The FAA Just Cleared BP’s Commercial Drone for Takeoff

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The Federal Aviation Administration’s first approval of a commercial drone over U.S. land could be a watershed moment for public unmanned aerial vehicle (UAV) companies and their shareholders — if the agency can keep other aircraft safe while protecting privacy.

drones-faa-approvalUAV enthusiasts cheered on Tuesday when the FAA announced approval for the first commercial drone to operate over U.S. airspace. BP’s (BP) Puma drone, made by AeroVironment (AVAV), had already been approved for military operations, and is expected to improve safety in the oil fields and reduce maintenance costs.

But that’s not the only positive news for the drone market. Earlier this month, the FAA announced that seven aerial photo and video production companies have asked for regulatory exemptions that would allow the film and television industry to use unmanned aircraft systems (UAS) with FAA approval. To receive the exemptions, the firms must prove that their drone operations will not adversely affect safety and that the exemption would be in the public interest.

With such a clear value proposition, will FAA’s approval of BP’s drone open the skies to thousands of UAVs and quickly boost the fortunes of the industry and its shareholders? Here are three pros and three cons for the UAV industry:

Pros for Drones

Drones are a huge market opportunity: Annual spending on drones will more than double over the next decade from $5.2 billion in 2013 to $11.6 billion in 2023, according to a market report released last year by Teal Group. Despite near-term military spending cuts, the UAV market will reach a whopping $87 billion by 2023, the researchers predict.

Military drone companies have the edge on approvals: The FAA’s quick approval of BP’s AVAV drone occurred because AVAV’s Puma drone already had been certified for similar military operations — that means FAA didn’t feel it needed to determine airworthiness for a similar application. So, companies that want to fly commercial drones will be best served seeking out UAVs that already have been used by the military for similar applications over land. And defense giants like Northrop Grumman (NOC), Boeing (BA), Raytheon (RTN) Textron (TXT) subsidiary AAI and privately held General Atomics have drones that already have proved their mettle. AVAV, which has teamed with Lockheed Martin (LMT) and supplies drones for military and commercial use, will also gain because FAA may not require a separate airwothiness certification.

Lawmakers are supporting UAV integration: Congress and the Obama administration have made it clear they want a plan to integrate UAVs into the national airspace fast because of the myriad benefits commercial UAVs would yield. In fact, the FAA is under the gun to integrate drones into U.S. airspace by September 2015 and has said it will publish rules for integrating drones that weigh less than 55 pounds later this year. Earlier this week, the FAA announced that the state of Nevada’s test site is working to determine the impact of drone integration on air traffic control as well as the FAA’s next-hen airspace modernization program.

But it isn’t all bright skies for drones…

Cons for Drones

FAA has a tough job ahead: When it comes to drones, the FAA is under the gun to balance competing interests. The FAA has long been challenged by two competing directives: regulating the national airspace and ensuring air safety and promoting commercial and civil aviation. Commercial drones are big business — that’s why Congress ordered the agency to come up with a plan for safely integrating drones into the national airspace by 2015. But trying to roll out a plan that makes sense to all stakeholders will be difficult.

UAVs can pose safety risks for civil and commercial aircraft: Airlines and pilots remain nervous about the coming drone rush, arguing that UAVs must be held to the same safety regulations as other aircraft — including the ability to see and avoid hitting private or commercial planes. The concerns are well founded: The pilot of an American Airlines (AAL) flight reported a near miss with a drone in March. The pilot encountered the UAV at about 2,300 feet and thought he had collided with it.  Considering that collisions with birds have been serious enough to trigger emergency landings and fatal crashes, if a metal drone powered by a lithium-ion battery hit an aircraft, the outcome could be catastrophic.

Privacy, national security issues loom large: Face it: Drones have a proven reputation as a comparatively low-cost, high-value surveillance tool — so it comes as no surprise that law enforcement officials, news organizations and others are eyeing the technology. Predictably, privacy advocates such as the ACLU and Electronic Frontier Foundation are worried about wide-scale surveillance of private citizens. Further complicating matters is the fact that many drones have taken to the skies without FAA’s knowledge or approval, making the task even more difficult. (The FAA still hasn’t identified the operator of the drone reported by the AAL pilot in March.) Resolving the rogue drone problem will be difficult at best, which could delay takeoff for the commercial drone market.

Bottom Line

The FAA’s approval of BP’s drone is a huge win for the drone industry — particularly if potential operators can simply ride in on prior military approvals rather than moving through a complex certification process. That means there are two things to watch for in the coming months:

  1. Whether the FAA approves the film and TV industry licenses
  2. How quickly the FAA can glean data from the ongoing tests and begin drafting proposed rules

The FAA will have a tough time balancing the competing interests of safety, privacy and national security with the blockbuster market opportunity for commercial drones. They will get the job done, but full integration into the national airspace will not happen overnight. Nevertheless, it’s a good time to consider adding a pure-play like AVAV to your portfolio.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/06/drones-faa-approval/.

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