Boeing Targets $10 Billion Market for Leased Drones

(Bloomberg) -- Boeing Co., the second-largest U.S. defense contractor, is leasing drones to government agencies and militaries seeking to bypass years-long purchasing processes, a market the company says may grow to $10 billion in a decade.

Boeing won contracts in 2007 and 2008 for a total of $312.7 million to supply the U.S. Navy and Marine Corps with ScanEagle spy drones on a fee-for-service basis and got a $250 million contract from the U.S. Special Operations Command on similar terms last month. Under the deals, Boeing owns the equipment and sends the operators where the military wants them.

Drones including the ScanEagle, the A-160 Hummingbird and the Unmanned Little Bird may be used to perform surveillance and cargo-delivery missions for militaries and civilian agencies worldwide, said Phil Panagos, Boeing’s director of Intelligence, Surveillance and Reconnaissance Services.

“The purpose of our business is to provide platforms and systems to customers who don’t want to purchase” them right away, Panagos said in an interview. The global market for supplying drones and other services on that basis may be worth “$10 billion over the next 10 years,” he said. He declined to give an estimate of what Boeing’s share of that market may be.

Chicago-based Boeing fell $1.11, or 2.4 percent, to $44.72 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 4.8 percent this year.

Pirate Surveillance

The Navy’s contract with Boeing allowed it to deploy a drone from the USS Bainbridge destroyer to help rescue Captain Richard Phillips from pirates off Somalia’s coast on April 13, said Navy Captain J.R. Brown, program manager for Small Tactical Unmanned Air Systems.

The Bainbridge was equipped with ScanEagle and Boeing- supplied operators as part of the ship’s maritime surveillance mission, he said.

The drone used optical and infrared cameras to track the lifeboat holding Phillips, who was captured by pirates that hijacked the Maersk Alabama cargo ship. He was rescued after Navy commandos shot and killed three pirates in the lifeboat.

Boeing’s drones are used only for surveillance and reconnaissance missions, not to shoot at targets. The U.S. Air Force and Central Intelligence Agency own Predator drones made by privately held General Atomics in San Diego. The Predators are equipped with two laser-guided Hellfire missiles and are used to fire at targets in Afghanistan and Iraq.

The ScanEagle is launched from a pneumatic catapult, flies to an altitude of 16,000 feet and can loiter for about 20 hours, according to the Navy. On return, the drone is captured by a rope suspended from a 50-foot high tower.

‘Feet in the Water’

“Some militaries would like the unmanned aerial vehicles for temporary use in peacekeeping operations, and other militaries are still trying to understand their use,” said Philip Finnegan, an analyst at Teal Group Corp., a defense consulting firm in Fairfax, Virginia. “This may allow them to get their feet in the water and understand what it is.”

Boeing’s estimate of a $10 billion global market for leased drones “seems conservative,” with the U.S. military budgeting $3.8 billion to buy drones in its fiscal 2010, Peter Arment, an analyst at Broadpoint AmTech Inc., in Greenwich, Connecticut, said in an interview.

“We know that the military services’ demand for these systems is going to go up exponentially,” he said. He rates Boeing shares “neutral.”

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