Small UAV demand by U.S. Army Ebbs as overseas market surging.

• Author: Tadjdeh, Yasmin

* Over the last decade, small unmanned aerial vehicles have become a common sight on the battlefield. Loaded with sensors ranging from cameras to hazardous chemical sniffers, their utility has been measured in the thousands of fielded vehicles used every day.

But despite their prevalence, the future--particularly in the midst of slashed Defense Department budgets and the imminent pull out of troops from Afghanistan in 2014--is murky, some experts have said.

The U.S. Army is the biggest buyer of small unmanned systems in the world, but as the United States largely leaves the Middle East, the market will take a nose dive, said Phil Finnegan, director of corporate analysis at The Teal Group, a Fairfax, Va.-based defense and aerospace market analysis firm.

"For mini-UAS [unmanned aerial systems] ... it is going to be a difficult military market," said Finnegan. "The U.S. market is going to be depressed because you've got a lot already in inventory and the services have budget crunches."

Some lost sales could be recouped through international contracts, but Finnegan said U.S. manufacturers have had a tough time meaningfully tapping into the global market, whereas other countries, like Israel, rely almost exclusively on exports to survive. Stringent U.S. export regulations are part of the problem, he said.

"The cumbersome nature of those export regulations--and the time delays connected with them--a lot of times will discourage foreign customers from buying a U.S. system," said Finnegan.

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On the domestic front, there isn't a clear path forward, Finnegan said. Some UAVs will be put in storage after the war ends, while others could he used for peacekeeping purposes or for training, he said. But that may not be enough to help keep sales aloft.

One problem with small UAVs, as opposed to larger systems, is that customers inherently want more capabilities, which not only drive up costs, but increase weight and affect endurance, said Larry Dickerson, a senior defense analyst at Forecast International, a Newtown, Conn.-based marketing consulting firm. Adding more sensors, electronics and other gizmos will eventually turn a small UAV into a big multi-million dollar one, he said.

"The more you want it to do, especially when you get these tiny little electronics, that's where it kills you," said Dickerson. "II you want to cram electronics on these things--you want these miniaturized surveillance packages, and you want real-time data...