A Drone's Eye View of UAS

Happy belated Independence Day! We hope you enjoyed celebrating the genesis of our great democratic experiment as much as we did. We took the time to be with friends and family and reflect on how defense tech will enable the experiment to keep going. We’ll be back to regularly posting on Tuesdays next week.

In this week’s edition:

• 💸 UAS: Commoditized hardware or software?

• 💰 Term Sheet

• 🚩 Red Team Update

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UAS: Commoditized hardware or software?

Recent geopolitical events have underscored the pivotal role of Unmanned Aircraft Systems (UAS), or drones, in modern warfare. The skirmishes in Syria, the Armenia-Azerbaijan conflict, and most starkly, the Ukraine-Russia war, have all provided compelling use-cases for drones on the modern battlefield. According to The Economist, Ukraine alone deploys over 10,000 drones per day to fortify its defenses against the Russian invasion. Notably, much of the hardware in use stems from Commercial Off-The-Shelf technology (COTS), underscoring the accessibility and adaptability of these systems.

The Department of Defense (DoD) is also echoing this paradigm shift. It's actively developing advanced UAS alongside optionally crewed aircraft as part of its modernization strategy, highlighting the significance of unmanned technologies in contemporary and future warfare. Commercially available drone technology, while rapidly advancing, is still some distance from being capable of contributing to defense scenarios like that of Taiwan. Current consumer-grade drones cannot yet operate over-the-horizon or at distances of 100 nautical miles, particularly in challenging environments like GPS-denied areas. Nevertheless, the DoD is actively pursuing the development of advanced drones designed to fulfill a range of mission sets, bridging this capability gap.

Historically, UAS have performed the following roles:

• Intelligence, Surveillance and Reconnaissance (ISR)

• Close Air Support (CAS)

• Communications Relay or Battle Management

Potential new roles and missions for UAS:

• Aerial Refueling

• Air to Air combat

• Combat Search and Rescue or Casualty Evacuation

• Cargo and Resupply

• Strategic Bombing

• Battle Management and Command and Control

• Suppression and Destruction of Enemy Air Defenses (SEAD)

• Electronic Warfare (EW)

DoD is evaluating or developing emerging concepts:

• Aircraft System-of-Systems (think NGAD which we profiled here)

• AI Enabled Manned and Unmanned Teaming

• Autonomous Dogfighting

• Swarming

• Lethal Autonomous

• Counter UAS or C-UAS

The shift in DoD strategy is not just about manufacturing more drones; the value proposition is pivoting towards software capabilities and the ability to execute specific mission sets. Drones are becoming hardware commodities, yet, it can also be the software - the specific operational capabilities that confers - that separates one UAS from another.

At the same time, there’s a clear mismatch between what the DoD is spending to procure UAS and what’s happening in the commercial market:

• DoD: $2.6B across 29 programs (budget request)

• Global commercial: estimated at $30B for 2023, growing to between $72-102B by 2030.

Granted, much of the DoD funding is for procuring exquisite capabilities which can’t be bought COTS while the commercial market opportunity represents much greater production volume across many more suppliers, but it’s another clear argument for the appeal of dual-use technologies and for DoD being a fast-follower when it comes to UAS of Groups 1-3 especially.

However, the true dual-use opportunity may be much smaller than $30B since the DoD has prevented “the use of taxpayer dollars to procure UAS that present unacceptable risks and are manufactured by, or contain software or critical electronic components from, foreign adversaries [North Korea, Iran, PRC, Russia], and to encourage the use of domestically produced UAS” as codified in Executive Order 13981, January 2021. This precludes at least 54% of the commercial market since Da Jiang Innovations (DJI) was estimated to control at least that much in 2021:

It turns out that DJI has received investment from at least four state funds with direct ties to the government in Beijing. So this UAS design and manufacturing protectionism, which is clearly needed for matters of national security and to limit the PRC’s ability to infiltrate whatever UAS systems and architectures DoD procures, also gives new American entrants an advantage in dealing with DoD via “buy American” mandates.

And the dual-use nature of COTS UAS is no longer theoretical - we’re seeing it play out in real time every day in Ukraine, where ingenuous engineers and commercial drone companies have been routinely modifying their systems to supplement or replace traditional military capability. There UAS have been used extensively as artillery and indirect fire spotters (traditional ISR role), but also as cheap loitering munitions - whether by dropping ordnance for platform re-use or one-way kamikaze missions.

Last week we highlighted the work of Firestorm Labs, showing how their 3D-printing approach tries to circumvent the contested logistics problem via on-site production to produce affordable mass. But given the huge UAS commercial market, the proliferation of military and civilian use cases for drones, where does a company like that fit in? How is the commercial drone market segmented? Here’s one way to break it up that we think makes a lot of sense, via the analysts at Drone Industry Insights:

There’s literally thousands of American companies working in this UAS space, especially when considering any of the hardware, software, and services verticals. We’ve taken a more focused look at seed and early-stage VC funding in the space since 2021:

Hardly a fully scientific sample, but the interesting takeaway from these two early-stage UAS funding charts is that most of these companies are actually building hardware or doing systems integration. Even the ones that do offer software as a product or service aren’t solely focused there and have some sort of platform or hardware solution as well.  

So despite the commoditization of drones, there’s still a hardware play as a platform provider or system integrator, at least in the commercial space. While the DoD is still focused on more exquisite systems, UAS is one of the areas where a dual-use play makes complete sense: there is a robust commercial market and recent investments in hardware, while the DoD slowly pivots towards sUAS architectures and systems as mandated by their recent successes in the war in Ukraine.

Red Team Update

China Develops ‘UAV-Compatible’ Directed Energy Weapon

• Groundbreaking Energy Transmission: Researchers from China's Northwestern Polytechnical University (NPU) have successfully powered a drone using high-energy laser beams, effectively enabling the drone to stay airborne indefinitely. By eliminating the need for an onboard power source, the drone can potentially carry other systems with varied applications. This technology has significant military applications and has the potential to transform how drones are utilized in both warfare and civilian contexts

• Technological Innovations: The research team fitted the drone with a photoelectric conversion module to convert light energy into electricity, then used a high-energy laser beam to track and remotely power it. To enhance the range of wireless power transmission and overcome environmental challenges, they also developed an adaptive beam-shaping technology to adjust laser intensity. Additionally, a tracking algorithm was created to follow and accurately predict the drone's location while airborne

• Military and Civilian Applications: While specific details on system range and photoelectric conversion efficiency have been withheld due to potential military use, the development has clear implications for various fields. A drone with almost 24-hour endurance offers extensive options in areas like disaster management, traffic management, and search and rescue during natural calamities. The technology, however, is still in its early stages and would need considerable refinement

Iran Is Assisting Russia with Drones - Totaling 1,700 to 6,000 Drones by some estimates

• Iranian drones used by Russia: Iranian-made Shahed-136 drones, also known as the Geran-2 by Russian operators, have been used in Russia's invasion of Ukraine. These drones, primarily utilized against infrastructure targets in Ukrainian cities, are an important sign of Tehran's political support for Russia. Despite denials for months, Tehran admitted in November that a small number of UAVs were sent to Russia before the February invasion. Iran, however, maintains that this supply has now stopped

• Shahed-136 drones: cost-effective, relatively easy to spot due to their large and noisy nature, and designed for use in swarms, making it difficult to protect targets. Despite their simplicity and unsophistication, they are effective against large and static targets, rather than smaller and mobile military ones. There have been reports of successful use of Shahed-136s against the Ukrainian military earlier this year

• The Shahed-series drones have been controversial due to their use in attacks in several other countries including Syria. They have allegedly been used to support Houthi rebels in Yemen, and have been involved in attacks against Saudi Arabian oil facilities. As a result of Russia's use of these drones in Ukraine, both the European Union and the United States have imposed sanctions on Iran and companies involved in the production or transfer of these Iranian UAVs to Russia

About Us

Our team has 30+ years of combined experience as military officers using the end products. We’ve worked in both government and industry. From MIT to Wharton, Wall Street to biotech, and DARPA to the flightline, we offer you a unique perspective on how to navigate America’s defense tech industry.

The opinions expressed in this newsletter are solely those of the authors and do not necessarily reflect the views of DoD, our employers or any affiliated organization. This newsletter is for informational purposes only and is not intended to provide legal, financial or professional advice.OustedOut