Predator and Reaper.

In fact, in 2011, James Pitts, then head of Northrop Grumman Corporation (NYSE:NOC)’s Electronic Systems unit, told the Financial Times, “Countries have an insatiable appetite for drones … and unless something changes in U.S. policy [UASes] will be another area where in five years we will look back and say, ‘Gee, we missed the boat, the U.S. missed the boat.'”

Why this matters
According to the Teal Group, from 2012 to 2021, there will be an estimated $28.5 billion spent on UAS R&D, with the U.S. market accounting for 62% of that figure. The U.S. market is willing to spend so much on UAS R&D because there’s an estimated $60.6 billion UAS procurement market over that same period. Also, according to the Teal Group, the U.S. has a clear competitive advantage over exporting rivals such as China, Israel, and Europe.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.