Drones – at an Affordable Price?
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Three years ago, the U.S. Navy began testing Northrop Grumman’s newest version of the Fire Scout, a helicopter drone derived from the Bell 407 utility helicopter, for use in active naval operations.
Northrop produces two variants of the Fire Scout, the “combat proven” MQ-8B, which has completed more than 15,650 flight hours for the U.S. Navy and Marines, and the new, larger MQ-8C. Northrop advertise the MQ-8C, which can reach a top speed twice as high as its predecessor, as a complement to Sikorsky’s MH-60 Seahawk manned helicopter. Whereas the Seahawk is able to fly for four hours before refueling, Northrop says the MQ-8C can remain aloft for “11+” hours at a time.
Recently, the Pentagon’s daily digest of contracts awarded confirmed that the Navy has ordered Northrop to build it “10 Fire Scout MQ-8C unmanned air systems.” The contract, which has an August 2019 deadline for completion, is worth $108.1 million to Northrop.
Considering the relatively low price is divided among 10 units, this implies a unit cost of just $10.8 million for each Fire Scout. That’s just one-third of what the Navy agreed to pay for a previous lot of eight MQ-8Cs ordered back in April 2012 ($32.8 million per unit). It’s barely a quarter of the $41.7 million that the Government Accountability Office estimated for the MQ-8C’s unit cost earlier this year.
For investors, that could be either good news or bad. On the one hand, collecting one-quarter the high estimate on possible revenue on MQ-8C holds the potential to dent Northrop Grumman’s profitability going forward. On the other hand, if Northrop can afford to produce this drone for such a low price — while maintaining its strong 12.8% operating profit margin then that’s likely to encourage the US Navy to buy more Fire Scouts.
According to the investors website fool.com, such a low price might even attract foreign buyers to check out the Fire Scout, expanding sales internationally and helping to keep competing drone makers at bay, by underpricing potential rivals.
What remains to be seen is whether the price quoted on the Pentagon’s contracts pages is the new “normal” price Northrop will be charging for Fire Scouts going forward, or just a one-time fluke.
