Do you know anyone thinking about the future of aviation?

If you do, please make an introduction for me.

I’ve been thinking a lot about the future of aviation lately.  I’m trying to write a major piece for Patrick Egan at sUAS News and also thinking about this for reasons related to my business.  I’m not sure that we in the unmanned aviation community have done enough to think about what the future of the aviation industry is like.  Clayton Christensen’s Seeing What’s Next has a great discussion of disruption in aviation, but even though it was written in 2004, it makes nary a mention of unmanned aircraft.  Steve Morris at MLB Company also was kind enough to have lunch with me last week and talk about what he sees coming.

Photo Credit: DARPA / DTIC.mil

Hypothesized Developments in Aviation from Unmanned Aircraft:

-Aircraft building, particularly on the low end will approach a commodity industry more analogous to PCs or cellphones than current aircraft building paradigms.

-Unmanned aircraft companies (both builders and operators) are going to look more like software or networking companies than they are going to look like industrial companies, this has implications for both human resource practices and the capital structure of the companies.

-Scheduling, routing, and planning will be done according to the new paradigm.  Currently in aviation, everything is optimized around getting the most out of any particular flight hour or unit of plane time.  Unmanned flips this on its head and allows for the aircraft to be treated like other tools that wait on the main job.  Don’t know when you’ll need the plane up?  That’s okay, we’ll park it in the sky (maybe doing a lower value mission) until you need it.  Want to go from point A to B?  Great we’ll take you there, directly, when you want to go.  We will not worry about crew duty cycles, hubs, or returning the plane to its home base.

-Large airports will loose their centrality to the system–this is not to say they will experience a decline in traffic, but rather, they will not be the key limits on a network-like system of small airfields and ad hoc landing or operating sites (think more like a heliport than an airport).

Predicted Market Effects:

-Differentiation and customization will likely become the norm in unmanned aircraft operations.  Most airlines are pretty undifferentiated, but when the business customer is going to tie their ERP system to their aerial service provider’s dispatch system and automatically task aerial missions based on orders, sustained relationships and differentiated services are going to be much more meaningful.

-Data gathering / reconnaissance is likely to switch almost entirely to unmanned systems after the FAA changes the rules.

-Air Cargo is going to be significantly changed, mostly at the interface between trucking and air, with more work being done by air and less by trucking.

-In the long run personalized aviation, whether that is passenger aviation or other types of aviation consumption is going to be the big development.  Aircraft of today are like mainframes of the 70’s.  Only anointed experts who get to go into the restricted area can operate these machines.  Unmanned aircraft are going to be like PC’s, so cheap and easy to use that anyone can have one.  The possibilities here are quite remarkable.  Data collection, aerial work, cargo, and passenger transport are likely to feel the effects of this shift.

-Long haul, passenger, mass transportation will be the last segment to be effected.  The first segments to be effected will be small, light-weight, short duration applications.

So what else?  

I don’t really have a clear idea of how this effects incumbents.  It will definitely be change.  On the one hand, I think that the big guys at the top of the market will be fine.  I don’t expect Boeing or the airlines to disappear.  On the other hand, I don’t think that axis will have the control over aviation that they do today.  They will be more like bus companies and builders in the large automotive industry.

The cult of the pilot will be diminished (as it already is in military aviation) and air travel will continue to be democratized.  I believe that we are witnessing something akin to the introduction of the automobile.  Prior to the automobile, mechanized transportation had been too expensive and hard to use for anyone that was not an expert.  Prior to aerial automation, aircraft were too expensive and hard to use for anyone but an expert.  That’s changing, if we can hurry up the FAA, we have an amazing industrial explosion ahead of us.

Robotics capital intensive?! What are you smoking? Don’t believe it.

Robotic manufacturing is not capital intensive, contrary to the popular wisdom.  (Looking at you HBS.)

Unless someone can bring data to the contrary, we should treat this issue as thoroughly decided against the  conventional wisdom.  As we saw previously, robotics companies do not need a lot of fixed assets.  Now, we will see why people who blithely repeat the conventional wisdom that robotics companies are capital intensive are wrong–even if they claim robotics companies are hiding their true use of capital.

First off, robotics companies’ balance sheets look like technology companies’–the internet kind, not the aerospace/industrial kind.  Robotics companies have lots of cash and relatively little else.

Second, robotics companies have gross margins that even companies that don’t make stuff would envy.  The robotics gross margin would probably be even higher if iRobot and Aerovironment were not defense contractors.   There is a lot of pressure to bury as much expense as allowed into the cost of goods due to defense contract rules.   Intuitive and Cognex’s margins are around 75%.  They are even beating Google on gross margin!

Although, it does appear that robotics companies have a bit longer cash conversion cycle than the basket chosen for comparison here, their cash cycle appears to be in line with other complex manufacturers.  Plus, the robotics companies are holding so much cash their management may just not really care to push the conversion cycle down.

Look at the cash required to sell aircraft though!  Manned or unmanned it looks like it takes forever to get paid for making planes.

Although robotics companies have physical products, the value of a robot is in the knowledge and information used to create it and operate it.  The materials are nothing special.  Consequently, these companies look like part of the knowledge economy–few real assets, lots of cash, and huge attention to their workforce.   Next time someone tells you robotics companies are capital intensive, ask them to share what they’re smoking–it’s probably the good stuff–because they aren’t using data.

One thing that a venture capitalist may mean when he says that robotics is capital intensive is that it generally takes a long time and lots of money to develop a viable product in robotics.  This may be true, but it is not really the same thing as being capital intensive.   This observation should cause a lot of soul-searching within our industry.  What the venture capitalist is telling us is that we–as an industry–cannot reliably manage our engineering, product development, and business structures to produce financial results.

This is why the conventional wisdom is dangerous.  It suggests that the lack of investors, money, and talent flowing into our industry isn’t our fault and there’s not much we can do about it.  That is what needs to change in robotics.  We need to get better at management.  We need to start building companies quicker and producing returns for our investors.  If we do that the money, talent, and creativity will start pouring into industry.  Then robotics can change the world.

Notes on Data and Method
Data Source: Last 10-k

Method:

Accounts Receivable = All balance sheet accounts that seem to be related to a past sale and future cash, so accounts receivable plus things like LinkedIn’s deferred commissions.

Cash + Investments = All balance sheets I could identify as being financial investments not required to operate.   Assume all companies require zero cash to operate.

Did not account for advances in cash conversion cycle.

A response to Singer

I must be an Aristotelian active soul, because I have no patience for those who hold themselves up as philosophers but suggest no way to actually live in the world.  I have a new post up on Hizook taking the leading intellectual on drones to task for sloppy reasoning–then I suggest a realistic path forward.

http://www.hizook.com/blog/2012/07/23/pw-singer-wastes-opportunity-atlantic

Where are the Ops Companies?

Really where are they?  Given how many companies are  building some form of robot it seems like there should be some proportionally greater number of companies out there forming to implement, service, and operate these robots.  Where are they?

Frank Tobe isn’t finding a lot of them forming in his start-up list.  Even the RIA seems to have fewer integrators than suppliers.  AUVSI has many more Lockheeds and Insitus than VT Services.  One could make a case that this is characteristic of the peculiar industries that we’re looking at.  The robotic counter example is perhaps the ROV industry which routinely provides the ROV as a packaged service to the off-shore oil and gas industry.  But most consumer robotics are still selling to early adopters.  Our consumer customers are all people who want tech for tech’s sake, not to mainstream customers that are just looking to solve a problem.

Think about other complex goods in our economy.  Computers have a vast cottage industry associated with servicing and maintaining them which is probably as big or bigger than the software industry proper.  All vehicle industries whether air, ground, or sea have vastly more businesses in the business of selling the services than engaged in construction of the vehicles–even if constructors do manage to capture a large share of the total revenues of the industry.

I think our industry has a problem.  I’ve talked to people at the oil and gas majors and heard straight out that robotics companies are producing robots which have a business case to be used several applications, but they will never be used until a credible organization to is there to provide the robot as a service.   It is a bit of chicken and egg, but I think this applies as you go down the chain, not just in large capital projects.

When doing sampling or reconnaissance, customers want actionable data not a fleet of robots or new employees.  I know from experience that infantry brigade commanders love having drone imagery of the battlefield, but don’t want to worry about having to support the drone unit, they just want to see the battle.  This is equally true in forestry, agriculture, infrastructure, and minerals.

Do I really want to own a cleaning robot? No, I would much rather have a business that comes to my house every week and keeps the place clean whether that business uses humans, robots, or both.

Even in medicine, if I were a hospital operator I’d love to be able to push the risk of owning the robot back onto someone else.  If I can pay per procedure and not worry about utilization, maintenance, or obsolescence–I’m much more game to adopt something new.

To date, our industry has done a relatively poor job of making robotics accessible to people and organizations who aren’t willing to organize around robotics and develop organizational competence in robotics.  Providing robotics as a service could greatly expand the number of potential customers.  I think when we see these businesses start cropping up, we will know that our industry is no longer in its infancy.

How many will die before we fix this?

Four airmen died this weekend fighting wildfires.  They died needlessly, compounding the tragedy of their sacrifice.  There is nothing technological stopping drones from taking over the retardant dropping mission.  The hold-up comes down to bureaucratic inertia and a lack of political leadership and attention to this issue.

http://www.charlotteobserver.com/2012/07/03/3358931/at-least-2-dead-in-crash-of-c.html#storylink=misearch

There have been at least six aircrewmen killed just this fire season!  How many does it take before we collectively figure out how to do this mission with autonomous or remotely piloted aircraft?

_______

(My criticism of a lack of political leadership is not a partisan criticism.  The technology to remotely pilot fire-retardant tankers has been around for at least two administrations and neither party in congress–which is the body that will really have to act–has shown much leadership on this issue.  But seriously, our guys are getting killed.  The robotics industry knows how to fix this problem, let’s get everyone at the same table and get the barriers cleared so we quit making widows and orphans every fire season.)

Compared to what?

The Pakistani affiliate of the International Herald Tribune has a great summary run down of recent drone strikes under the Obama administration.  http://tribune.com.pk/story/391839/unmanned-war-on-terror-no-longer-a-covert-war/ It details strike after strike against militants that are operating freely in Waziristan and the tribal areas.  It also produces a summary statistic of civilian casualties which, even if taken at face value, seems to indicate that these strikes exhibit a very high degree of proportionality and discrimination.

I’m out here in San Francisco and I sometimes get some troubled reactions when I tell people that I led a drone unit when I was in the Army.  Eventually telling  these people that my drones were not armed quiets them down, but there is a fundamental misunderstanding about how drones are different and similar from other types of war.  Drones unfortunately have some misperceptions about how they compare to other types of military engagements.

I would like us each to sit in the chair of senior commander or official who has just received intelligence from multiple sources (as it seems these strikes are probably based on) that is really good, but not 100% certain.  There is a militant–who the Pakistanis allow to travel, train, and organize unmolested–who is intent on killing not only U.S. soldiers, but also our civilian allies and females who dare to leave the home to get an education.  He believes that it is his god-given moral imperative to kill all these people.  What would you do?

A)  Nothing

B)  Ask the Pakistanis who have been arming this guy to arrest him

C)  A drone strike

D)  A manned aircraft strike

E)  A commando or sniper raid

Okay, even Marines get this one: when in doubt, Charlie out.  Seriously though, C is the only ethical choice.

Doing nothing means that you have let an evil, violent man go about his plans to kill someone’s son or daughter because he or she believed in a world where everyone has the freedom to make something of themselves.  By the same token, B is even worse, because now you’ve not only let him go free, you’re endangering your sources and methods of finding him in the first place by telling the Pakistanis what you know.

On the other side of the spectrum, there is every probability that any method besides a drone attack would be worse when measured by the standard of proportionality and discrimination.  Drones usually strike using the smallest guided air to ground missile in the U.S. arsenal, meaning they tend not to cause more damage than is absolutely necessary to destroy valid military target.  Would a commando team be as precise?  What if the team itself was attacked by our Pakistani ‘allies?’  Could it or a manned plane follow the target and wait until this small missile was the appropriate munition to use to ensure the destruction of the target?  The answer is no, they could not.

Of most concern to all of us who treasure innocent life is the principle of discrimination which means that you are only attacking legitimate targets.  Although this is where drone are most criticized, this is where they beat all other methods of apply force.  Can you imagine any other weapon so precisely attacking only legitimate targets?  There is no other weapon system where every action of the user is recorded, second guessed, and subject to real time absolute supervision by higher authorities.  Once a pilot is over a target his judgment of the scene and need to protect himself while completing the mission takes precedence over a second guessing boss back at base–and rightly so.  Even more so with a commando team, the commander of that mission has complete autonomy and discretion once his forces are committed.

But let’s be clear, commandos and pilots make more mistakes, not less, by being on scene.  They are affected by all kinds of pressures, are in mortal danger, and are being asked to make snap judgments on their own.  They screw-up.  They drop bombs on the wrong house–or even the wrong army.  Snipers in over-watch shoot civilians all the time–they don’t mean to, they just do.  None of these things are war crimes, they are just mistakes–unacceptable tragedies–but still just mistakes not crimes.  I think that most of us, civilian or military accept this.

Drone operators on the other hand work in secure locations, can loiter over their target, and stalk him for days or weeks until they get a clean shot.  They even have lawyers looking over their video feed as they work!  These are carefully supervised, deliberate operations.  That said, this is still war, where even professionals make mortal mistakes with the best information available.  But even or especially in war, we must do our best to protect those principles we hold dear and every analysis says that drones are the most moral option.  To those who would say that drones are immoral, I would ask in comparison to what?

 

It is well that war is so terrible–otherwise we would grow too fond of it.  -Robert E. Lee

Needless Deaths

Fire season has just begun this year and already there have been two needless deaths that can be attributed to the FAA and Forest Service’s failure to embrace unmanned and robotic technology.  There is absolutely nothing about the fire reconnaissance mission or the tanker mission that cannot be done better, cheaper, and more safely by an unmanned aircraft.  These men did not need to be in that plane.

The crazy thing about it is that the Forest Service/BLM incident commanders are some of the few people in North America that can actually tell the FAA to go pound sand.  They get to put up a TFR (Temporary Flight Restriction) over their fire and they control all air traffic in the TFR.  Wildfire response crews do not do any night operations because it is considered too dangerous for them to fly at night.  Still, the powers that be have not allowed unmanned aircraft to play a substantial role in firefighting despite successful demonstrations in 2008.

My most sincere condolences to the families of these men.   They are exactly the kind of people that we need more of in society–people that will take risks to protect us all.  We–as a country and a society–are literally killing these people with our failure to embrace unmanned and robotic technologies.  I don’t want to be unsympathetic to the difficulties of change in government organizations and the good work that I’m sure the employees at Forest Service and BLM are doing, but when we’re making widows and orphans with our crappy policy, we all need to step up to the plate to take action to change it.

If I were the U.S. Congress I would:

1)   Call in the FAA, Forest Service, and BLM and tear them all a new one for their foot dragging on unmanned aircraft.

2)  Mandate the conversion of the whole tanker and most of the fire reconnaissance fleet to unmanned aircraft within 5 years.

3)  Direct the Forest Service and BLM to provide unmanned aircraft support at night in the TFRs to incident commanders this fire season.

4)  Give the BLM and the Forest Service some money to do this.  One of the main problems with wildfire firefighting is that there is a negligible advance procurement budget, but a nearly unlimited budget for reimbursement of labor to fight fires.  This is not a good deal for the country, spend a little bit in advance and lets save lives and money next fire season and every season thereafter.