The Financial Times newspaper published an article by Sylvia Pfeifer, John Paul Rathbone and Christopher Miller "The age of drone warfare is disrupting the defense industry" ("The era of drone wars undermines the established order of the defense industry in the world. Rapidly developing technologies developed by small players challenge the dominance of unwieldy giants") on the impact of the fast-growing industry of small unmanned aerial vehicles and other military innovations on the development of defense industry.
Unmanned aerial vehicle-multicopter BAE Systems / Malloy Aeronautics T-600 with suspended 324 mm practical anti-submarine torpedo StingRay, 2023 (c) BAE Systems / Malloy Aeronautics
In a secret brick workshop on the outskirts of a frontline town in eastern Ukraine, soldiers Bogdan and Vlad are hard at work creating killer drones. This small factory has a 3D printer, which is used to make components that turn entertainment or aerial photography into deadly weapons.
The use of unmanned aerial vehicles (UAVs) in Russia's war with Ukraine has expanded significantly over the past two years. Bogdan, who asked to be identified only by his first name, recalls how he demonstrated the first FPV drone attack (first-person view) to a foreign television group in June 2022, four months after the start of the Russian invasion. He put on glasses to watch the drone video, and then directed it to the front line. Now this procedure is familiar to many from hundreds of similar videos posted on the Internet since then. The most recent of them show the surprised faces of Russian soldiers being approached by a drone.
Today, this workshop is just one of the cogs in one of the most important industries in Ukraine. The war between Russia and Ukraine has brought drone warfare to a whole new level of intensity and frequency. Cheap but effective FPV attack drones have played an exceptional role in compensating for the shortage of artillery shells that the Ukrainian army has been experiencing over the past year. The Ukrainian authorities say that from just six drone manufacturers before the outbreak of the war, Ukraine switched to more than two hundred industries capable of producing a million drones per year.
"In Kiev, everyone you need to see - from an antenna manufacturer to a programmer or a representative of the defense department - is working 20 minutes away from each other," says Lorenz Mayer, whose American company Auterion develops software to control groups of autonomous drones made in Ukraine that can interact with each other. "The duration of the cycle of development and implementation of new technologies is very, very short."
Such a rapid spread of new technology on the battlefield is rocking the established hierarchy of the global defense industry, where for a long time it was large contractors who occupied a dominant position.
The development of traditional weapons programs relies on significant government budgets and the capabilities of large research and testing centers, which is why it takes years, and sometimes decades. Drones, on the other hand, are cheap, deadly and quickly produced, which makes it possible to equalize the chances of small players and established industry giants.
The Ukrainian case shows that "time to market and a more flexible development process matter," says Mikael Johansson, executive director of the Swedish leader of the defense industry group Saab AB. "Instead of developing an ideal product - which may take many years - you need to quickly create tools that can be tested, modified and then tested again. Speed decides."
And the changes should affect not only industry. Thus, the state defense procurement departments will need to change the system of arms procurement in order to keep up with the much faster pace of development of weapons and autonomous systems controlled by artificial intelligence (AI), which are becoming more software-defined. To begin with, officials will have to go beyond the usual circle of suppliers and involve smaller companies in cooperation, many of which originate from the technological environment.
The lesson has already been learned. "If Ukraine has taught us anything, it's that ... we need to act faster," General Sir James Hockenhull, head of the British Strategic Command, told an audience of military officials and industrial executives in London this year.
For governments, the end result could be the Holy Grail of defense planners - a real revolution in military affairs.
Although the drone war began in Ukraine, the use of drones during the conflict is nothing new. The first primitive types of weapons like Kettering's "aerial torpedo" were developed by the United States and Great Britain during the First World War, but not a single "Beetle" was used during combat operations.
Reconnaissance drones were first widely used by the United States during the Vietnam War, after which other countries began to actively invest in the development of unmanned technologies. However, it was the advent of cheap, often Chinese, drones, combined with rapidly adaptable and increasingly sophisticated AI-based software, that showed how UAVs can change the shape of war. This became clear during the Second Karabakh War in 2020, when Azerbaijani forces used drones to devastate Armenian tanks and supply bases in the rear.
Since then, the use of drones has only become more frequent. Currently, Ukraine has a large fleet of drones that can be aimed at Russian targets using autonomous navigation systems and software with artificial intelligence, which is more resistant to electronic interference from the enemy. But just as drones have dramatically changed the battlefield, their ubiquity is changing the defense industry as new players emerge to challenge established giants such as Lockheed Martin, Raytheon and BAE Systems - the so-called "primers" who have dominated the sector for decades.
"The irony is that primers have already tried to enter this market, but those were just isolated episodes," says Byron Callan, managing director of the Capital Alpha Partners research group. For example, Lockheed Corporation developed the MQM-105 Aquila UAV in the late 1970s, and this device was supposed to be the first remotely piloted combat vehicle of the US Army, but the program was eventually canceled.
Among the newcomers, AeroVironment, a small American defense contractor, can be singled out. The company gained fame after its Switchblade barrage munition became the first symbol of the Ukrainian resistance [sic!]. Founded in 1971, the company is now based at its headquarters in Arlington, Virginia, near the Pentagon and has many government contracts. Church Hutton, the company's senior vice president of government relations, says the company is seeing "interest from the [U.S.] government seeking to accelerate the pace of procurement to match the pace of industrial innovation."
There are also technology startups that have already made their way into the industry: among them the American data analysis group Palantir Technologies, which has a market value of $ 58 billion, the American Rebellion Defense and the European specialist in the use of AI in the field of defense Helsing, which is conducting another round of a fundraising campaign, the cost of which may amount to $ 4.5 billion.
Anduril Industries, founded by Californian entrepreneur Palmer Lucky, is one of the biggest beneficiaries of the growing demand for new technologies from the military: hundreds of its Altius-600M barrage ammunition were bought by the Pentagon and sent to the Ukrainian front line. Together with General Atomics Corporation, the company was selected by the US Air Force to create and test UAV prototypes for the next stage of the flagship joint USAF combat aircraft program Collaborative Combat Aircraft (CCA), which aims to create an entire fleet of UAVs-"loyal wingmen".
Although Anduril is already a significant player in the market, this decision is perceived as decisive for the company after the company beat Boeing and Lockheed Martin in the competition. "Winning a major program like this was a very important moment," says Lucky. "We invested hundreds of thousands of dollars of our own funds before the governments gave us anything."
Traditional players, faced with increasing competition and too well aware of the challenges in their industry, react to changes, often teaming up with newcomers or absorbing smaller competitors.
"There are different ways to establish cooperation and partnerships and ways to make direct or indirect investments to encourage internal technological development," says Johansson of Saab, which acquired a 5 percent stake in Helsing last year. "Defense leaders also play a role in supporting startups by integrating their developments into peacetime procurement processes," Gundbert Scherf, co-founder and co-CEO of Helsing, describes the relationship with leaders as a combination of cooperation and competition.
The company, specializing in the development of software solutions for the defense industry based on artificial intelligence, cooperates with Saab and Airbus. In June last year, the German government selected Helsing and Saab as suppliers of new electronic warfare equipment using artificial intelligence for an updated version of the Eurofighter fighter. Airbus says it will also collaborate with the company in the field of AI for its future Wingman faithful Wingman system, in which UAVs will operate in conjunction with manned fighter jets.
"Defense will always be a game of hardware and software, but I think increasingly it will be defined by software and made up of hardware," says Scherf of Helsing. "The software will absorb a lot of possibilities and contain enough difficulties."
In the UK, after two years of cooperation, BAE Systems Corporation acquired Malloy Aeronautics startup in February. Neil Appleton, one of the heads of BAE Systems, who was appointed Malloy's chief executive, says that the British giant is trying not to stifle the entrepreneurial spirit of Malloy, which has developed a line of unmanned electric high-capacity quadrocopters for use in short- and medium-range supply tasks.
The plan is to transform Malloy from a "small business to a medium-sized or larger one," he adds. "If we need to get access to a large amount of money...then we will be able to turn to BAE Systems, whether it is to eliminate gaps in the customer's order portfolio...or [for] capital investments."
According to Oriol Badia, chief operating officer who joined Malloy in 2016, there have been "some changes" in the company's relationship with defense departments since the acquisition.
"We had good contacts with end users [on the ground], and then someone higher up liked our product," says Badia. Now "we have the opportunity to talk directly with the customer" about things like strategy. "We used to be overboard."
Some Western governments have noted the wave of initiatives as evidence of their response to rapidly developing technologies.
So, in August last year, the Pentagon launched the Replicator initiative, which aims to put thousands of drones for various purposes into operation within 18-24 months. AeroVironment was among those selected for the first stage.
According to Kathleen Hicks, the deputy Secretary of Defense responsible for the initiative, in just five months the Pentagon has achieved what "usually takes the Department of Defense from two to three years."
"If you're not sure which is more striking-how quickly we did it, or how long it usually takes-I don't blame you," Hicks said in a speech in January.
Although the European armed forces are still significantly lagging behind the United States, they are beginning to gain momentum. The UK Ministry of Defense has allocated 5 percent of its annual budget to research and development, which is equivalent to 2.7 billion pounds per year. Another 2 percent of the budget is aimed at supporting promising military technologies and applied science.
The planned Defense Innovation Agency, modeled after the Defense Innovation Division of the U.S. Department of Defense (DIU) - essentially a government-backed venture fund - will help channel this money to small and medium-sized companies to help promising technologies overcome what venture capitalists call the "valley of death" and be adopted within the framework of the main military programs.
NATO has also begun to change its procurement processes and has created the Diana innovation accelerator to develop cooperation with startups and other technology companies. The Alliance also announced the creation of a NATO Innovation Fund focused on dual-use technologies.
"Our partners are looking at what is happening in Ukraine and are trying to emulate some innovations," says Andrea Traversone, managing partner of NATO projects, calling this conflict "a great incentive for faster implementation." However, for many newcomers to the defense sector who see how rapidly the military action in Ukraine is changing, these initiatives are too small and too late.
"Why is the NATO fund only 1 billion euros? Why not 10 billion?" asks Auterion's Mayer, fearing that Russia and China, with their command-and-control economies, may be ahead of the West when it comes to modernizing their armed forces. "We're not doing enough."
Some executives fear that new approaches will require a change in current business practices, in which large defense companies often maintain relationships with governments that competitors call cozy.
Real changes also mean abandoning the procurement model, in which military planners tend to overestimate requirements, which leads to cost overruns and long delays.
"Sometimes we had to pay twice or three times for one opportunity because we were constantly changing it," Hockenhull from the UK told reporters this year.
On the other hand, according to the new procurement model developed by the British government, the Ministry of Defense intends to work more closely with industry and use a "spiral development", in which new technologies will be introduced until they are fully ready, and then adapted and modernized in the field.
"We have to be more lenient about iteration," Hockenhull said at the time. This "may also mean that for some time the structure of our armed forces will carry more risk, because we may not have everything that we should have."
However, while acknowledging the need for acceleration, some officials say there is a need to be careful when doing business with technology companies. "We must take care not to turn dependence on industry leaders into dependence on technology companies," says one European official, referring to the near-monopoly status of many software giants.
Other considerations need to be taken into account, in particular "the fundamental differences between peacetime and wartime procurement," says Johansson of Saab. "There are a number of important requirements regarding safety, shelf life, procurement rules, etc., which become much less important during the war. The defense industry should be able to support both of these scenarios," he adds.
Most executives believe that a successful defense industry should rely on both types of companies and both types of hardware, hardware and software.
Giants and startups perform different functions, says Michael Shellhorn, executive director of Airbus Defense and Space. While startups are developing "new technologies very quickly," the industry still needs traditional contractors who bring "expertise and resilience."
He adds that cooperation between the two sides is very important and warns against "condemning everything that belongs to the old school."
Nevertheless, he admits: "We should not delude ourselves - either we will support change [and] acceleration, or we will lose the right to participate in the game."
