An Article by Dr. Nir Tenenbaum (DVM)
The commercial/Civil UAS Bubble?
On April 14, 2014, news broke that Google acquired a drone manufacturer that was just investigated for acquisition by Facebook, following Amazon’s announcement on December 2013, of its Prime Air project, planning to offer 30-minute deliveries via drones and sending an already fueled arena atwitter, declaring the imminent delivery of pizza, beer and flowers right to your doorstep.
The promise of the commercial drone market, or unmanned aerial systems (UAS), has been a high-profile subject in recent years, as evident by the increase in financial speculations and publications celebrating its imminent success, which has been reinforced by a rise in the number of private manufacturers and investments worldwide. Companies are dedicating themselves to the projected future roles of commercial UAS in our daily lives and are brimming with anticipation for the floodgates to open.
But what if this is just wishful thinking?
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Economic bubbles are typically defined as an unjustified run-up in asset prices, which is not supported by the fundamental factors of supply and demand that traditionally affect traded commodity or financial instruments. By definition a bubble is a non-sustainable pattern, which in this case can be expanded to include the psychological gap in the global mindset between current trends, hopes and wishes, and the realistic hard facts that may apply when one objectively analyzes the overall timeframe and market conditions.
Electric cars (EC) began as a concept over 100 years ago and launched into everyday reality by the 1990s, with the introduction of the GM EV1, and later with its unfortunate failure by 2002. Nevertheless, the idea survived, thrived and seemed just around the corner by 2007, as oil prices climbed and “green” lobbies became stronger, driving every known manufacturer to test its EC concepts, confident that the right design – their right design – could revolutionize the market and take off in what seemed to be the era of the hybrid car.
In a similar pattern, model aviation was first introduced almost 80 years ago with RC model aircrafts, changing into actual mission UAS in the 1970s, as more and more military systems operated in the field, evolving constantly into new technological capabilities of platforms and payloads. The semi-recent decline in military operations and expenditures along with increased globalization, access to materials and information and open source databases expended the model aircraft community and presented the opportunity for a “civilian-commercial” UAS market, bringing forth new manufacturers that produce complex, semi- and fully-autonomous technologies.
The great surge of interest in the concept of the electrical car was also unmistakably evident in the last two decades, with hundreds of articles promoting the concept and celebrating its arrival and market potential, at times ignoring actual market data – a trend that is evident even now, with the arrival of 3rd generation models celebrated as the new EC revelation. Regardless of recent relative success, no EC company has yet to show actual profit solely based on its product line, making the close future and role of the electrical vehicles vague.
When one scrutinizes the actual data, published by supporters of the EC cause (Global EV outlook 2012), one realizes that after 25-plus years of progress, and despite huge theoretical potential, electric cars still make up only 0.02 percent of all motor vehicles, representing a total of roughly 180,000 vehicles on the road globally, versus just an average of 18 million standard vehicles sold each year. Nevertheless, efforts continue, recognizing new complexities, creating new long-term strategy, analyzing hindering difficulties in the product’s own ecosystem and openly recognizing that the “green gospel” may need more time and some modifications.
The commercial UAS “gospel,” excluding “model aircrafts,” is evident by the hundreds of companies, academic institutions, and government organizations developing various UAS designs across all categories: military, government and commercial. Based on the foreseen regulatory environment, the United States Federal Aviation Agency, for example, projected a fleet of 10,000 active small UASs by 2016, growing to 25,000 units by 2021, as well as a projected increase to 30,000 units by 2030. On the same dedicated pattern, publications state that the UAS market will expand dramatically by 2025, with a projected worth of over $82 billion and employ around 100,000 workers.
This optimistic approach is not without merit as evident by recent regulatory developments, primarily due to the fact that the commercial UAS market has many untapped uses and expansion possibilities, including day-to-day commercial photography and mapping, agriculture, security awareness, disaster response, communication and broadcast, cargo transport, spectral/thermal analysis, infrastructure monitoring and maintenance, environmental monitoring, wildlife protection, archeology and much more; secondly, the emphasis placed on small-scale, locally operated systems; and finally over the “recency bias,” causing us to expect whatever happened most recently to continue even though the facts tell us it might be unlikely.
While market drivers and dynamics among UAS segments differ significantly, they share common objectives: to provide a service that cannot be accomplished by manned aircraft and/or to perform an existing manned operation at a lower cost (“The dull, the dirty and the dangerous”). The investments and technological advances in the UAS field, made by military organizations, have generated a growing interest in their potential use for civil, government, and scientific research, as well as their potential commercial applications.
Simultaneously, extensive efforts are ongoing to overcome the hurdles the market face, primarily from a privacy and regulatory standpoint, making sense of export regulations, and outlining the proper national and international integration of systems to current airspace conditions. The process seeks to accommodate unmanned systems based on the premise that operational safety must come first, that they will present what can be defined as a minimal and acceptable level of risk to the general public, and that they will not harm, infringe or adversely impact other users.
Military-grade unmanned aerial systems are generally systems, made by recognized, authorized defense contractors, and are operated almost exclusively by national and federal agencies. This may include systems used for civilian missions, such as search and rescue, firefight etc, as long as they are primarily marketed for defense purposes, meet current regulations and are purchased and operated by a governmental agency that is able to allocate the ample funds and resources necessary to maintain such a program on a national level.
In contrast, we may refer to civilian and/or commercial unmanned systems as such that are primarily produced by private manufacturers with no previous or formal defense contracts in play, which are generally operated by private owners or small agencies, with no required regulatory framework. These systems are marketed primarily for commercial use, which may be relevant to security needs at times, such as civilan ISR use. The civilian systems category includes systems originating from RC models, usually employing smaller-scale systems, with close range operation, a more cost effective price tag and simpler, non-ITAR regulated components and payloads.
The combination of expected cost, requirements and preliminary regulations that focus on the easier, low-weight category commercial segment of under 55 pounds3, drives most manufacturers – veteran and novice alike – to invest in the smaller-scale systems category for commercial uses, as fixed wing to multi rotor platforms that can be used locally tend to have a more cost-effective spectrum, and have simpler operational schemes, payloads, maintenance and logistical needs. In analyzing market potential and economic viability, it is imperative to separate these small UAS from popularly flown remotely piloted aircraft, which are not used or designed with a specific mission in mind. Unfortunately, even these pose a substantial risk for the future of the entire commercial UAS market, in any event of a single disaster.
It is only human to expect things to happen in the near future, and there is no dispute over the amount of research and development going into UAS worldwide, but long-term strategy cannot be accomplished without a periodic, objective reality check. Putting aside the anecdotal trend of local delivery systems, most enthusiasts mix different UAS segments, forgetting that UAS’ are not toys or solutions by themselves, but are rather complimentary tools, to be employed in parallel with other systems, and that they must come into play only after an integration of data necessitates their operation. Moreover, what commercial system can be realistically expected to integrate harmoniously with existing airspace systems? Is it a risk worth taking in lower altitudes over populated areas? Or in higher altitudes, with an average of 5,000 passenger-planes flying at any given time over the US alone?
Many manufacturers expect and demand an immediate ease on UAS restrictions, but while operations, technical complexity and sophistication have significantly increased in recent years, they were not accompanied by the same history of compliance and oversight as manned aviation, resulting in a significant gap that has led to a commercial UAS ban in the US since 2007. This ban does, however, exclude special permits, issued for groups that can demonstrate mitigating circumstances for using a UAS, such as for research or testing. A tedious regulatory process is ongoing in Europe and the US, focusing on finding and formulating the ways to balance safety, the market’s needs and technological innovation, while dealing with other crucial issues, such as privacy and civil liberties.
The UN’s International Civil Aviation Organization (ICAO) agency for example, notes that a number of civil aviation authorities have adopted a policy stating that UAS must meet the same safety code as manned aircraft, and that they must adhere to the rules governing the flight of manned aircraft, and meet equipment requirements applicable to the airspace class in which they intend to operate; while air traffic, airspace and airport regulations should not be significantly changed. As they see it, commercial UAS must be able to comply with existing codes to the greatest extent possible.
The applications of UAS of the national/defense segment are certain to become more prominent in our daily lives, as their quality, funding and operational costs are interconnected. However, while the economic drivers are very clear on paper, an earnest look at present market conditions and future conceivable requirements illustrates the extent of the preliminary threshold new commercially-oriented manufacturers must cross. Crossing this threshold requires great financial investment, achieving full safety standard compliance, installing appropriate backup and safety systems, performing design and airworthiness checks, acquiring pilot certifications, following maintenance regulations, complying with ATC regulations, and a process that clarifies privacy issues along with the crews’ liability. The nature of the current civil-commercial market may clash with the regulatory vectors, which in turn may dissolve the validity and viability of the popular commercial UAS idea.
As evident in the long road still being paved by electrical cars’ manufacturers, and contrary to global processes or popular beliefs, the future of the common commercial UAS is still unknown. Setting aside trendy uses of model RC aircraft or small delivery systems, I believe that a realistic framework and effective strategy can be put in place to bring several sections of the commercial UAS concept to gradual fruition. Several vectors are crucial to the process, such as quality and reliability versus cost, harmonization, ecosystem and layers of complexity.
Quality and reliability are the cornerstones of any technology and they are fundamental to safety in commercial aerial systems and UAS. The defense segment benefited from the evolution of parallel systems, forced to invest heavily in quality assurance, redundancy, safety and thus – reliability. Furthermore, the demand for quality output data drove the development of high-end payloads.
Commercial UAS are meant to provide specific output depending on the mission at hand, therefore quality refers also to the value of the output itself, may it refer to reliable delivery of goods, data, image or video, or any other desired reading. The system becomes expendable if the output it provides fails to create a clear and added benefit to the user, while maintaining acceptable quality. In contrast, novice manufacturers or systems intended for commercial use are primarily designed with cost-effectiveness as their main driver, debunking quality, reliability and safety, despite the clear fact that for UAS to take a larger commercial role, they must be designed and operated with aim of providing clear added benefits while assuring the ultimate safety.
Originally, unmanned systems were designed to operate independently, either very locally, i.e. in low altitude, short-range missions, or replacing existing manned systems, rather than flying in an overcrowded environment, thus coexisting seperatly and harmoniously. The accentuated reality of recent years means such synchronization must take into account the entire ecosystem and potential modifications to it over time, including other platforms, such as manned aircraft of all types, aerostats and blimps, as well as the issues of an urban environment or the increase in passenger traffic, changes in safety technology, changes in air traffic control regulations, bases of operation requirements, logistics, and what may be perhaps the largest challenge – the wireless spectrum crisis that may soon limit the amount of UAS flying and that has been almost completely overlooked.
The UAS is complex in many ways, from system component complexity to communication, and even its integration into existing airspace. We know that they are inherently complex, but we tend to simplify them into basic frameworks, conceptually comparing them to RC models. Unmanned aerial vehicles are popularly viewed as very simple and on a straightforward road to success, much like electrical cars before them. Any person can buy a fuselage, install an engine and a radio and have it become airborne. However, UAS cannot be perceived as a hobby, as they require basic components at a higher level, beginning with a platform, a payload (which is durable, reliable, safe and mission-appropriate), a ground-control station (which is simple, reliable and safe) and any ground support equipment needed for its daily, safe operation. Complexity awaits on every layer of any system and the development process thereof, and it must be acknowledged while accepting that some issues will reveal themselves only as the process progresses.
Clearly UAS have considerable sex appeal and can be used now if we do desire, but it is not enough for them to take a responsible and valid commercial role. The expectations for the commercial UAS market require all players, and primarily the manufacturers, to pursue a conscious development process, which fully evaluates whether they have any added value to bring into an already turbulent red sky, assessing the long term financial viability, accounting for unforeseen complexities, considering ecosystem issues and designing their systems with quality and reliability in their sights.
The theory of rational expectations assumes that investors’ expectations change almost instantaneously according to events. History has taught us that in the real world, expectations can change in both a slow and fast pace according to ever-changing circumstances9. The risks are high and ultimately UAS may have a larger role to play in our future, but it remains to be seen to what extent. Separated from defense segment systems, commercial UAS’ integration pace will be determined primarily by actual needs and only then by the industry, the users and the community’s ability, as well as those of the civil authorities, to overcome psychological, technical, regulatory, financial and operational challenges to everyone’s satisfaction.
 Bill Conerly, “What is A bubble?,” Forbes 24 July, 2013.
 Steven Mufson, “Tesla’s market value soars, but some see a bubble”; The Washington Post, May 16, 2013
 US Department of transportation, Federal Aviation administration, “Integration of civil unmanned aircraft systems in the national airspace roadmap”, FAA, November, 2013.
 The American institute of Aeronautics and Astronautics, “UAS roundup 2013”, Aerospace America, July-August, 2013.
 Darryl Jenkins, Bijan Vasigh, “The economic impact of unmanned aircraft systems integration in the united states”; AUVSI publication, March 2013.
 Sy Harding, “Investor expectations also need tapering as we enter 2014”; Forbes, 27 December, 2013
 US Department of transportation, Federal Aviation administration, “FAA Aerospace forecast, fiscal years 2011-2031”, FAA, 2011.