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Electro-Optical/Infrared (EO/IR) sensors are still the default sensor for most UAVs (Unmanned Aerial Vehicles). UAV EO/IR system funding increased rapidly in the decade after 9/11 (2001). But the financial crisis of 2008, proposed budget cuts, and sequestration resulted in several years of up-and-down funding, and considerable uncertainty. A decade later, a comprehensive new generation of EO/IR sensors was funded in DoD budgets and by 2020 production of these new sensors was well underway. Though unheralded in the media (upgrades rarely grab headlines), the bulk of the US endurance UAV fleet has now recently received all-new sensors, worth billions of dollars to both prime contractors and subs.
The lull in UAV EO/IR sensor market growth proved to be temporary, as forecast by Teal Group, for two major reasons. First, the need for intelligence, surveillance, and reconnaissance (ISR) has increased, not decreased, as the draw-down of troops from major ground wars in Central Asia was immediately followed by the need for ISR for even broader wars such as the conflict with ISIS. And the shift in geopolitics to China and Asia also raised new requirements for longer-range maritime and overland UAV ISR that is either stealthy or protected in an A2/AD (Anti-Access/Area Denial) environment, or both. And current potentially near-peer conflicts such as present and future threats following Russia’s invasion of Ukraine in 2022 – and Russia’s continued nuclear saber-rattling – have shown how beneficial it would be to already have a fleet of “invisible” high-speed, high-altitude stealthy ISR UAVs to monitor the border and beyond. This is why classified programs such as the USAF RQ-180 were needed yesterday and will receive major funding today and tomorrow. Global Hawk and Reaper (and Triton and Grey Eagle) will all be defenseless in a near-peer conflict. The urgent need for even more expensive and sophisticated UAVs with longer-range sensors is now patently obvious.
Second, regarding the legacy conflicts in central Asia that led to today’s large UAV fleets, in early 2015 Col. Courtney Cote, Project Manager of the Army’s Unmanned Aircraft Systems Project Office, was asked in an interview about the UAV situation as the war in Afghanistan wound down. He stated, “The op tempo really is not going down. As the footprint of soldiers reduces and number of soldiers reduces, the need for gaining information doesn’t go away… UAS give you the ability to still cover the ground and maintain contact and continue to develop your situational awareness even as the deployed forces, the footprint, reduces. So, in that respect the op tempo is not really reduced much.”
Thus, many legacy UAV systems will remain in service, in demand, and funded for sensor upgrades, while new UAVs and new UAV sensors – from expensive, stealthy A2/AD-capable systems to much more sophisticated and expensive sensors for thousands of tactical/small tactical and mini/micro/nano-UAVs – will result in continuing EO/IR market growth. And when retirements do occur – the USAF decided in 2015 that it would mothball its entire Predator fleet, and the final flight occurred in March 2018 – they will often be accompanied by funding for major sensor upgrades to the remaining fleet, such as the $1 billion comprehensive sensor ball retrofit for as many as 400 USAF Reapers that continued in service.
UCAVs (Unmanned Combat Aerial Vehicles) and VTOL (Vertical Take-Off and Landing) tactical UAVs will be the fastest-growing market segments as small UAV EO/IR sensors have become nearly equivalent to (and as expensive as) today’s endurance UAV sensors, and larger UCAV systems become manned-aircraft equivalents – with F-35 JSF capability and expense – leading to substantial overall increases in our speculative out-years forecasts for these markets.
Teal Group forecasts steady growth in the UAV EO/IR market, rising from $1.6 billion in FY23 to $4.8 billion in FY32, with a substantial 12.9% CAGR.
Also, several years ago we forecast that the then-current generation of legacy UAV programs would be supplemented by more and more classified future programs in all mission areas – not just the USAF RQ-170 and RQ-180 – leading to an increasing percentage of future funding hidden in the Pentagon’s massive classified budget. We discuss and forecast more of these programs every year in our Briefing as UAV ISR “goes black,” and it is vitally important to forecast these programs, even if speculatively, as they make up more and more of the market available to developers and manufacturers.
Finally, we have added more “future, undetermined, uncontracted” program forecasts for both the near-term and the out-years. We have also added forecasts and discussion of the Lockheed Martin MQ-20 Avenger TacIRST & UAV IRST Systems (especially valuable on the next generation of stealthy MALE UAVs) and the US Army HADES & Future Small Manned ISR Aircraft EO/IR Sensors (which is not in our UAV forecasts but indicates directions the Army is headed), as well as other new programs. These new reports are intended to give early warning to Teal Group’s clients of what we see as the most likely (or sometimes absolutely necessary) programs and production that may not yet be in the budgets or under public discussion or announced by international customers, to allow Teal’s clients to plan ahead and prepare offerings before the RFIs are already out.
Regarding market shares and access, Raytheon has the majority of today’s contracted UAV EO/IR market in its back pocket. With long-term contracts for Reaper, Grey Eagle, and Triton (including contracted high definition [HD] upgrade programs for the Air Force and Army), Raytheon will continue to earn the most EO/IR funding by far, probably indefinitely.
On the other hand, most of tomorrow’s programs are still uncontracted and available. We see almost five times the total funding in our forecast over the next decade as still “Available” today, compared to the funding we forecast as locked in or highly likely to go to Raytheon [RTX] – $17.3 billion versus $3.6 billion.
With between $1 billion and $3+ billion of EO/IR funding annually from FY26-FY32 still unannounced or uncontracted (or classified), Teal Group’s “Available” forecast in our new Briefing indicates the UAV EO/IR market will continue to offer the best UAV sensor opportunities of any future UAV market.
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