Strategic Analysis and Comprehensive Report

Center for Innovation At Arlington, LLC TWC Contract Number 0514WPB000 Strategic Analysis and Comprehensive Report Submitted to Texas Workforce Commission January 31, 2015 Center for Innovation at Arlington LLC 505 E Border St. Arlington, TX 76010

Table of Contents 1.0 Executive Summary... 3 1.1 Global UAS Market Overview... 3 1.2 Benefits of This Report... 4 1.3 Potential Impact on Jobs Needed by the UAS Sector... 5 2.0 Introduction to the UAS Industry Market... 6 2.1 What does the UAS industry look like?... 7 2.2 What is an Unmanned Autonomous System?... 8 2.3 A Brief description of UAS Usage in Aviation... 8 2.4 A brief description of UAS Usage in Aerospace... 8 2.5 An overview of the UAS Supply Chain... 8 3.0 Global UAS Industry Market Forecast... 9 3.1 UAS Drivers & Restraints... 9 3.2 Promising Prospects for Growth in Commercial and Civilian Segment... 10 3.3 Developments to look out for in the Commercial Aviation Segment... 11 3.4 Opportunities for Human Capital Development to be Promising in the areas of UAS related training... 12 3.5 Healthy growth rates expected for the UAS industry... 13 4.0 Leading National UAS Markets Forecast... 14 5.0 SWOT Analysis of UAS Industry Market... 16 6.0 Projecting Military Demand... 17 6.1 What are the key trends and developments in the UAS Market?... 17 6.2 Where is the Demand going to come from?... 18 7.0 Leading Companies in the UAS Market... 18 8.0 Comprehensive Report... 18 9.0 Glossary... 20 10.0 Resources... 20 2 P a g e

1.0 Executive Summary Unmanned Aerial Systems (UAS) come in a variety of shapes and sizes and serve diverse purposes. Until recently, UAS mainly supported military and security operations, however, that is rapidly changing. UAS promise new ways to increase efficiency, save money, enhance safety and even save lives. According to the Association of Unmanned Vehicle Systems International (AUVSI), in the United States alone, approximately 50 companies, as well as universities and government organizations, are developing and producing an estimated 155 unmanned aerial designs. As a new industry, much is in its infancy and only accessible through university, federal and government research laboratories and select private organizations. However, this knowledge will soon be translated and bundled into a wide variety of innovative technologies and commercial products that promise to significantly impact all aviation sectors over the next few decades. Texas is in a very unique position as one of the most important locations in global aerospace and the aviation industry. The potential economic benefits to the state of Texas are enormous. The potential number of sales, supplies needed, and direct jobs created not to mention the tax revenue created will all contribute to the rapid growth of this industry. Notable Key Points for the State of Texas: FAA UAS Test Site Operator at Texas A&M Corpus Christi (One of six in the United States) No. 1 in Air Transportation Jobs No. 1 in Air Force Personnel No. 2 in Aerospace Manufacturing Output No. 2 Aerospace Manufacturing Sector in the nation Headquarters of two International Airlines Home of two of the world s busiest Airports NASA s world famous Johnson Space Center 17 out of 20 largest aerospace manufacturers 1.1 Global UAS Market Overview The future of U.S. high-tech manufacturing will be strong. Successful manufacturing will be characterized by innovative technology and previously unimagined flexibility. The Center for Innovation intimately understands the paradigm shifts in manufacturing, as well as the obstacles and difficulties that manufacturers face. Today, U.S. Industry competes in a globally competitive yet integrated, knowledge-based and innovation-driven economy. Therefore, to remain competitive, we have to re-position ourselves, particularly in the rapidly emerging unmanned systems industry, in partnership with other 3 P a g e

emergent regions, nationally and globally, to focus on research and innovation in the field of unmanned and autonomous systems. This will result in our leadership in new commercializable discoveries in the emerging unmanned & autonomous systems industry. Currently the United States government and military are the primary users of UAVs and drones. Based on an article found in UAVGlobal.com there are 208 Commercial Manufacturers producing civilian UAVs from around the World. There are 84 US UAV Manufacturers; of those 4 are based in the state of Texas. The top 5 UAV Manufacturers in 2014 according to UAVGlobal.com were: (1) Vanguard Defense Industries; (2) General Atomics Aeronautical Systems; (3) Lockheed Martin; (4) AAI Corporation; and (5) AeroVironment. Although the use of small scale and limited range versions of unmanned vehicles are used by hobbyists, these machines do not compare in size or complexity to those employed by the Federal Government. As the technology of drones and unmanned aerial vehicles (UAVs) increases, so does the dependence of First World nations on these vehicles. The military and intelligence assets that unmanned vehicles represent are undeniable in today s modern militaries. More and more, First World nations are employing drones and UAVs not only in larger military roles, but they are also expanding the use of these vehicles into civilian applications. The expansion of UAVs in the civilian sector means there is going to be an increased demand for qualified UAV and drone pilots, operators, maintenance and repair personnel, and the members of the flight crew. 1.2 Benefits of This Report This report documents a strategic analysis on UAS and provides a comprehensive report, relative to the impact UAS existing and future needs will have on Texas and around the World. The Center for Innovation (CFI) was asked by the Texas Workforce Commission to describe what the industry looks like currently; identify what potential impact the UAS sector will have on jobs; and to review human capital development prospects in UAS related training. The future is promising for UAS in Texas. The FAA announced in September 2014 its six authorized UAS test sites, intended to further the mission to advance a systemic approach to safely integrate UAS into the commercial airspace. Texas is one of the 6 sites. UAS is the newest technology vital to safety operations as well as opening new markets for commercial enterprises. CFI has focused on an accelerated expansion of UAS in Texas through the establishment of our Unmanned System Consortium (USC) in partnership with 4 federal agencies, the Texas Workforce Commission and the Governor s Office of Economic Development. The Consortium is focused on integrating the aviation industry supply chain network with universities, and economic development and government entities to facilitate the growth of the unmanned aerospace industry cluster in Texas. 4 P a g e

1.3 Potential Impact on Jobs Needed by the UAS Sector A study conducted by the Association of Unmanned Vehicle Systems International (AUVSI) in 2010, estimated that by 2025 the United States can expect to see some 23,000 jobs created in the UAV and drones field. Other followers of the unmanned vehicle growth trend, however, feel that this is an extremely low number, given the fact that much smaller unmanned vehicles are being built and operated successfully by hobbyists, companies, and universities which specialize in aeronautics and robotics. Industry groups and businesses monitoring the field in the United States believe that the number of new jobs in the next two decades could approach 100,000 for UAS operators in the United States alone. These numbers do not count support staff or maintenance crews, or the jobs which will be created in other First World nations. The premise behind this projection is that drones and UAVs will be able to be used in everything from campus security functions for large factories and schools, to remote surveillance by local police departments and news organizations. The number for trained operators increases exponentially when the focus encompasses all of the First World nations. In our view, Texas ability to emerge as a leader will require two things: (1) New collaborative models, that can enable the states support of regions within the state to emerge as leaders in the unmanned systems industry, enabling and supporting collaboration among existing entities, rather than the creation of new organizations, often perceived as competition; and (2) New ways of thinking, in support of those collaborations, while engaging with other regions, nationally and globally, that have similar abilities and ambitions. CFI s UAS Consortium serves as a model that can serve as a catalyst for a Texas UAS Innovation Cluster, supporting business transactions, communications, and dialogue; share specialized infrastructure, provide labor market information, and develop services aimed to create Small Business growth opportunities within this emergent sector to meet the following deliverables: Growth in number of small businesses participating in cluster partnerships Growth in number of small businesses participating in cluster and support industries Growth in number of small business starts in the cluster area Growth in total capital flowing to small business participants in the cluster (grants, contracts, loans and investments from public and private sources) Growth in job creation by small businesses Growth in new products, services, or business lines 5 P a g e

Number of small business receiving counseling, training, mentoring, or other technical assistance Number of small businesses participating in other activities and services provided by the cluster, including showcase events, networking events, matchmaking opportunities and other convening activities; and Number of patents obtained and/or applied for by small business participants in the cluster, as well as number of new technologies licensed. The emergence of UAS will have an impact on both job creation and small businesses. Technology is the foundation of and for this industry. Computer systems, electrical engineering, and design are necessary. Software and hardware development are vital. There must be a focus on UAS to provide specific certifications and degrees aligned with industry requirements. Operating the equipment is important and training will be required, however the biggest growth opportunity is the actual development of the systems used to fly UAS. Engineering the aircraft, ground stations, and hardware and software and communication systems for UAS will be critical to the growth of this sector. We need to strive to focus education in a way that also solves the problems of integrating UAS into the National Airspace System, such as sense and avoid technology. In doing so, we should leverage existing aircraft mechanics and programs. 2.0 Introduction to the UAS Industry Market Let s begin with the premise that Unmanned Aerial Systems may not be an adequate term to encompass the total possibilities of this emergent sector. Currently, unmanned autonomous systems for trucks, tanks, ships and planes have already been developed, tested and to some extent deployed. Therefore, we would like to address them as Advanced and Sophisticated Technology Systems (ASTS). These systems will range from traditional automatic manned systems to the highly sophisticated systems that would require very little to no human interaction. UAS integration into the National Airspace System will have a tremendous economic impact; create jobs in the aerospace industry, and drive economic development in regions across the country. According to a recent AUVSI survey, Texas ranked 3rd in the nation on total economic and employment impacts of ASTS development in the area of direct jobs and total job creation impact to the economy. Unmanned systems are flying in the NAS under very controlled conditions, performing border and port surveillance by the Department of Homeland Security, helping with scientific research and environmental monitoring by NASA and NOAA, supporting public safety by law enforcement agencies, helping state universities conduct research, and supporting various other missions for public (government) entities. This widespread and diverse use demonstrates the significant impact of UAS integration to the economic growth and job creation in the aerospace industry. 6 P a g e

2.1 What does the UAS industry look like? Unmanned aerial systems have revolutionized not only the conduct of war but also the aerospace and defense industries. There are approximately 478 worldwide UAS/UAV manufacturers with 84 in the United States; 276 produce equipment for the military and 202 for civilian use. This includes the Titans of the industry: Boeing, Northrop Grumman, and Lockheed Martin. They are major stakeholders in the burgeoning UAS market, with research and development projects and products that are driving innovation and growth; however, they all trail privately held General Atomics, the leading U.S. Company in the global UAS industry. Exact numbers are difficult to obtain, because these product are merged and buried into other products and division within their respective companies. The development and application of UAV/UAS systems for civil aviation are proceeding at an accelerated pace, driven by the expectation that these systems will provide a significant return on investment in terms of safety, reliability, efficiency, affordability, and/or previously unattainable mission capabilities. This vision and the associated technological developments have been spurred in large part by the convergence of the increased availability of low-cost, highly capable computing systems; sensor technologies; digital communications systems; precise position, navigation, and timing information from GPS, and open-source hardware and software. Research and technology development plays a critical role in determining the effectiveness of UAS and the pace at which they advance. In addition, a wide variety of organizations that possess key expertise are making advances in technologies directly related to the advancement of UAS for civil aviation. These technologies coupled with the expanded use of UAS in military operations and the emergence of an active and growing community of hobbyists developing and operating small unmanned aircraft systems, provide fertile ground for innovation and entrepreneurship. There are many barriers to the increased use of UAS in the National Airspace System. These barriers cover a wide range of issues, including, but not limited to safety, communications and data acquisition, regulation and certification, legal and social issues, cyber physical security, diversity of vehicles, system complexity and resilience, and verification and validation, just to name a few. Aviation in the United States and elsewhere in the world is on the threshold of profound changes in the way it operates because of the rapid evolution of unmanned systems. Advances in technology now enables UAS to operate without direct human supervision or control for extended periods of time and over long distances. Despite the technological advance, overcoming the barriers identified above is a vital next step, although more work beyond the issues identified here will certainly be needed as the nation ventures into this new emerging field. 7 P a g e

2.2 What is an Unmanned Autonomous System? Autonomous systems are controlled either autonomously by onboard computers or by the remote control of a pilot on the ground or in another vehicle. The typical launch and recovery method of an unmanned aircraft is by the function of an automatic system or an external operator on the ground. They are usually deployed for military applications, but also used in a small but growing number of civil applications. 2.3 A Brief description of UAS Usage in Aviation Beyond the military applications, numerous civil aviation uses have been developed, including aerial farming, filmmaking, search and rescue operations, inspecting power lines and pipelines, wildlife observation, crowd monitoring and reconnaissance, border patrol, forest fire detection, and many more. 2.4 A brief description of UAS usage in Aerospace Currently, most unmanned aircraft flown in the NAS are flown solely for recreation and sport purposes, such as models flown under voluntary safety standards. To operate in the national airspace, a COA (Certificate of Authorization) is required. At the moment a COA requires a public entity as a sponsor, such as a school or non-profit. 2.5 An overview of the UAS Supply Chain The development of a UAS Supply Chain to support this industry starts with the transition from military to commercial use. Key players in this transition include, but are not limited to the FAA, Academia, Industry, and Federal and State agencies. For each organization, it will be important to involve consultants and researchers with relevant expertise who might not normally see themselves as addressing civil aviation issues. Once this basic infrastructure is established, it will begin to evolve into a more traditional supply chain business model. Supply Chain Management (SCM) encompasses the planning and management of all activities involving a very complex and dynamic supply and demand network. SCM is an integrating function with primary responsibility for linking major business functions and processes within and across companies. It includes the major industry players listed above, but it also demands the business methodology necessary to deliver and support a product to the end-user, inclusive of the following components: Research and Development Testing and Evaluation Manufacturing and Assembly Marketing and Sales Warranty and Customer Service In a traditional manufacturing and supply environment, the matrix above would suffice; however in an emergent industry still very much in development, there is another sub-layer that must not 8 P a g e

be overlooked. For UAS, these critical sub-layer components include the FAA Knowledge and Vigilance, Safety and Liability, Data Integrity Storage and Security, and Frequency Management; all vitally important to the success of the Supply Chain. Delivering, acceptable conditions in this UAS supply chain will be a complex and challenging endeavor. By providing all relevant information and making it accessible to any and all relevant industry players and agencies, Texas has the ability to take a leadership role in the development of the supply chain. This should lead to a overall well positioned production and distribution model which can keep costs low and present a more attractive product to the customer. How does Texas begin the development of this supply chain and bring value to the industry? Referring back to the Executive Summary on page 1 under Notable Key Points, Texas is uniquely positioned for success and currently possesses the essential components to foster and support a collaborative and productive supply chain network. 3.0 Global UAS Industry Market Forecast As we look at the industry from a global point of view, U.S. aircraft manufacturers lead the way in the aerospace industry across the world. Our aerospace industry exported $72.1 billion more than we imported last year. This is an indication of growth in the developing world and a testament to an industry that has invested billions in R&D to maintain their competitive edge. Other countries however, are trying to cut into our edge. This stimulates other nations to invest in their own emerging markets. Other countries around the world are stepping up efforts to compete with U.S. industry, particularly in high-growth markets like aircraft manufacturing and the Aerospace industry. The potential worldwide economic impact of advanced and sophisticated technology systems into the NAS is projected at more than $13.6 billion in the first three years of integration, growing sustainably to more than $82.1 billion between 2015 and 2025. Given this projection, it is understandable why other countries and governments are interested in tapping into this market. 3.1 UAS Drivers & Restraints Estimates of the current US market for commercial UAS/UAV range from $82 to $95 billion by 2020. However these projections are greatly restrained by the delay of federal government officials that still have not figured out how to regulate them for commercial use. With that aside, the economic benefits to the country are enormous in terms of direct jobs to the economy. Estimates project, more than 100,000 new jobs will be created by 2025 in this industry. Aviation will not be the only beneficiary of this new industry. Other industries include: 9 P a g e Wildfire mapping Agricultural monitoring

Disaster management Telecommunications Public Services, Water and Utilities Oil and gas exploration and monitoring And many more One of the significant barriers to UAS growth in the US will be communications and data acquisition. The wireless communications industry is fundamentally limited by bandwidth, and the operation of UAS will increase the demand on that medium. Because the Federal Communication Commission allocates a fixed amount of bandwidth for civil aviation, the challenge will be in the sharing of the radio spectrum with existing legacy systems. Unintentional radio frequency interference and protection will require a harmonized radio spectrum for UAS control and communications links. The FAA is convening a group of aviation leaders in a NexGen Institute Call to Action summit, to engage the aviation industry, to assist FAA in meeting the January 1, 2020 deadline to equip aircraft with new avionics technology. Both FAA and the aviation industry will discuss how they can work together to resolve barriers and address potential challenges to meeting the mandate to equip tens of thousands of aircraft with Automatic Dependent Surveillance Broadcast (ADS-B) Out avionics in the next five years. ADS-B is a core NextGen technology that will revolutionize the National Airspace System (NAS). ADS-B will move aviation technology from a ground radar system to satellite-based GPS technology, increasing safety and efficiency by providing a more accurate view of aircraft location. 3.2 Promising Prospects for Growth in Commercial and Civilian Segment Total economic impact of UAS integration in the United States will not be evenly distributed. The state of Texas is projected to be one of the top five states in the nation to see the most gains in terms of job creation and additional revenue as production of UAS platforms increase. UAS have the potential to do all of the following: Increase precision agriculture by tailoring actions to specific situations, as in adjusting fertilizer or water applications within a particular field. Take on dangerous missions currently executed by manned aircraft, as in fighting forest fires. Enable operations beyond the line of sight (that is, without continuous communication with ground personnel), as in monitoring the environment in remote locations. Add flexibility to mission plans so that they better fit the situation and context, as in policing. Investigate from within, as in building interior inspections. 10 P a g e

Act at a distance, allowing people to stand off from hazardous conditions and yet act to assess and respond to needs, as in response to industrial disasters with chemical, biological, structural or radiological risks. Essentially the potential to increase safety and reliability, reduce costs, and enable new operational capabilities, for uses such as those just stated in one of the drivers fueling the growth of this industry. It is dependent on FAA to address issues related to the certification and operation of manned and unmanned aircraft. These considerations are necessary to the proliferation of the commercial and civilian segment. 3.3 Developments to look out for in the Commercial Aviation Segment American aerospace workers are among the most highly productive and skilled workers in the world. With a global market that is growing rapidly, we must maintain an adequate supply of workers with degrees in science, technology, engineering and math (STEM) disciplines and specific manufacturing skills for U.S. industry to continue to dominate and benefit from the aerospace export market. And for aviation markets to meet the forecasted demand, we will need to recruit and train thousands of new pilots and maintenance technicians, as a recent Boeing study has verified. U.S. exports of civil aircraft, engines, avionics, and related components represent 88% of all aerospace exports and almost all of the increase we experienced last year. The Air Traffic Management (ATM) system can and should benefit greatly from the use of UAS. Currently ATM procedures vary little from those followed by air traffic controllers 50 years ago. Communications among controllers are still made by humans although automation has increased the availability of information and facilitated better communication. Based on our research, we do not believe the FAA can maintain today s level of service and invest adequately for the future if the agency is faced with additional Budget Control Act sequesters. However, we recognize that section 312 of the FAA Modernization and Reform Act (Public Law 112-95) commonly referred to as certification streamlining, requires the FAA to examine the certification and approval process and provide recommendations for streamlining. If implemented properly, this process will help the FAA be more efficient and ensure the industry doesn t experience any longer wait times. Ground, Marine, and Space applications will also benefit greatly from the further development of ASTS technology. Ground-based applications are the largest arena for the use of autonomous systems. Industry robots used in manufacturing, consisting largely of stationary machines, were among the first to employ high levels of automation. However, as sophisticated as these robotic systems may be, they do not possess nor do they need to possess the sophisticated analytical capabilities that will be characteristic of the advanced autonomous systems. The automobile industry has experienced the most remarkable growth in autonomy over the last decade. Automobile control and monitoring systems have been transformed from almost purely mechanical units to complex networks of microprocessors. The Google car initiative is further 11 P a g e

advancing and integrating these capabilities to provide a driverless, autonomous vehicle; as the technologies continue to mature with field testing and exposure to the driving public, they can be expected to gain increasing acceptance in a competitive marketplace that values economics, safety, novelty, and prestige. In the Maritime industry, advanced unmanned underwater vehicles are acquiring higher levels of autonomous functionality to enable extended periods of unattended operation. The Space industry has relied traditionally on human mission level decisions. However, when it comes to deep space missions, they require advanced decision making algorithms to inform logistics, management, and maintenance planning autonomous systems, which are required because of communication delays. 3.4 Opportunities for Human Capital Development to be Promising in the areas of UAS related training The Human Capital Impact is boundless. For this report, we have broken our analysis into four categories: Economic Impact Direct Impact Indirect Impact Induced Impact Economic Impact: In an economic region, 3 fundamental things occur: (1) you generate wealth; (2) you recirculate the wealth; or (3) wealth migrates to other regions. Therefore, the economic impact is based on the theory that a dollar created within or flowing into a regional economy from the outside is a benefit to the regional economy. The Human Capital impact is based on the theory that we all collectively embrace the new industry for the betterment of society. We understand that human capital will come from both existing industry and developed expertise. This impact can produce quantitative results in the economic region. For the purposes of our strategic analysis, the range of the impact can be limited to the city, county, state or national level. Direct Impact: Direct impacts are consequences of economic activities carried out by a company or organization in the economy. For example, institutions (public or private) have a direct impact on the local economy because of the activities conducted by the institution by its management, employees, and other related events. Some direct impacts, such as UAS production may occur on site. Others, such as local supplies and service providers used by the institution, occur off site. The following is a summary of local value-added components: Direct Spending Effect: 12 P a g e

Construction, maintenance, operations, training Logistics/inventory/processing Scale of economies Regional Business Markets: Tourism, education, business relocation effects Personal Cost Savings Impact on disposable income The distinguishing feature of a direct impact is that it is an immediate consequence of the implementation of the industry s economic activity. Indirect Impact: In addition to the direct effect of an economic activity, there are also indirect effects and induced effects. Indirect impacts derive from off-site economic activities that are attributable to the business activities of the manufacturers of UAS. Examples of indirect impacts would be: Ancillary business expansion due to the UAS firm Expansion of Public knowledge and acceptance New capital investment in response to the UAS firm Supplies and equipment that may be purchased because of the new business opportunities created by the UAS manufacturing facility Induced Impact: The induced impact will result from spending of the wages and salaries of the direct and indirect employees on items such as food, housing, transportation and medical services. To put it another way, induced effects are the multiplier effects caused or driven by the purchasing cycle within the local/regional economy as a result of the sum of direct and indirect effects. 3.5 Healthy growth rates expected for the UAS industry Growth rates in the UAS market will vary from industry to industry, but based on our research, the following is a list of industries that should be at the forefront. Telecommunications Disaster management Thermal infrared power lines surveys Weather monitoring Wildfire mapping Aerial imaging/mapping 13 P a g e

Television news coverage Sporting events, moviemaking Environmental monitoring Oil and gas exploration Freight transport 4.0 Leading National UAS Markets Forecast Currently, national forecasting for the UAS industry is highly speculative and contingent upon the FAAs announcement of its new policies and regulations and how they will integrate into the NAS. The economic implications of how successfully we integrate these ASTS regulations are substantial. Employment impacts are estimated at just over 100,000 jobs by 2025 generating approximately $82 billion in revenue from 2015-2025. Those states that were declared test sites will have a greater advantage over other locations: Test Sites Alaska: University of Alaska Nevada: State of Nevada New York: New York s Griffiss International Airport (includes test range locations in Massachusetts) North Dakota: Department of Commerce Texas: A&M University-Corpus Christi Virginia: Polytechnic Institute and State University (Virginia Tech) (includes test ranges in New Jersey, partnered with Rutgers University) Mission State Monitoring Navigation Safety Standards Standards of Operation Certification Requirements Air-traffic Control Procedures Integrating Complexities in Congested Airspace Sense and Collision Avoidance Capabilities Development of Airworthiness Data & Validation High Reliability Link Technology Develop Safety Systems Requirements with a goal of Protocols and procedures for airworthiness testing Failure Mode Testing and Identify & Evaluate Operational Technical Risks Areas to ensure safe landing after connection lose It is projected that approximately 85% of the jobs created will come from test site states, with the remaining 15% from other locations. 14 P a g e

In terms of the ability to forecast growth, one of the unknowns is product safety and liability exposure. Recently there was a RPA (Remotely Piloted Aircraft) flying over AT&T Stadium in Arlington, Texas. The pilot was trying to get a view of the stadium and surrounding festivities before the game. While flying the RPA he lost the signal and the aircraft crash landed on top of the stadium. He then launched another RPA to find the previously lost aircraft. The total incident resulted in no damage to property, but gave rise to the safety concerns and liability of the industry itself. What if the aircraft had lost signal and crash landed onto the nearby interstate? These are the same concerns being voiced by interest groups all over the nation that will have to be addressed. Put this aircraft in the operational control of a public safety agency, and the assumption is that it would be covered under the local government s umbrella insurance policy. What about the private operator? The long term argument is that the industry needs to start collecting relevant data in this area, as the insurance industry determines how to develop liability coverage supplied to the commercial sector. Anything mechanical can and/or will malfunction. Unmanned vehicles are no exception. 15 P a g e

5.0 SWOT Analysis of UAS Industry Market 16 P a g e

6.0 Projecting Military Demand In the next 10 years, the Department of Defense (DOD) plans to purchase about 730 new medium-sized and large unmanned aircraft systems, based on designs currently in operation, while also improving the unmanned aircraft already in service. By Congressional Budget Office (CBO s) estimates, completing the investments in systems for which there are detailed plans will require about $36.9 billion through 2020. That represents $6.15 billion annually. Those numbers don t include unmanned land and military systems DOD is currently testing. Contrast this to DOD s current expenditures of $2 billion annually. 6.1 What are the key trends and developments in the UAS Market? As we look at what s developing within the market, we must assess the evolution of the industry and its ultimate possibilities. We propose four areas that should be evaluated: Development, Validation, and Certification Developing standards and processes for validation and certification are critical for determining their implications in the design of new systems, and for the process of establishing new rules and regulations to be followed. Adaptability and Behavior of UAS Developing methodologies for adaptability and behavior of advanced and sophisticated technology systems will be integral. As these system take over more functions traditionally performed by humans, there will be a growing need to incorporate sophisticated monitoring and safeguards to ensure continued appropriate operational behavior. System Technology and Architecture To operate these ASTS without continuous human oversight will require the development of system technologies and architectures that would enable these systems to operate for extended periods of time without real time human cognizance and control. Methodologies, Modeling, and Simulation The development of methodologies, modeling, and simulation will play an important role in the maturation of advanced ASTS and aircraft. This will enable researchers, designers, regulators, and operators to understand how something performs without real life testing. This report addresses the front end of the supply chain; however, once it s developed, tested, validated, and certified, how we deliver it to the business world at a profit poses the next question. Integrity R&D, human resource client, and supply chain development are three critical components to support the growth of this industry. Developing Turn-Key, low cost but profitable solutions will determine the success or failure of this rapidly emergent industry. Those 17 P a g e

companies on the front end, willing to collaborate and partner with others, will find their chances of success greatly increased. Based on our research and findings to date, it is reasonable to say that the outlook of this industry in Texas is promising. 6.2 Where is the Demand going to come from? The demand fueling the growth of this sector will primarily come from both federal agencies and the industries listed in section 2.1. But also expect demand from large distributors, like FedEx, UPS, and Amazon to online mailers, grocery stores, and pizza shops. Beyond that, this industry is limited only to one s imagination. 7.0 Leading Companies in the UAS Market U.S. dominance in the commercial aircraft market is a driving force. Projections in the Military UAV market reflect an increase by 47% from fiscal 2014 to fiscal 2015. Leading companies in this market continue to be General Atomics, Textron Inc., Northrop Grumman Corp., Aerovironment Inc., and TCOM LP, respectfully. This is almost exclusively from Government and Defense contracts. We can expect the commercial industry to take its direction from these companies. Other companies, listed below, all round out the top 10 in the US; Kratos Defense & Security Solutions Inc. Alliant Techsystems Inc. Aurora Flight Sciences Corp. BAE Systems Corp. Boeing Co. 8.0 Comprehensive Report In conclusion, UAS integration into the NAS is expected to have enormous economic and job creation impacts in the United States and the world. Similar to other industries, economic and employment impacts will expand into and influence many additional sectors. In addition, the economic growth in the aerospace industry will support the growth in many other businesses across multiple U.S. industries, including the hospitality and entertainment industries. Civil aviation in the U.S. and elsewhere is on the threshold of profound changes in the way it operates because of the rapid evolution of AST systems. We also believe that U.S. aviation manufactures are in a strong competitive position today, but there are risks to maintaining this position over the 18 P a g e

next decade. Policies, financial support, and liability issues will need to be addressed to help maintain this advantage as well. While there is little doubt that, over the long run, the potential benefits of UAS in civil aviation will be great, there is also little doubt that getting there will be no easy endeavor. Our research projects over an 11-year period (2015-2025) in the US: UAS integration is expected to contribute over $82 billion to the nation s economy through agriculture, public safety and other activities Create over 103,775 new jobs The manufacturing jobs created will be high paying and require technical baccalaureate degrees The realization of how quickly this occurs is contingent upon the pace of FAA airspace integration. Any delays in airspace integration will impact the U.S. in terms of a lag in technology development, manufacturing, job development and economic stimulus. Regardless, we need to ensure that our aerospace workforce is prepared to handle the challenges and changes coming to the global marketplace over the next decade. Given the potential benefits of AST systems, this will inevitably benefit some stakeholders more than others. The enthusiasm of the latter for fielding such systems may be enough to outweigh unintended consequences. In any case, overcoming the barriers identified in this report will be a vital next step. More work beyond these issues identified here will certainly be needed as Texas and the nation venture into this new era of flight. 19 P a g e

9.0 Glossary ASTS - Advanced and Sophisticated Technology Systems (ASTS). These systems will range from traditional automatic manned systems to the highly sophisticated systems that would require very little to no human interaction. ATM - Air Traffic Management System (ATM). An aviation term encompassing all systems that assist aircraft to depart from an aerodrome, transit airspace, and land at a destination aerodrome, including air traffic control (ATC), aeronautical meteorology, air navigation systems (aids to navigation), Air Space Management (ASM), Air Traffic Services (ATS), and Air Traffic Flow Management (ATFM), or Air Traffic Flow and Capacity Management (ATFCM). AUVSI - Association for Unmanned Vehicle Systems International (AUVSI). An international nonprofit organization dedicated to promoting and supporting the unmanned systems and robotics industry through communication, education and leadership CFI - Center For Innovation (CFI). A nonprofit LLC, that serves as a catalyst for technology based economic development. The Center supports a strategic approach to the formation of collaborative partnerships, facilitating and enabling the integration of industry, academic, and government research and discovery with venture capital and talent & know how. CFI is focused on the commercialization of technology-based research outcomes from universities, industries and U.S. federal labs, leading to the evolutionary development of integrated industry clusters. DOD - Department of Defense (DoD). The Department of Defense (DoD or DOD) is an executive branch department of the federal government of the United States charged with coordinating and supervising all agencies and functions of the government concerned directly with national security and the United States Armed Forces. FAA - Federal Aviation Administration (FAA). An agency of the United States Department of Transportation that has the authority to regulate and oversee all aspects of American civil aviation. FAA is the national aviation authority of the United States. FCC - The Federal Communications Commission (FCC). Independent agency of the United States government, created by Congressional statute to regulate interstate communications by radio, television, wire, satellite, and cable in all 50 states, the District of Columbia and U.S. territories. The FCC works towards six goals in the areas of broadband, competition, the spectrum, the media, public safety and homeland security. Google driverless car - The Google Self-Driving Car is a project by Google that involves developing technology for autonomous cars, mainly electric cars. The software powering Google's cars is called Google Chauffeur. Lettering on the side of each car identifies it as a "self-driving car". NAS - National Airspace System (NAS). The National Airspace System (NAS) of the United States is one of the most complex aviation systems in the world consisting of thousands of 20 P a g e

people, procedures, facilities, and pieces of equipment that enables safe and expeditious air travel in the United States and over large portions of the world's oceans. UAS - Unmanned Aircraft Systems (UAS). A powered, aerial vehicle that does not carry a human operator, uses aerodynamic forces to provide vehicle lift, can fly autonomously or be piloted remotely, can be expendable or recoverable, and can carry a lethal or nonlethal payload. Ballistic or semi-ballistic vehicles, cruise missiles, and artillery projectiles are not considered unmanned aerial vehicles. UAV - an unmanned aerial vehicle (an aircraft piloted by remote control or onboard computers). USC Unmanned System Consortium (USC). The Consortium was established by the CFI to focus on integrating the aviation industry supply chain network with universities, and economic development and government entities, to facilitate the growth of the unmanned aerospace industry cluster in Texas. 21 P a g e

10.0 Resources UAVGlobal.com Association of Unmanned Vehicle Systems International (AUVSI) FAA Modernization and Reform Act Boeing Congressional Budget Office (CBO s) 22 P a g e