Shaping a European UAS Ecosystem

By Nicholas Nelson

The ongoing Coronavirus pandemic is accelerating the use of unmanned aerial systems (UAS) across commercial, civil government, and defense markets. In the United States (U.S.) national security and privacy concerns have resulted in Chinese UAS companies (namely DJI) being frozen out of the defense and civil government markets, and potentially also the commercial segment. As a result, an array of existing companies and emerging startups are rapidly scaling into the U.S. government market. These companies are generating millions of dollars in revenue and thousands of high-paying innovative new jobs.

However, in Europe these concerns from national governments, the European Union (EU), and the North Atlantic Treaty Organization (NATO) has been somewhat muted. This is a significant missed opportunity for a European economy that is striving to grow its local and global innovation footprint in critical emerging technologies.

By sunsetting Chinese drones, at least for military and civil government usage, while providing contract opportunities and acting in tandem with private sector funding sources such as venture capital, European stakeholders can secure their national security enterprise from penetration risks stemming from the use of DJI UAS, but also provide a foundation to encourage the development of an increasingly critical, high-growth emerging technology area. This foundation can create an array of new high-paying jobs, innovative new products, and a self-perpetuating ecosystem for the benefit of European nations, NATO, and the EU.

Innovation and Europe

Emerging technologies and innovation remain an area where Europe still lags behind the U.S. and China. A useful proxy for measuring innovation is venture capital investment and by this proxy the gap between the U.S. and Europe is significant. In 2019, $136.5 billion was invested in U.S. companies compared with just $36 billion. This is despite the fact that Europe (in this case the EU plus the UK, Switzerland, and Norway) has a total population of over 520 million people compared with 330 million in the U.S.

For the UAS market this is just as stark. In terms of UAS startups receiving over $1 million in funding and least three years of operations, Europe has 34 UAS companies versus over 100 UAS companies in the U.S. Further the U.S. UAS companies received over five times as much venture capital funding as their European counterparts. Europe can begin to close this gap and reap the associated benefits of the UAS boom, but only if it works to address the UAS market holistically, across national governments, international organizations (including the EU and NATO), and the private sector.

Overall, the global UAS market is estimated at $8.4B, and is predicted to grow to almost $14B by 2025. And while commercial spending on UAS is trending up, the majority of historical and recent UAS spending has been concentrated on large defense platforms such as the General Atomics’ venerable MQ-1 Predator, its successor the MQ-9 Reaper, or Northrop Grumman’s RQ-4 Global Hawk.

The Market and China’s UAS Dominance in Context

However, this spending is trending towards smaller UAS (sUAS) platforms. This global sUAS market across commercial, civil, and even defense is dominated by China. DJI alone is estimated to hold a 74% market share globally, with estimates as high as 80% of the European market.

Increasingly, governments and international organizations are acquiring and deploying sUAS for a range of functions, including disaster relief, agriculture monitoring, and military ISR (Intelligence, Surveillance, and Reconnaissance). The latter is of particular concerning given the operational security concerns that continue to be highlighted by national security and defense leaders in the U.S. and Australia.

U.S. Case Study – Opening up a $1B+ market

The path to opening up the sUAS market in the U.S. began in 2015, with an array of companies entering the nascent market, then valued at $3B. By 2017, although this market grew to almost $5B, competitors rapidly exited the market or went out of business with DJI rapidly seizing the majority of the market, eventually reaching a 70% market share, including almost 90% of U.S. civil government.

However, escalating tensions between the U.S. and China, along with growing security concerns, led the U.S. Army to call an end to the use of DJI equipment army-wide in May 2017, with other military services following suit. In response, an array of new UAS companies backed by venture capital funding emerged, along with UAS companies from ‘friendly’ nations, to vie for what one CEO called an over $1B opportunity.

On the heels of this, the U.S. Department of the Interior, one of the largest drone operators in the U.S. government, grounded their fleet of hundreds of DJI drones in 2019. These decisions were reinforced by the FY20 NDAA banning DJI use across the U.S. Department of Defense and the pending 2020 American Drone Security Act which would ban DJI and any other Chinese UAS company across the entirety of the U.S. Government. This has led to further growth of new entrants, already creating hundreds of new, high-skill jobs in at least a half-dozen states. Major opportunities such as the U.S. Army’s Short-Range Reconnaissance (SRR) Program and ASTRO, a forthcoming contract vehicle with a rumored $100 billion plus ceiling, will continue to drive this market forward. This has been a critical component in significant new funding for drone hardware startups.

The three startups down selected for the U.S. Army’s Short-Range Reconnaissance contract, which grew in part out of its 2017 ban of DJI drones, have alone raised $107.6 million in the last two and a half years, creating an estimated 150 new, high-paying jobs. According to George Matus, the CEO of Teal Drones, one of the companies down selected for SRR:

“Two years ago, I decided to pivot Teal from the consumer segment into the national security arena with our unmanned system platform. This was largely due the market opportunity that opened when the U.S. Army (and later DoD) banned use of drones manufactured by entities domiciled in covered countries, like China. Millions of dollars in research and development capital were rapidly deployed, along with a seemingly insatiable demand for products coming from America’s own industrial base.”

In addition to this, further additional opportunities have come from rapid award contracts and non-dilutive investment matching from the U.S. Air Force, the Defense Innovation Unit, and other U.S. defense organizations. And this only represents a small segment of the growing UAS ecosystem and funding opportunities. Overall, in less than three years, the U.S. Government has fundamentally changed its national UAS market and created new opportunities for leading innovators and companies.

The Path Forward for Europe

Currently, many European militaries, most notably France and Germany, actively use DJI UAS for a wide-range of functions, while others like Denmark and the Netherlands use DJI, but only for non-sensitive operations. Further, civil use of DJI UAS by European national governments and organizations has only grown during the Coronavirus pandemic.

If European nations, institutions, academia, and the private sector wish to address this and create these new opportunities for innovation, the first step is aligning on a vision. This vision should focus on creating a resilient ecosystem via three critical lines of efforts:

Support from National governments, the EU, and NATO, via grants and contracts for UAS R&D, development, and manufacturing

Creation of test and certification processes and sites throughout Europe, each with relevant specializations. U.S. Federal Aviation Administration test sites are a good reference point for this

Incentivizing European companies to expand in the UAS market, attracting existing UAS companies from friendly countries, and seeding the market to enable new startups to form and gro

But for these to succeed, Europe needs to provide white space for these efforts to take root. This white space should start in defense and security markets, with a ban on DJI by international organizations and national militaries. The EU and NATO can, and should, take a leadership role in advancing these discussions internally and within European national governments. As NATO enhances standards and interoperability between Alliance members, the issue of national militaries fielding Russian weapons and systems has been an ongoing issue. On this issue, Western systems and replacements have been sold under favorable terms with financing support and relevant services. UAS should be no different.

Additionally, programs such as NATO’s Maritime Unmanned Systems Initiative, which is resulting in the development of new use cases and technologies, can offer a useful engagement roadmap for these efforts.

Going forward the EU and NATO should cooperate in engaging national stakeholders and advocating for a military and eventual civil government use ban on Chinese drones. At the same time, as detailed above, via civil-military cooperation, these organizations should align funding for UAS R&D and procurement, as well as a roadmap for acquiring new UAS capabilities and assets.

With this, Europe will address security concerns, enhance its resiliency (particularly relevant and critical in the post-Coronavirus world), expand market for existing and new European companies, and attract greater venture capital investment in Europe to create new technologies and high-paying jobs. Without doing so, Europe will not realize the economic benefit of the UAS boom and will remain dependent on an authoritarian state for what is rapidly becoming a critical security and commercial technology.

This article was published by Defence iQ on June 2, 2020.