After years of budget largesse lubricated by the spending demands of the Iraq and Afghanistan wars, major Western nations are looking to make savings on military spending. The result is that prospects no longer look bright for defence-oriented companies.
Budget priorities, and many firms' strategies, are shifting to cyber and homeland security. But there are two areas of more traditional defence spending that look like winning bets. UK-headquartered Ultra Electronics may have found a sweet spot straddling them both: unmanned aircraft systems and battlefield IT.
Ultra, which was formed by a management buyout in 1993 and went public with a London stock market listing in 1996, opened 2011 with its 41st and 42nd acquisitions, both in the USA: Adaptive Materials (AMI) for $23 million cash plus another $5 million based on future performance, and 3e Technologies International, for $30 million. AMI designs and makes propane fuel cells suitable to power small UAVs demanding 50W-300W power, and 3e makes military grade wireless networking and communications equipment.
A WHOLE PACKAGE
The AMI deal is a critical addition to Ultra's capability in secure datalinks, which in turn is enhanced by 3e. An AMI power unit fed by a propane canister of the sort available in hardware stores to fuel a blowtorch or camping stove can keep a small UAV aloft for days, according to chief executive Douglas Caster.
UAVs in that 50-300W power range are ideal for tactical surveillance by a platoon-sized infantry unit, but while they are too small for diesel power, they demand more than what batteries can deliver for long endurance.
Thus, he says, AMI's technology, developed in part with $45 million from the US defence department, is "a key enabler" for these small tactical UAVs. And Ultra, he says, is a much better owner of the company, given its ability to mass-produce the units.
What makes the acquisition exciting for Ultra, however, is the prospect of combining this power technology with its existing datalink products. Ultra, he says, is working now to miniaturise - down to the size of "a couple of matchboxes" - a secure datalink it designed for the Thales Watchkeeper UAV.
That secure datalink can be used for remote control of a UAV, as well as to return data from its surveillance payload to the operators. Thus, says Caster, the pieces are in place for Ultra to offer a full package of power, control and data return. The same concepts could apply to unmanned ground vehicles.
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Where Ultra hopes to go next is to develop surveillance payloads, which would let Ultra offer a complete, integrated package of power, control, data gathering and data return capability. That ability would raise Ultra to the level of subsystem integrator, although Caster says the sensor must remain an optional extra, as some prime aircraft contractors have specific needs.
The 3e deal complements Ultra's strengths in software-defined radios, communication systems and electronic warfare systems, according to chief operating officer Rakesh Sharma.
Investec Securities analyst Andrew Gollan and Chris Dyett, in a "hold" note on Ultra, call the 3e deal a "classic Ultra bolt-on acquisitionadding to the group's portfolio of capabilities related to secure networking, communications and cyber security, all priority areas for the defence sector".
Generally, says Caster, Ultra's strategy is to look to exploit technologies in a new area. A system it launched at 2010's Farnborough air show is a good example. Building on its long-established expertise in sonar, the "Asis" system can listen for the formation of stress cracks in airframes, potentially a cost-effective way for militaries to monitor in real time the condition of ageing aircraft.
The company, says Caster, follows a "many eggs in many baskets" approach to product development. There are 26 business and 130 specialist capability areas in the Ultra group. No single civil or military programme accounts for more than 5% of sales in any year.
While UAVs may be a strong growth area, Ultra has no ambitions to develop complete aircraft; the company, he says, would not be a credible UAV maker and that route would mean competing with its customers: "We're electronic engineers."
Source: Flight International
