Current Trends and Future Business Dynamics - Unmanned Aerial Vehicles/Unmanned Aerial Systems (UAV/UAS) Reference code: DF4125PR Published: May 2014

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1 Current Trends and Future Business Dynamics - Unmanned Aerial Vehicles/Unmanned Aerial Systems (UAV/UAS) Reference code: DF4125PR Published: May

2 AGENDA Methodology and sample size Key application areas for UAVs in military domain Future trends Key demand drivers for UAV/UAS Projected change in demand Significant markets for future demand growth UAV types projected to witness increased investment Regional investment allocation outlook Major challenges for UAV/UAS suppliers Appendix 2

3 Methodology and sample size Online Survey This report is the result of an extensive survey drawn from SDI s exclusive panel of industry executives. These respondents are drawn from the SDI Industry Insight Panel, an exclusive industry panel covering business professionals worldwide. These business communities are made up of highly engaged, qualified professionals who rely on our flagship media brands in their respective markets, enabling SDI to access knowledgeable and informed industry opinion. The research source in this report is based on the surveyed opinions and expectations of 102 global defense industry executives surveyed in April Comprehensive desk research was also conducted across the defense industry sources, with a focus on examining the demand prospects, key markets, top investment regions, major challenges, and trends currently affecting the UAV/UAS industry. It also covers discussions which highlights key application areas and identifies preferred UAV types within the industry to validate primary research observations. 3

4 Definitions Asia-Pacific: includes Asia and Australia. Rest of the World: includes the Middle East, Africa, and South America. Unmanned Aerial Systems (UASs): consist of a number of sub-systems which include the air vehicle, its payload, the ground control station, air vehicle launch and recovery sub-systems, support equipment, communication and transportation subsystem. Unmanned Aerial Vehicles (UAVs): form the key part of the UAS and generally refers to its aircraft element. It has some degree of automatic intelligence and can communicate its onboard status to the controller and share its payload data. High Altitude Long Endurance (HALE) UAVs: fly at altitudes of over 60,000ft (20,000m), with a maximum take-off weight of 2,500 12,500kg, can stay afloat for a longer durations, and a data link range of over 2,000km. They carry out extremely longrange reconnaissance and surveillance missions and operate out of fixed air bases. Medium Altitude Long Endurance (MALE) UAVs: fly at altitudes of 18,000 60,000ft (5,000 20,000m), with a maximum takeoff weight of 1,000 1,500kg, which can stay afloat for long durations at medium altitude and a data link range of over 500km. Tactical UAVs (TUAVs): fly at altitudes of 10,000 18,000ft (3,000 5,000m), with a maximum take-off weight of 500 1,500kg, endurance between several hours and one day, and a data link range of km. They are smaller than HALEs or MALEs and are operated by the army, marines and navy to gather tactical intelligence. Mini UAVs (MUAVs): fly at altitudes of 500 1,000 ft ( m), with a maximum take-off weight of less than 30kg, endurance of a few hours, and a data link range of around 50km. These UAVs are used at platoon and squad level to carry out operational and close-range intelligence and surveillance activities. 4

5 Definitions Unmanned Combat Air Vehicles (UCAVs): are fixed-wing UAVs developed specifically for use in combat roles. Rotorcraft have also been developed for combat roles, known as Unmanned Combat rotorcraft (UCARs). Small companies: companies with annual global revenue of less than US$100 million are termed as small companies. Medium-sized companies: companies with annual global revenue ranging between US$100 million and US$1 billion (both inclusive) are termed as medium-sized companies. Large companies: companies with annual global revenue of more than US$1 billion are termed as large companies. 5

6 Profile of Defense Industry Survey Respondents Company type % Company type % Ministry of Defence (MoD) Department Of Defense (DoD) 6% Defense specific consultancy service provider 12% Air Force, Army, Navy, Coast Guard 6% Other service provider to defense industry 15% Police and civil defense 1% IT vendor 2% Special forces 0% Trade body, academia or other industry observer 2% Military defense Contractor 24% Other governmental organization 6% Civil defense Contractor 2% Others 18% General parts suppliers 8% Turnover % Less than US$100 million 66% US$100 million US$1 billion 21% More than US$1 billion 14% 6

7 Profile of Defense Industry Survey Respondents Designation % CEO / President / MD / Board Member / C- level executive 27% Director / VP / SVP 12% Head of business unit 8% Head of department 4% Professional and technical staff (e.g. lawyer, engineer, architect) 13% Product manager 1% Marketing manager 9% Region % North America 26% South America 3% Western Europe 19% Eastern Europe 2% Middle East 14% Africa 7% Asia 22% Australasia 8% Purchasing manager 0% Others 25% 7

9 Surveillance will be the largest application area for UAVs in the military domain over the next five years Which of the following areas will find the largest application of UAVs in the military domain over the next 5 years? 14% 9% 4% 73% Surveillance Tracking/Target Acquisition Attack 14% of executives expect UAVs in the military domain to be used for tracking/target acquisition purposes over the next five years According to survey results, 73% of industry players expect UAVs in the military domain to be used for surveillance purposes over the next five years. For example, in November 2013, Turkey s procurement agency, the Undersecretariat for Defense Industry (SSM) signed a contract with Turkish Aerospace Industries (TAI) for 10 indigenously manufactured Anka Unmanned Aerial Vehicles (UAV). Anka is a medium altitude long endurance (MALE) unmanned aerial vehicle (UAV) system, primarily manufactured to meet the reconnaissance and surveillance requirements of the Turkish Armed Forces. Anka offers surveillance capabilities for both day and night. Others Additionally, 14% and 9% of respondents anticipate the use of UAVs for tracking/target acquisition and attack, respectively. Evidencing the trend, in January 2014, The Directorate General of Armaments (DGA) awarded a follow-on order Sagem to deliver an additional five Sperwer Mk II tactical unmanned aerial vehicles (UAVs). Designated as Système de Drone Tactique Intermédiaire (SDTI) in the French Army, Sperwer Mk II features Sagem's Euroflir 350 electro-optical payload and was designed to provide real time intelligence, surveillance, target acquisition, and reconnaissance, route reconnaissance, and helicopter guidance. 9

10 Regardless of region, industry players expect UAVs in the military domain to be used primarily for surveillance purposes over the next five years Which of the following areas will find the largest application of UAVs in the military domain over the next 5 years? (Analysis of responses by region) North America 8% 15% 77% Asia-Pacific 10% 11% 79% Europe 6% 19% 75% Rest of the World 5% 24% 57% 14% 24% of executives who operate in the Rest of the World expect attack as one of the major application areas for UAVs in the military domain Overall, 79% and 77% of industry players who operate in Asia-Pacific and North America, respectively, expect surveillance to be the top application area for UAVs in the military domain. Additionally, 24% of executives with business operations in the Rest of the World, indicated attack to be one of the key application areas. Moreover, 19% and 15% of respondents who operate in Europe and North America, respectively, highlighted tracking/target acquisition among the major areas for which UAVs in the military domain will be used. 10

11 82% of executives from large companies foresee surveillance as the main application for UAVs in the military domain Which of the following areas will find the largest application of UAVs in the military domain over the next 5 years? (Analysis of responses by company types) Large companies Medium-sized companies 82% 75% 18% 13% 12% Surveillance Tracking/Target Acquisition Attack Others Surveillance Tracking/Target Acquisition Attack Others 67% Surveillance Small companies 13% 15% Tracking/Target Acquisition Attack 5% Others Industry players from large and medium-sized companies expect least use of UAVs in the military domain for attack purposes Survey results reveal that regardless of company type, respondents anticipate the maximum use of UAVs in the military domain will be for surveillance purposes over the next five years. Additionally, 18% of executives from large companies indicated the use of UAVs in the military domain for tracking/target acquisition, whereas 15% of respondents from small companies expect the use of UAVs for attack purposes. Moreover, industry players from large and medium-sized companies expect the least use of UAVs in the military domain for attack purposes. 11

13 The highest percentage of industry players foresee the future of UAV/UAS shaped by usage in non defense areas Which of these current trends will shape the future of UAV/UAS over the next five years? 48% 12% 18% 13% 9% Development of specialized weapons solely for use in UCAVs Rise in number of new and smaller suppliers Increasing preference for solar / laser powered UAVs Extensive adoption of mini-uavs Use of UAV s in areas other than def ense Increasing preference for solar/laser powered UAVs will create least impact on future of UAV/UAS over the next five years Survey results reveal that 48% of executives expect the use of UAVs in areas other than defense to shape the future of UAV/UAS over the next five years. Additionally, 18% of respondents indicate the extensive adoption of mini-uavs among the key influencing trends. Although governments are skeptical about the civil and commercial use of UAV/UAS, due to safety concerns, the reliability and effectiveness associated with UAV/UAS in a wide range of industrial and civil applications is expected to have a major positive impact on the future of UAV/UAS. For example, in February 2014, AeroVironment, Inc. an aerospace and energy company based in the US, announced a partnership with Lockheed Martin, an aerospace and defense company based in the US, to attract customers for the liquid hydrogen-powered Global Observer, a high-altitude, ultra-long endurance unmanned air system (UAS). The Global Observer is developed to perform like a geosynchronous satellite, providing communications or surveillance capabilities for an extensive geographic location. Additionally, Amazon.com. Inc., an online retailer based in the US, is planning to use UAVs to deliver packages directly to customer doorsteps. Evidencing the growing preference for mini-uavs, in October 2013, Austria s armed forces contracted the EADS Cassidian subsidiary, Survey Copter, to purchase six tracker mini-unmanned aerial systems. Overall, 13% and 12% of respondents expect a rise in the number of new and smaller suppliers and the development of specialized weapons solely for use in UCAVs, respectively, to have a considerable impact on the future of UAV/UAS over the next five years. 13

14 The majority of executives who operate in North America anticipate the use of UAVs in non defense areas to shape the future of UAV/UAS Which of these current trends will shape the future of UAV/UAS over the next five years? (Analysis of responses by region) North America Europe 20% 56% 12% 4% 8% Asia-Pacific 18% 36% 11% 14% 21% Development of specialized weapons solely for use in UCAVs Rise in number of new and smaller suppliers Increasing preference for solar / laser powered UAVs Extensive adoption of mini-uavs Use of UAV s in areas other than defense 13% 49% 38% Rest of the World 5% 20% 50% 15% 10% 38% of industry players with business operation in Europe expect extensive adoption of mini-uavs to affect the future of UAV/UAS Overall, 56% and 50% of respondents who operate in North America and the Rest of the World, respectively, anticipate use of UAVs in non-defense areas to shape the future of UAV/UAS. Additionally, 38% and 21% of executive who operate in Europe and Asia-Pacific region expect extensive adoption of mini-uavs to affect the future of UAV/UAS. Moreover, 36% and 49% of industry players with business operations in Asia- Pacific and Europe indicated use of UAVs in non-defense areas as a key factor which will influence the future of UAV/UAS over the next five years. 14

15 Industry players from large and medium-sized companies expect least impact of increasing preference for solar/laser powered UAVs on the future of UAV/UAS Which of these current trends will shape the future of UAV/UAS over the next five years? (Analysis of responses by company types) Large companies Medium-sized companies Use of UAV s in areas other than def ense 64% Use of UAV s in areas other than def ense 31% Development of specialized weapons solely for use in UCAVs 18% Development of specialized weapons solely for use in UCAVs 25% Rise in number of new and smaller suppliers 9% Extensive adoption of mini-uavs 25% Extensive adoption of mini-uavs 9% Rise in number of new and smaller suppliers 13% Increasing preference for solar / laser powered UAVs 0% Increasing preference for solar / laser powered UAVs 6% Use of UAV s in areas other than def ense Extensive adoption of mini-uavs Rise in number of new and smaller suppliers Increasing preference for solar / laser powered UAVs Development of specialized weapons solely for use in UCAVs Small companies 16% 14% 10% 8% 52% The majority of respondents from small companies expect use of UAVs in non-defense areas to play a crucial role in future of UAV/UAS According to survey results, 64% and 52% of executives from large and small companies anticipate the use of UAVs in non-defense areas to play a significant role in the future of UAV/UASs. Additionally, 25% of respondents each from medium-sized companies highlighted the development of specialized weapons solely for use in UCAVs and the extensive adoption of mini-uavs among the significant existing trends. Moreover, 18% of industry players from large companies assigned significance to the development of specialized weapons solely for use in UCAVs, whereas, 16% of executives from small companies opted for the extensive adoption of mini-uavs. 15

17 Internal and external threats such as terrorism, insurgency and drug trafficking are main contributors to the growing importance of UAV/UAS What are the key demand drivers behind the growing significance of UAV/UAS in the global defense industry? Internal and External threats such as terrorism, insurgency, drug traf f icking etc. Demand from departments other than def ense 53% 70% Territorial disputes has created least impact on the demand of UAV/UAS Survey results reveal that 70% and 53% of respondents anticipate internal and external threats such as terrorism, insurgency, drug trafficking etc. and demand from departments other than defense, to create a maximum positive impact on the demand for UAV/UASs. Need for network centric warfare capabilities Opening up civilian airspace to UAVs in the US and some European countries Territorial Disputes Others 5% 29% 43% 49% Plans to reinforce border security, enhance safety against unexpected terrorist attacks, and the protection of cost lines has boosted the demand and significance of UAV/UASs. For example, in February 2014, the Russian Defense Ministry announced plans to commence a program that aims to spend US$9 billion on military UAVs by The program will focus on improving reconnaissance, communications, and combat capabilities. Evidencing the trend, the Brazilian federal police are using Herons (Medium Altitude, Long Endurance UAVs) for border surveillance in the northwest region, against drug traffickers and smugglers. They are also planning to use the same for surveillance during the 2014 FIFA World Cup and 2016 Olympic Games. Evidencing the use of UAVs for nondefense purposes, in July 2013, the Federal Aviation Administration of the US approved the commercial use of AeroVironment Puma and Boeing/Insitu ScanEagle UAVs. The UAVs were deployed to detect icebergs and whales and protect drilling platforms for the ConocoPhillips oil company. 17

18 Internal and external threats such as terrorism, insurgency, drug trafficking etc. is the major driver behind the growing significance of UAV/UAS across regions What are the key demand drivers behind the growing significance of UAV/UAS in the global defense industry? (Analysis of top three responses by region) Internal and External threats such as terrorism, insurgency, drug trafficking etc. Opening up civilian airspace to UAVs in the US and some European countries Demand from departments other than def ense Internal and External threats such as terrorism, insurgency, drug trafficking etc. Demand from departments other than def ense Need for network centric warf are capabilities North America Asia-Pacific 50% 50% 46% 57% 69% 71% Internal and External threats such as terrorism, insurgency, drug trafficking etc. Need for network centric warf are capabilities Opening up civilian airspace to UAVs in the US and some European countries Internal and External threats such as terrorism, insurgency, drug trafficking etc. Demand from departments other than def ense Need for network centric warf are capabilities Europe Rest of the World 56% 56% 50% 45% 64% 77% Respondents from Europe attach the lowest importance to internal and external threat as a driver of growth in UAV/UAS Overall, 69% and 56% of respondents who operate in North America and Europe respectively, highlighted internal and external threats such as terrorism, insurgency, drug trafficking etc. as the major demand driver behind the growing significance of UAV/UAS. Additionally, 64% and 57% of executives with business operations in the Rest of the World and Asia- Pacific region respectively, identified demand from departments other than defense among the key factors influencing the importance of UAV/UAS. 18

19 Executives from large companies consider opening of civilian airspace to UAVs as the most important factor which is driving the importance of UAV/UAS What are the key demand drivers behind the growing significance of UAV/UAS in the global defense industry? (Analysis of top three responses by company types) Opening up civilian airspace to UAVs in the US and some European countries Internal and External threats such as terrorism, insurgency, drug trafficking etc. Need for network centric warf are capabilities Large companies 55% 73% 73% Internal and External threats such as terrorism, insurgency, drug trafficking etc. Demand from departments other than def ense Need for network centric warf are capabilities Small companies Internal and External threats such as terrorism, insurgency, drug trafficking etc. Opening up civilian airspace to UAVs in the US and some European countries Need for network centric warf are capabilities 60% 53% 68% Medium-sized companies 38% 50% 75% 60% of respondents from small companies identified demand from departments other than defense among the major factors contributing to growing significance of UAV/UAS According to survey results, 75% and 68% of industry players from medium-sized and small companies, respectively, highlighted internal and external threats such as terrorism, insurgency, drug trafficking etc. as the major demand driver behind the growing significance of UAV/UAS. Additionally, 73%, 60%, and 50% of respondents from large, small, and mediumsized companies, respectively, noted opening up civilian airspace to UAVs in the US and some European countries as a key influencing factor. 19

21 Globally, demand for UAVs/UASs will increase by an average of 19% over the next five years How is the demand for UAVs/UASs going to change over the next five years? Global 33% of industry players expect the demand for UAVs/UASs to increase by more than 25% 33% 4% 8% 6% 13% 23% 13% Less than 5% 5% 10% 11% 15% 16% 20% 20% 25% More than 25% Don t know Survey results reveal that 33% of business executives expect the demand for UAVs/UASs to increase by more than 25%. Additionally, 36% of respondents expect the demand to increase between 11 20% over the next five years. According to Unmanned Systems Integrated Roadmap FY published by the US Department of Defense ( DOD), the US budget for unmanned aerial systems is projected to reach US$4.42 billion for the financial year (FY) 2018, from US$3.77 billion for FY An increasing focus on the enhancement of intelligence gathering and surveillance capabilities, along with the volatile political environment in regions such as the Middle East and Korea, has contributed to the growing demand for UAVs/UASs. The ability to execute critical missions with greater precision, coupled with minimal loss of life is also influencing nations towards UAVs. Evidencing the trend, in March 2014, Elbit Systems, a defense electronics company based in Israel, was awarded a contract to supply its Hermes 900 unmanned aircraft system (UAS) to the Brazilian Air Force (FAB). Under the contract, the company will supply a single new and advanced intelligence gathering system-equipped Hermes 900, which will be operated by the air force in combined missions. 21

22 Industry players from Europe are the most buoyant regarding the growth of UAVS/UASs in the next five years How is the demand for UAVs/UASs going to change over the next five years? (Analysis of responses by region) 11% 30% North America 26% 10% 4% 3% 11% Average increase 18% 40% 5% 30% Less than 5% 5% 10% 11% 15% 16% 20% 20% 25% 3% 7% 3% More than 25% 8% 8% Don t know 4% 17% 4% Asia-Pacific Average increase 19% 30% 15% 38% 20% Europe 5% Average increase 20% Average increase 20% 25% 15% 15% Rest of the World 13% Business executives who operate in Europe expect the demand for UAVs/UASs to increase by an average of 20% Overall, 30% of respective respondents who operate in North America and Asia-Pacific expect the demand for UAVs/UASs to increase by 16 20%. Respondents who operate in North America and Asia- Pacific expect an average increase of 18 and 19% respectively, in the demand for UAVs/UASs. Additionally, 40% and 38% of business executives who operate in Europe and the Rest of the World expect the demand for UAVs/UASs to increase by more than 25%. Moreover, industry players operating in Europe and the Rest of the World expect an average increase of 20% in the demand for UAVs/UASs. Furthermore, 20% of respondents with business operations in Europe don t know about the change in demand for UAVs/UASs. 22

23 44% of industry players from medium-sized companies expect the demand for UAVs/UASs to increase by more than 25% How is the demand for UAVs/UASs going to change over the next five years? (Analysis of responses by company types) Large companies Medium-sized companies Small companies Less than 5% 5% 10% 9% 18% Demand for UAVs/UASs will increase by an average of 15% over the next five years 0% 6% Demand for UAVs/UASs will increase by an average of 21% over the next five years 4% 4% Demand for UAVs/UASs will increase by an average of 19% over the next five years 11% 15% 27% 11% 12% 16% 20% 18% 17% 28% 20% 25% 9% 11% 16% More than 25% 18% 44% 30% Don t know 1% 11% 6% 23

24 Senior level business executives expect the demand for UAVs/UASs to increase by an average of 18% over the next five years How is the demand for UAVs/UASs going to change over the next five years? (Analysis of responses by senior level respondents) 4% 4% 17% 26% 17% 22% 10% Less than 5% 5% 10% 11% 15% 16% 20% 20% 25% More than 25% Don t know 43% of senior industry players expect the demand for UAVs/UASs to increase between 16 25% over the next five years The highest percentage of senior level respondents expect the demand for UAVs/ UASs to increase between 16 and 25%. Additionally, 22% of senior industry players anticipate the demand to increase by more than 25%. Moreover, senior level business executives expect the demand for UAVs/UASs to increase by an average of 18% over the next five years. Furthermore, 10% of respondents don t know about the change in demand for UAVs/UASs. 24

26 US, China and Russia will record highest increase in demand for UAVs over the next five years Please rank the following markets in terms of expected increase in demand for UAVs over the next 5 years? US 48% 34% 15% 3% China 38% 42% 15% 4% 1% Russia 24% 49% 21% 5% 1% India 24% 43% 15% 16% 2% UK 17% 45% 33% 5% Saudi Arabia 11% 47% 33% 8% 1% UAE 13% 44% 35% 8% Australia 7% 47% 37% 7% 2% Japan 14% 37% 37% 9% 3% Brazil 6% 38% 40% 15% 1% France 6% 34% 46% 11% 3% Mexico 5% 21% 49% 23% 2% Very high High Neutral Low Very low 82% of executives expect very high or high demand for UAVs in the US over the next five years According to survey results, the highest percentage of respondents highlighted the US, China, Russia, India and the UK as the most promising markets that will drive the maximum increase in demand for UAVs over the next five years. Additionally, executives expect Mexico and France to achieve the lowest increase in demand for UAVs over the next five years. 26

27 The highest percentage of executives who operate in Asia-Pacific and the Rest of the World anticipate China to drive maximum increase in demand for UAVs Please rank the following markets in terms of expected increase in demand for UAVs over the next 5 years? (Analysis of top five responses by region who said high or very high ) North America Europe US 84% US 88% China 77% UK 74% Russia 68% China 73% India 59% UAE 73% UK 56% Russia 67% Asia-Pacific Rest of the World China 85% China 81% US 80% US 80% Russia 80% India 77% India 73% Russia 76% UK 67% Saudi Arabia 68% 27

28 94% of industry players from medium-sized companies anticipate Russia as the top market with maximum increase in demand for UAVs over the next five years Please rank the following markets in terms of expected increase in demand for UAVs over the next 5 years? (Analysis of top five responses by company types who said high or very high ) Large companies Medium-sized companies 100% 81% 73% 70% 94% 93% 93% 87% 80% 55% US China Russia Australia Saudi Arabia Russia US China India UK Small companies 82% 80% 74% 67% 63% US China Russia India UK The majority of respondents from small and large companies expect the US to exhibit maximum increase in demand for UAVs over the next five years Survey results reveal that 94% and 93% of executives from mediumsized companies anticipate Russia and the US to drive the maximum increase in demand for UAVs over the next five years. Additionally, the highest percentage of industry players from small and large companies highlighted the US, China, and Russia as the top market with maximum increase in demand for UAVs over the next five years. 28

30 Executives expect the largest amount of investment in Mini/Micro Tactical UAV over the next five years Which of the following types of UAVs do you think will attract the largest amount of investment over the next five years? 36% 25% 23% 16% Medium Altitude Low Endurance (MALE) Reconnaissance UAVs High Altitude Low Endurance (HALE) Reconnaissance UAVs Unmanned Combat Aerial Vehicle (UCAVs) Mini/Micro Tactical UAVs 23% of industry players expect Medium Altitude Low Endurance (MALE) Reconnaissance UAV to attract large amount of investment over the next five years According to the survey results, 36% and 25% of business executives expect Mini/Micro Tactical UAVs and Unmanned Combat Aerial Vehicle (UCAVs), respectively, to attract the largest investment over the next five years. Due to increasing surveillance in remote areas, amidst growing territorial disputes and terrorist threats, investments are increasing towards mini and combat UAVs, either in the form of research and development activities or procurement plans. Evidencing the trend, in November 2013, BAE Systems, based in London, and the French aircraft manufacturer, Dassault Aviation, presented plans to the British and French governments for the joint development of an unmanned combat aerial vehicle (UCAV) demonstrator. Additionally, 23% and 16% of respondents highlighted Medium Altitude Low Endurance (MALE) Reconnaissance UAVs and High Altitude Low Endurance (HALE) Reconnaissance UAVs, respectively, as the UAV types that will attract considerable investment over the next five years. For example, in December 2013, India s cabinet committee security approved the purchase of 12 Heron (Medium Altitude, Long Endurance) UAVs and related equipment, at a cost of US$300 million. 30

31 The highest percentage of industry players who operate in North America expect largest investment in Mini/Micro Tactical UAVs over the next five years Which of the following types of UAVs do you think will attract the largest amount of investment over the next five years? (Analysis of responses by region) North America Europe Mini/Micro Tactical UAVs 46% Mini/Micro Tactical UAVs 56% Unmanned Combat Aerial Vehicle (UCAVs) 27% Medium Altitude Low Endurance (MALE) Reconnaissance UAVs 19% Medium Altitude Low Endurance (MALE) Reconnaissance UAVs 15% High Altitude Low Endurance (HALE) Reconnaissance UAVs 19% High Altitude Low Endurance (HALE) Reconnaissance UAVs 12% Unmanned Combat Aerial Vehicle (UCAVs) 6% Asia-Pacific Rest of the World Mini/Micro Tactical UAVs 36% Unmanned Combat Aerial Vehicle (UCAVs) 36% Unmanned Combat Aerial Vehicle (UCAVs) 25% Medium Altitude Low Endurance (MALE) Reconnaissance UAVs 36% Medium Altitude Low Endurance (MALE) Reconnaissance UAVs 21% High Altitude Low Endurance (HALE) Reconnaissance UAVs 18% High Altitude Low Endurance (HALE) Reconnaissance UAVs 18% Mini/Micro Tactical UAVs 10% 31

32 Senior level business executives expect least investment in High Altitude Low Endurance (HALE) Reconnaissance UAVs over the next five years Which of the following types of UAVs do you think will attract the largest amount of investment over the next five years? (Analysis of responses by company types and senior level respondents) 36% 21% 17% Medium Altitude Low Endurance (MALE) Reconnaissance UAVs High Altitude Low Endurance (HALE) Reconnaissance UAVs Unmanned Combat Aerial Vehicle (UCAVs) Large companies 1% 27% 45% Medium-sized companies 19% 31% 19% 26% Mini/Micro Tactical UAVs 27% 31% The highest percentage of industry players from large companies expect the largest level of investment to be in Mini/Micro Tactical UAVs over the next five years Survey results reveal that 36% and 26% of senior level respondents anticipate the largest level of investment to be in Mini/Micro Tactical UAVs and Unmanned Combat Aerial Vehicle (UCAVs). Additionally, senior level business executives expect the least investment in High Altitude Low Endurance (HALE) Reconnaissance UAVs over the next five years. Small companies 38% 28% Regardless of classification on the basis of company turnover, the highest percentage of industry players across companies expect largest amount of investment to be in Mini/Micro Tactical UAVs over the next five years. Additionally, 27% and 31% of respondents from large and medium-sized companies respectively, expect considerable investment in Unmanned Combat Aerial Vehicle (UCAVs). 23% 11% 32

34 Respondents anticipate highest projected investment by North America region towards the UAV industry over the next five years Please rank the following regions in terms of projected investment allocation towards the UAV industry over the next 5 years? North America 22% 54% 17% 4% 3% Asia Pacif ic 18% 45% 23% 9% 5% Middle East 17% 44% 30% 6% 3% Europe 9% 47% 38% 4% 2% Latin America 2% 21% 43% 26% 8% Very high High Neutral Low Very low Latin America is expected to attract lowest investment towards the UAV industry over the next five years Overall, 76%, 63%, and 61% of executives highlighted North America, Asia-Pacific, and Middle East to exhibit high or very high investment allocation towards the UAV industry over the next five years. For example, in August 2013, AAI Corporation, an aerospace and defense company based in the US, was awarded a contract by the US Army Contracting Command (ACC) to supply six shadow unmanned aircraft vehicles (UAV) and associated equipment. Additionally, 38% of industry players expect Europe to undergo no change in investment towards the UAV industry over the five years. Moreover, 34% of respondents expect Latin America to attract low or very low investment towards the UAV industry over the next five years. 34

35 The majority of executives across regions project highest investment allocation from North America towards the UAV industry over the next five years Please rank the following regions in terms of projected investment allocation towards the UAV industry over the next 5 years? (Analysis of responses by region who said high or very high ) North America Europe North America 77% North America 88% Asia Pacif ic 69% Middle East 63% Europe 58% Europe 57% Middle East 48% Asia Pacif ic 56% Latin America 16% Latin America 27% Asia-Pacific Rest of the World North America 77% Middle East 76% Asia Pacif ic 75% North America 67% Middle East 59% Europe 67% Europe 46% Asia Pacif ic 43% Latin America 25% Latin America 29% 35

36 88% of industry players from medium-sized companies anticipate high or very high investment allocation from Asia-Pacific towards the UAV industry Please rank the following regions in terms of projected investment allocation towards the UAV industry over the next 5 years? (Analysis of responses by company types who said high or very high ) Large companies Medium-sized companies 91% 72% 88% 87% 80% 74% 55% 54% 27% 9% North America Asia Pacif ic Europe Middle East Latin America Small companies 75% 57% 53% 53% 26% North America Middle East Asia Pacif ic Europe Latin America Asia Pacif ic North America Middle East Europe Latin America Regardless of company types, executives expect least investment from Latin America towards the UAV industry over the next five years According to survey results, the majority of executives from large and small companies expect the highest level of investment towards the UAV industry to come from North America over the next five years. Additionally, 88% and 87% of industry players from medium-sized companies project maximum investment from Asia-Pacific and North America, respectively. Moreover, 72% of respondents from large companies opted for Asia-Pacific, whereas 57% of executives from small companies highlighted the Middle East, as the region that will attract considerable investment towards the UAV industry over the next five years. 36

38 The highest percentage of executives expect budget cuts/austerity measures as the major challenge for suppliers in the UAV/UAS sector What is the major challenge that faces suppliers in the UAV/UAS sector currently? (Analysis of overall and regional responses) 10% Budget cuts/austerity measures 15% 5% 33% Major challenges 48% Troop pull outs from Afghanistan Rapid technological advances necessitating increased R&D expenditure, hence reducing profit margins 23% North America 12% 7% 50% Regional analysis 38% Europe 9% 19% 38% 9% Others 25% 7% Asia- Pacific 61% 50% Rest of the World 41% 50% of respondents who operate in Asia-Pacific consider rapid technological advances necessitating increased R&D expenditure, hence reducing profit margins as the most pressing concern for suppliers in the UAV/UAS sector Survey results reveal that 48% and 33% of industry players consider budget cuts/austerity measures and rapid technological advances necessitating increased R&D expenditure, hence reducing profit margins, respectively, as the most pressing concerns currently faced by suppliers in the UAV/UAS sector. Additionally, the highest percentage of respondents who operate in North America and Asia-Pacific identified budget cuts/austerity measures as the major change faced by suppliers in the UAV/UAS sector. 38

39 63% of respondents from medium-sized companies are concerned about rising R&D cost due to rapid technological advancements What is the major challenge that faces suppliers in the UAV/UAS sector currently? (Analysis of responses by company types) Large companies Budget cuts/austerity measures Medium-sized companies 18% 9% Troop pull out from Afghanistan Rapid technological advances necessitating increased R&D expenditure, hence reducing profit margins 6% 31% 55% Others 18% Small companies 63% 12% 30% 49% 9% 39

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