Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Drone warfare has taken off. Some form of unmanned aerial vehicles (UAVs) have plied the skies in both world wars and a slew of smaller state conflicts thereafter. But their use has proliferated following Russia’s invasion of Ukraine.
That opens up a new opportunity for start-ups such as Europe’s Helsing, which launched its intelligent strike HX-2 drone this week. In going it alone, the German start-up — which counts Sweden’s Saab among its biggest backers and raised money at a €5bn valuation this summer — is showing that collaboration with defence heavyweights isn’t needed to get military equipment off the ground.
Money is set to flow into this space. Defence spending is on the rise, with larger pots of government funds earmarked thanks to geopolitical tensions, an anticipated reduction in US participation in Nato and the need to upgrade outdated kit. Total military spend is set to reach €326bn (1.9% of EU GDP) in 2024, according to a report by the European Defence Agency.
Drones will probably take a good chunk of that. Global drone spending is set to roughly double over the next decade, at least according to one forecast.
Start-ups traditionally needed allies to grab their share of these funds; plenty of smaller players still do. Industry stalwarts — the so-called primes such as BAE Systems and its ilk — bring access to markets and suppliers. Bidding on long-term defence contracts requires time and deep pockets, as well as an ability to navigate a typically arduous process. None of this is readily available to the average start-up. Mass producing items to tight industry standards comes more easily to those who have been doing just that for many decades.
Ukraine, however, is changing the nature of warfare and the way in which government procurement works, including acknowledging the rapid advancements on offer from tech specialists.
All players know to keep governments on board. Helsing is pledging a £350mn investment in the UK over five years. It has proved adept at winning over governments, becoming one of the fastest new entrants to win a program of record, key to securing contracts from the US Department of Defense. Unlocking the door to lucrative government contracts means stable and recurrent revenue streams.
Even with the heft of state behind them, start-up drone manufacturers face headwinds. Drones have a shorter shelf life than, say, shells or tanks. Constant innovation is needed to keep up, including with advances in countering drone attacks through scrambling or shields. Drone manufacturers may find themselves subject to export restrictions, especially galling to manufacturers of drones for commercial uses.
But the savvy newcomer can overcome these challenges, with the right technology, defence credentials and credibility with government stakeholders.
louise.lucas@ft.com
